Where did the welfare state come from? How did it start?

People think they know, but the majority have got it wrong. The story is a revelation. In some ways it is humbling. It is a story rich in lessons that have been forgotten – lessons which would have been useful if only people had recalled them in recent times. People cannot hope to reach a proper understanding of the welfare state we’re in if they have completely misunderstood what happened before. The story sets the stage for the rest of the book.

The popular view of the story of the welfare state goes something like this: after the Second World War, the Labour Party won the election by a landslide. The new government was led by a studious-looking man called Clement Attlee and other men with confusingly similar names like Bevan and Bevin. They created the welfare state, which was a great achievement showing the humanity of the British people. Before then things were extremely harsh and if you stumbled in life you could easily end up in the gutter.

That concise version is not entirely wrong. But it is wrong in its most important respects. The idea that either Attlee, in 1945, or William Beveridge, writing his famous report in 1942, represented ‘zero-hour’ for the welfare state is wrong. If people think that, they are many miles away from understanding welfare. True, Attlee and his colleagues gave a major boost to the role of the state in welfare. But they did not create the welfare state and they certainly did not create social security – its core. If we want to understand welfare, we need to go back to its beginning – to a married couple called Catherine and Henry, who were having a difficult time producing children.

The problem was not one of conception. Catherine conceived often. She gave birth plenty of times, too. She was even able to bring to term seven children in all. The trouble was that most of them did not live long. One of the three girls brought to term, Mary, managed to live to adulthood. But girls were only second best. Henry and Catherine desperately wanted a boy. Catherine gave birth to four boys but all died. That meant there was a crisis – not just for the father but for the country. The Henry in question was King Henry VIII.

He was determined to have a son to succeed him on the throne. As Catherine of Aragon, his wife, had not produced one, he set about getting the marriage annulled. Cardinal Wolsey assured Henry that he could persuade the Pope to co-operate. But, after long negotiations, the annulment was refused. This encouraged Henry to break with the Papacy. He asserted that he was the head of the church and therefore his marriage could be annulled in an English court without appeal to Rome. Henry married his mistress, Anne Boleyn, hoping that this, at last, would result in the son he desperately wanted.

The familiar story lies at the origin of the welfare state because of one of its knock-on effects. Henry’s break with Rome put him into a much better position to grab the wealth of the monasteries.

Being vain and self-indulgent, he was spending lavishly and fighting wars unnecessarily. He therefore became in desperate need of money. The monasteries had been building up their wealth over centuries. They received donations year after year from the wealthy and the not-so-wealthy. Giving money to religious institutions was part of most people’s way of life. People saw it as their duty and as a way of increasing their chances of going to heaven. The monasteries built up fabulous wealth. In modern times, the rich own shares and have cash in the bank. In the sixteenth century, being rich meant owning land. Land was let to farmers who paid rent. Land produced a continuing income. The monasteries were said to own up to one third of the land in England.

Henry expropriated the monasteries on the pretext that they were misusing the money which had been given to them.49 Inspectors were sent round with the clear understanding that they were to find corruption, prostitution or anything else which would help justify shutting them down. Henry started by expropriating the small monasteries in 1536. Lead was stripped from the roofs, bells were taken from the towers, the crops and the houses were sold. Then Henry moved onto the large monasteries, killing those who got in his way. In 1538, the Abbot of Woburn and the Prior of Lenton were executed. Next, the abbots of Glastonbury, Colchester and Reading were all hanged. It must have taken great courage to oppose the king. Between 1539 and the end of his reign, he extracted nearly three-quarters of a million pounds from the sale of monastery land – a fabulous fortune in those days.

Henry had got what he wanted regardless of other people. But who suffered? Many monks, nuns, secular residents and others were compensated. But there was one quite large group of people who received no compensation: the poverty-stricken, the old and the infirm.

Approaching 10 per cent of the income of the monasteries was spent on charitable work of one sort or another.50 That may not sound much. But it was 10 per cent of an awful lot.

As one authority on the subject has put it, ‘considerable quantities of the basic foodstuffs must have filtered down to the poor of the neighbourhood’. The journal of Prior More shows that he gave money or ‘alms’, as they were then called, to friars and to ‘victims of calamity’. The monasteries made gifts of used clothing. They looked after children and educated them – in some cases because of their fine singing voices; in others, because they were in poverty, perhaps orphans. Monasteries sometimes provided hospitals and almshouses as did the one in Durham. In those days, a ‘hospital’ was typically a place of rest for the old and infirm rather than one where medicine, let alone surgery, was carried out.

Monasteries also provided a kind of medieval nursing-home-plan. If you lived – rather unusually – to a good old age, you could pay a sum to the monastery which then would look after you until you died. The people who took out these plans were called ‘corridans’.

Those who could not work because of illness or disability would sometimes find sanctuary in monasteries. The monasteries certainly did not pretend to cover the whole population. Families were expected to look after their own. They were the first line of defence. But monasteries offered some kind of longstop. They picked up some, at least, of the desperate and friendless. What Henry was destroying, therefore, when he expropriated the monasteries, was a welfare system based on religion – a ‘welfare church’ that existed long before the welfare state. The destruction of this welfare church – which led to the creation of the welfare state – owed a surprisingly large amount to the sad deaths of Catherine’s four boys.

What happened next, after the welfare longstop had been removed? Among other things, you might guess that towns and villages around the country would find they had more beggars on their hands. That certainly is what seems to have occurred. You might think that there were more people in desperate straits with illness and incapacity with no one to care for them. And you might even think that there would be legislation to try to deal with these problems.

New laws did indeed come thick and fast. Their multiplicity and the way they changed tack surely reflects a society trying to get to grips with a sudden increase in the problems of begging and incapacity.

The first reaction was generous. Henry, in the very same year as he was expropriating the small monasteries, issued a law requiring local mayors, governors and head officers to obtain charitable donations to help the ‘impotent’ (those incapable of work) and the ‘lame’ and also to assist the able-bodied to get a job. Those welfare measures should sound familiar. They are not far off from what social security systems try to do now.

What came next also revealed the pattern of things to come. That relatively generous-sounding law was abruptly reversed. We may reasonably suppose – on the basis of the later ups and downs in legislation – that parishes and towns found the cost of looking after all of those who made claims alarming. The charitable giving was not sufficient to cover it. So then suddenly in 1541, the earlier law was replaced by something much harsher. It was decreed that ‘idlers’ and ‘wanderers’ should have a ‘V’ branded on their chests and be enslaved for two years. If they ran away during the two years and were caught again, they would be branded with an ‘S’ on their foreheads or cheeks and enslaved forever.

After this law – possibly the ultimate in anti-scrounger legislation – came a swing back again. The authorities in the parishes were unwilling to go quite so far. One can imagine them shying away from taking a branding iron to people whom they might have known for years. Two years later, the 1541 law was repealed.

Thus began a cycle in the story of welfare that has continued from the sixteenth century right up to now. Laws are made generous. This causes unforeseen problems. Then they are made more stringent. This then seems too harsh. Then they are made more generous again. And so on and on. There is a cycle in the story of welfare. There has not been a simple, continuous increase in provision.

When was the precise moment the welfare state began?

Once the harsh ‘branding’ law of 1541 was repealed, the problem once again became that of cost – the expense of looking after all those people who presented themselves as needing help. It was more than could be raised in charitable donations. Elizabeth I’s first shot at the problem was to give power to the local authorities to put pressure on reluctant charity-givers. Reluctant donors could be made to appear in front of the bishop, like naughty schoolchildren.

Evidently a lecture from a bishop was still not enough to get money out of some of them however. Because, in 1563, Queen Elizabeth enacted that those people who were reluctant to give money could be forced to do so. They would be assessed for an appropriate amount and, if they refused to pay it, they could be imprisoned. It was at this moment that all the elements of a welfare state fell into place. The parishes were legally obliged to look after the poor and the people of the parish were legally obliged to pay the cost. The welfare state had been created – at least in embryo.

During the rest of Elizabeth’s reign, the law was refined by many amendments. But in 1601, the laws affecting the poor became settled for sixty years before any further revision. They became known as the Elizabethan Poor Laws and were the basis of state social security for the next three centuries. The fact that they lasted so long might suggest that they might have had something going for them. So what was their character?

They were parish-based. The communities which paid for the poor lived close to them and knew them. Also the way in which the law was administered varied a great deal from one locality to another. Those who were able to work were required to work and the parish was required to help them find work. The idea was simple and clear. Apart from the antique language that was used, it is exactly the sort of thing a modern reformer might say today. It was intended that work should be found for the able-bodied so that young people ‘may be accustomed and brought up in labour and work, and then not like to be idle rogues’. Work should be made available so that those, ‘such as be already grown up in idleness … may not have any just excuse in saying that they cannot get any service or work’. It is exactly the reasoning for modern ‘workfare’ programmes.

The final part of the Elizabethan system was the power given to churchwardens and overseers (administrators of the new laws) to erect ‘convenient houses of habitation’ for the ‘impotent poor’ (those incapable of earning a living).

Martin Luther and the welfare state

The leading intellectuals of the day debated the best way to look after the poor. Thomas More (King Henry’s Lord Chancellor) was one. So was Hugh Latimer (Bishop of Worcester and also an adviser to the king), along with Nicholas Ridley (Chaplain to the king who contributed to the first revision of the prayer book in 1548).52 Best known of the Continental intellectuals was Martin Luther.

Luther came up with a model plan in 1523. Citizens would pay money to a ‘Common Chest’ and the cash would be used for three purposes: to pay church officials, to pay schoolmasters and to assist the poor. He was keen that ‘every town and village should know their own paupers … and assist them. But as to … strange beggars [from outside the area] they ought not be born with’ because many were cheats.53 The debate in Tudor and other times in the past was often at a much higher level of intelligence, knowledge and – above all – honesty than in recent times.

Although the Poor Laws remained largely in place for three centuries, there were some significant variations. The biggest change started in 1698 when the first workhouses were created in Bristol. The idea was to give work to people who claimed they could not get any. Once again, this was something that went through a cycle. The regime was relatively benign to begin with. Then it was toughened up and made so beastly that no one but the most desperate would resort to a workhouse. Then the beastliness was considered so dreadful that the whole idea fell into disrepute.

But let us skip forward now to the nineteenth century to find one of the most important moments in the story. This is a part of the history which should comprehensively remove any assumption that we are in some brand new welfare world and that we have nothing to learn from the past.

The first of February 1832 was a dry, cold day. The weather was so grim that several Continental ports were unusable. The water in them had frozen. In Scotland a cholera epidemic had already killed 1,026 people, though there was reason to hope that it was starting to dissipate. In Ireland, an archdeacon had been murdered in a rash of protests about the tithe – the tax raised by the Anglican Church. The stock market was modestly up. In the House of Commons, at about noon, the Chancellor of the Exchequer and Leader of the House, Viscount Althorp, took questions.

Althorp – eccentrically pronounced ‘Altrup’ – was a shy, rather tongue-tied man. His real love in life was hunting. He used to gallop through the night after a sitting in the House in order to be able to ride to hounds with his beloved Pytchley the next day. Three years later he would inherit the title Third Earl Spencer. He was an ancestor of Diana Spencer, later Diana, Princess of Wales. She grew up in Althorp House knowing the same furniture, pictures and – most important to the third Earl – the same ample stables.

The first question for the Viscount Althorp of 1832 came from Sir Robert Peel, creator of the ‘bobbies’ – the first modern police force – who asked about improvements in municipal policing. After him came a much less well-known figure, a Mr Weyland. He asked a seemingly innocuous question about whether the government would propose some measure to improve the Poor Laws. But in reply, Viscount Althorp made one of the most significant announcements in the story of welfare. He said the subject had been under serious consideration. Commissioners were ‘in course of being appointed’ for the purpose of ‘ascertaining how the different systems worked in different parishes’. It was implicit, in his reply, that major problems had emerged. These problems had to be understood and sorted out.

The commissioners were led by Edwin Chadwick, a dynamic, decisive man who was a leading campaigner for better sanitation and public health. Questionnaires were sent out across the country to those who administered the Poor Laws – ‘overseers’ and others. Assistant commissioners were despatched to go to allotted areas and investigate. The report they produced was the largest social investigation ever to have been made. It was a revelation.

In 1833, John Stuart Mill, the leading philosopher, wrote to Thomas Carlyle, one of Britain’s most celebrated historians, when the preliminary report on the evidence was published. He wrote, ‘Have you seen the book published by the Poor Law Commissioners? If you have not, let me send it to you. Often you have complained how little of a state of a people is to be learned from books; much is to be learned from that book.’ The report, issued in full in 1834, was as influential in its time as the Beveridge Report was in 1942. Both reports were led by men who suffered no lack of self-confidence – or intelligence either. One difference, though, is that the 1834 report was based on information from the ground.

It was a sensation. The commissioners condemned the operation of the Poor Law in a variety of ways, nearly all of which correspond to failings that have been claimed about the modern welfare state. Virtually everything one can think of that has been said about the failings of modern social security was said 170 years ago.

The report asserted that the welfare system damaged the character of those who received benefits. A Mr Cowell was quoted saying that when he started his investigations he thought the major problem with the Poor Law was the financial burden on the rate-payers. But ‘the experience of a very few weeks served to convince me that this evil, however great, sinks into insignificance when compared with the dreadful effects which the system produces on the morals and happiness of the lower orders.’ To understand how bad it is, he continued, one person must ‘hear the pauper threaten to abandon his wife and family unless more money is allowed him – threaten to abandon an aged bed-ridden mother, to turn her out of his house and lay her down at the overseer’s door, unless he is paid for giving her shelter’.54

The report included a direct and unflinching contrast drawn between those on benefits and those who – though also poor – provided for themselves. A Dr Brushfield reported from Spitalfields:

In contrast,

Mr Okeden, for the Commission, reports: ‘Moral character is annihilated, and the poor man of twenty years ago, who tried to earn his money, and was thankful for it, is now converted into an insolent, discontented, surly, thoughtless pauper, who talks of “right and income”.’56

The welfare system, it was argued, created a self-perpetuating dependency. A heart-rending story was told of a family named Wintle which had tried to avoid this fate. The family got into great financial difficulties and resorted to selling the furniture. The mother, father and two of the five children had become very ill. A Mr Booker, on behalf of the parish, offered them money. They refused, keen to maintain their self-respect and independence. He went again with the churchwarden, telling them of ‘the necessity’ of accepting money. They again refused. He and the churchwarden then sent them four shillings in a parcel, asking them to apply for more. At last they finally succumbed. And once they started taking parish money, they did not stop.

Mr Booker blamed himself.

The report saw a link from welfare-dependency to crime. In the parish of Mancetter in Warwick, the magistrates insisted that those on benefit should not work on three days a week so that they could seek work. But the men used the spare time ‘thieving and poaching’, with the result that no one wanted to employ them afterwards anyway.

The report suggested that taxpayers’ money was wasted by both claimants and their employers. In some parishes, the wages of the lower paid were made to a minimum level with benefits. This has come to be known as the Speenhamland system because a scale of subsistence needs was drawn up in an inn there59 in 1795 and spread through England. It is the same idea as the modern Working Families Tax Credit. The purpose is to enable people to have a ‘decent’ standard of living or else to make it worthwhile working rather than staying on benefits and being idle. But whatever the motivation, the system was abused by both the employers and the labourers. An artificially low wage would be paid in the knowledge that it would be made up by the parish. The employer saved money. The employee got the wage he expected anyway. Only the taxpayers suffered. Exactly the same would be said about Family Credit 160 years later.

Landlords and tenants abused the old equivalent of housing benefit in the same way.

In many cases, landlords knew that the parishes would pay the rents of those on benefits, so they charged more: ‘an overseer of Dolgelly stated that there were many apartments and small houses in the town not worth to let £1 a year, for which, in consequence of parochial interference with rents, from £1 14 shillings to £2 was paid’. Exactly the same has been said about modern housing benefit. Moreover, the welfare system caused bad housing to be built. Only inferior housing was exempted from rates. So people demanded housing with the defects which would gain the exemption.61

The welfare system discouraged saving, too. Employers in some parishes were required to take on a number of people on benefits. So being on benefit became a way to get a job. But you couldn’t be on benefits if you had savings, therefore it became unwise to save.

The parallels with modern welfare problems are so many that it seems positively uncanny. The welfare system gave rise to fraud. James Peaton, in Southwark, was receiving relief from six different parishes. ‘He made it his entire business to live on parish pensions, and he received one week’s pension every day.’63

Of course the administrators tried to stop the fraud but it was difficult. George Huish, an assistant overseer in the parish of St George’s, Southwark, explained the problem:

Suppose you go to a man’s house as a visitor; you ask, where is Smith (the pauper)? You see his wife or his children, who say they do not know where he is, but that they believe he is gone in search of work. How are you to tell, in such a case, whether he is at work or not? It could only be by following him in the morning; and you must do that every day, because he may be in work one day, and not another.

A modern-day inspector working for the Department for Work and Pensions might well say the same.

‘Suppose you have shoemaker,’ wrote Huish again, ‘who demands relief [money from the parish] of you and you give it to him on his declaring that he is out of work. You visit his place, and you find him in work; you say to him, as I have said to one of our own paupers, “Why, Edwards, I thought you said you had no work?” And he will answer, “Neither had I any: and I have only got a little job for the day.”’

The report makes the more subtle point that the welfare system was tempting previously honest people into fraud. ‘It is an aphorism amongst the active parish officers that “cases [claims] which are good today are bad to-morrow, unless they are incessantly watched”,’ says the report. ‘A person obtains relief on the grounds of sickness; when he has become capable of returning to moderate work, he is tempted, by the enjoyment of subsistence without labour, to conceal his convalescence, and fraudulently extend the period of relief.’

The report is full of things which bring us straight back to the problems of the modern welfare state. It is as if we had been here before without realising it. Most striking of the parallels are the reports on how the welfare system encouraged unmarried motherhood.

Unmarried women would get money for each of their children, in many parishes. There was only one condition: that she should name the father. It is reminiscent of the modern Child Support Agency. The guarantee of money – whether married or not – encouraged unmarried mothering, according to the report.

That was a report from Battersea. Similar reports came from all over the country.

According to a report by a Mr Maclean, several clergymen had told him the women in the parish were frequently about to give birth at the time of their marriage. They attributed this ‘want of chastity’ to ‘the law of bastardy, which secures to the woman either a husband or a weekly allowance for the support of the child.’64

But perhaps the most spectacular example came from Norfolk, where ‘a woman of Swaffham was reproached by the magistrate, Mr Young, with the burdens she had brought upon the parish, upon the occasion of her appearing before him to present the parish with her seventh bastard. She replied, “I am not going to be disappointed in my company with men to save the parish.”’65

As long ago as 1834, it was asserted that morals were being changed by the welfare system. The attempt to get fathers to pay up often failed, bringing to mind the problems faced by the Child Support Agency. Many ran away to a different part of the country. In Cornwall ‘it was a matter of general notoriety’ that poor men would be paid something by the natural parents to agree to be named as the father. The idea was the real natural father would get off scot-free. Meanwhile the man named in his place would be too poor for the parish to be able to get any money off him. ‘So general is the system … that it was the opinion of the most experienced parochial officers, that, … nine bastards in ten are falsely sworn.’

The Commission concludes that illegitimacy has not been discouraged by trying to get money off the men. Why? For a reason that might possibly be as good today: because ‘the guidance of nature has been neglected, the task of resistance has been thrown upon the man instead of the woman.’66

A final observation of the 1834 report was that the welfare system was getting too costly. The cost of ‘relief’ (welfare payments) had jumped to a level five and a half times higher in 1832 than it had been in 1760 whereas the population had only doubled.67

So the stage was set. The commissioners had clearly decided that the welfare state of 1834 was causing massive social, moral and financial problems. What would they recommend should be done? Would the government take any notice? Would it actually do something effective?

The commissioners noted that many people agreed that the way the Poor Law operated was bad but that ‘many who acknowledge the evil seem to expect the cure of an inveterate disease, without exposing the patient to any suffering or even discomfort.’68

The commissioners were not going to be guilty of any such irresolution. They had been impressed by what had been achieved in certain parishes to get people off welfare dependency. The Rev. Robert Lowe in the parish of Bingham had refused to give welfare benefits outside of the poorhouse – a very uncompromising regime. But the results had been dramatic. After a few months, the numbers in the workhouse had dropped from forty-five to twelve, ‘who were all either old, idiots, or infirm and to whom a workhouse is really a place of comfort’.

The commissioners commented:

When the relief, though, adequate, has been rendered ineligible [i.e. unattractive] – new life, new energy is infused into the constitution of the pauper; he is aroused like one from sleep, his relation with all his neighbours, high and low, is changed; he surveys his former employers with new eyes. He begs a job – he will not take a denial – he discovers that everyone wants something to be done. He desires to make up this man’s hedges, to clear out another man’s ditches, to grub stumps out of the hedgerows for a third; nothing can escape his eye, and he is ready to turn his hand to anything.69

Accordingly, they proposed a solution so radical that it may astonish a modern audience. They proposed that virtually all welfare benefits paid to people outside the poorhouse should be abolished. More draconian still, they proposed that the regime of the poorhouses should be made tougher.

In the most famous words of this astonishing report, it was said that the life of a person on benefits should ‘not be made really or apparently more eligible as the situation of the independent labourer of the lowest class’.

The logic was impeccable. If living on benefits was more attractive than work for a low-paid worker, why should that man or woman bother to work?

The commissioners convinced the country – or at least Parliament – that their ideas were correct. The report was signed on 20 February 1834. A law embodying it was introduced and enacted within the year. The government response to the report was staggeringly fast by modern standards. The principle of ‘less eligibility’ dominated treatment of the poor for the next seventy-five years.

What happened to Britain in the wake of the 1834 report?

Was it a coincidence that Chadwick’s reforms were followed by a period in which virtue, duty and work came to be highly esteemed?

Samuel Smiles wrote Self-Help in 1859, an extended tribute to independence and self-sufficiency. The book told the inspirational stories of people who had made good, often despite very difficult circumstances at the beginning. It was very influential, selling a quarter of a million copies by the end of the century.

What we now call the Victorian virtues flourished. Of course there were criminals and violence, but insofar as it is possible to tell, this was a period of time in which there was more sense of decency and purpose than in most other times. It is surely possible, to put it modestly, that the change in economic and moral behaviour in Victorian times was, at least partly, due to the changes made as a result of the Royal Commission. And all from the announcement made in Parliament on that cold, dry winter’s day in 1832 by Viscount Althorp.

On the economic side, growth in the following seventy years was dramatic. Industrial production at the end of the century was 5.4 times what it had been in 1834.70 There was a major rise in the wealth of the average Briton despite a vast increase in the population – something which would normally keep down the rise in individual wealth. Average wages, after adjusting for inflation, rose 50 per cent between 1880 and the end of the century.71 According to another authority, the rate of growth per head was faster between 1855 and 1884 than at any time since.72

The following years also brought forth something that even Chadwick did not forecast. It is something about which most British commentators about politics and society know absolutely nothing. It is a lost part of British history.

The winter of 1860–61 was extremely cold. There were heavy, long-lasting frosts. Snowfall was prolonged. Many outdoor industries such as house-building were forced to stop with the result that people could not get work. So people who had never previously applied for money from the parish did so.

In many cases, no doubt, they got it. But many parishes – not all – were trying to enforce the tough law instituted in 1834. In such cases, the applicant was told that he would get no money unless he entered the workhouse. People who were by no means ‘work-shy’ had major financial problems. In the face of this, many, many new charities were established. Some newspapers invited readers to send in money for relief of the poor. People even sent money direct to the magistrates, who decided on whether applicants for money were given any.

Then, a few years later, came a crisis affecting the cotton industry. Again, many people wanted to help those affected with charitable gifts.

Finally there came a third blow. A slump, in 1866, threw people out of work and, again, this stimulated the many charities.

Of course charity existed on a major scale before the 1860s. But in that decade it grew to an unprecedented size. Charitable work undoubtedly increased in response to the toughening up of the state’s welfare in 1834. A climate of opinion was created among the middle and upper classes which was totally different from that of today. Charitable giving and charitable work had been going on for centuries before, but in the Victorian age it reached a new peak.

It is hard for us to imagine now how large charity loomed in people’s lives during the late nineteenth century. The Times in 1885 reported that the combined incomes of London charities came to more than the revenues of several European governments. Ten years later, a survey reported that the average middle-class household spent 10 per cent of its income on charities. It spent more on charity than anything else with the exception of food. It spent more on charity than on housing or on clothing. If one thinks of people in modern times spending more on charity than on, say, their clothes, the expenditure would be enormous.

Charity was not confined to the middle classes, either. A survey of working-class and artisan families found that half of them made weekly subscriptions to charities. About a quarter also donated money to a church or chapel. It is quite a contrast with modern Britain where only a small minority gives money of any substance. The BBC makes appeals for Children in Need and congratulates viewers and listeners on their ‘magnificent generosity’. But the charitable giving of modern Britain is a pinprick compared to that of the Victorians. Modern Britons give away only a small fraction of what the Victorians gave. Charitable giving in Britain has collapsed. The Victorians gave up to 10 per cent of their incomes. Modern Britons give less than 1 per cent.

You name it and a charity was created to look after it. William Beveridge, best known for his 1942 report, wrote Voluntary Action, a book on charities and other voluntary activities. He listed leading charities under seventeen categories. Let’s take just one: provision for the homeless. He named the SOS Society, the Fellowship of St Christopher, the Society for the Relief of the Houseless Poor, Rowton Houses Ltd, Cecil Houses, Homes for Working Boys in London, Embankment Fellowship Centre, the Morning Post Embankment Home and the Wayfarers Benevolent Association. These were only the leading charities in this sphere, remember. There were plenty more working in the same line of business.

Beveridge also had a chapter on the ‘pioneers’ of charitable work – people he evidently regarded as heroes. The majority were Victorians. They created many of the best-known modern charities such as the National Institute for the Blind (created by Thomas Armitage, who himself became blind), the NSPCC (created by Benjamin Waugh) and Dr Barnardo’s Homes.

The massive effort being devoted to charities of various sorts even caused some problems. Different charities for the poor could be operating in the same area trying to do the same sort of thing. They could even be giving money to the same people. As a vicar observed, ‘a hundred different agencies for the relief of distress are at work over the same ground, without concert or co-operation, or the slightest information as to each other’s exertions.’ The result, he said, was unparalleled growth in begging and ‘shameless pauperism’. This word ‘pauperism’ was generally used in the nineteenth century to mean what we would call welfare dependency. But here it seems to mean something more like ‘professional welfare dependency’. He is suggesting that some of the poor arranged as well as they could to receive a collection of handouts from as many different charities as possible.

Just as the state’s attempts at being kind had come unstuck in the scandals and distortions at the beginning of the nineteenth century, soon after the middle of the century, the charities seemed to be getting into great difficulty, too. In response, the Charity Organisation Society was created. The idea was that any charity which wanted to find out about a person before giving him or her money could ask the Charitable Organisation Society. The organisation would therefore prevent two, three or more charities giving to the same person. The fact that this was a serious problem gives an idea of just how big the business of charity had become

The Charity Organisation Society, like others, adopted the philosophy of Thomas Chalmers. Chalmers was one of several people who worked with the poor in the nineteenth century and whose views became highly influential. He, like the others, knew and thought about welfare far more than the vast majority of commentators on the subject today. He should, perhaps, be better known.

Who was this man? Why was he so influential?

He came from a big, middle-class Scottish family.73 From early on, his exceptional ability was obvious. He entered St Andrews University at the age of eleven and enrolled as a student of divinity aged fifteen. He was only twenty-two when he became an assistant in the subject at the same university.

His lectures at St Andrews were more lively than those of his superiors. They did not like this, so he was sacked at the end of the term. In the summer he was ordained as minister of the parish of Kilmany, not far from St Andrews. He was therefore able to visit the town despite having lost his job at the university. He offered classes independently. Pupils had to pay to attend and the university was against him, but his lectures were so popular that he was soon conducting three classes in mathematics and one in chemistry. In the end, his special ability was admitted by the university and he was taken back.

He added astronomy and political economy to the subjects on which he lectured. Then came the major turning point in his life. He became severely ill. His life was in grave danger. When he recovered he thanked God and resolved, aged twenty-nine, to change his life. From that moment on, he gave his all to ‘pastoral visitation’ – visiting the people of his parish to help and comfort them – and to preaching.

He had noticed something when he was working with the poor in his twenties. He had worked in two parishes. The first, in Roxburghshire, had adopted the Poor Laws from England. The second, Kilmany, relied entirely on private charity.

He noted the difference in behaviour between the people of the two parishes. In the former, ‘I saw as much poverty and more depravity of character than I hope I shall ever witness in these northern climes.’ Although the population of the two parishes was similar, the expenditure on the poor was six times greater in the one with the Poor Laws than in that where only private charity was available. He saw a connection between liberal state handouts and poor behaviour.

But as his ideas about looking after the poor developed, he went further. He began to oppose large, centrally run charities as much as state welfare. The reason was that he had come to believe that – with encouragement and advice – most people could get through a bad patch and continue to be self-reliant. He thought that any cash payment should be temporary and be accompanied by a great deal of personal contact. This is the very opposite of what a modern welfare state does. Modern social security typically offers a great deal of cash and hardly any personal contact.

His comment about the effect of money from over-large charities could be applied just as well to them. He said, ‘The imagination of a mighty and inexhaustible fund’ was sure to ‘excite the appetite and so to relax the frugal and providential habits of its receivers.’

Quite contrary to the Royal Commissioners, he was against centrally run welfare at all. He argued ‘there is a charm in locality most powerfully felt by every man who tries it … who has personally attached himself to a manageable portion of the civic territory.’ Those who have been a governor of a single school or constables with a defined ‘beat’ may readily understand what he meant.

His emphasis on local work, done within local limits, set Chalmers apart from the drift of nearly all policy-making in the past two centuries. But it was quite in tune with social security as it had evolved under Henry VIII and Elizabeth I. That had always been parish-based and a parish could well consist of 1,000 people or fewer.

Thomas Chalmers’s chance to put his ideas into action came when his considerable fame as a preacher saw him appointed to the newly created parish of St John in Glasgow. Before agreeing to take it on, he insisted that he should be given full control over assistance to the poor.

The parish was a big one with more than 8,000 residents. That was too big for his idea of the benefits of ‘locality’. So he divided it into twenty-five districts and appointed deacons to be responsible for administering charity within them. He instructed the deacons to offer advice, civility and goodwill but at the same time – if it seemed that money might be paid over – to enquire very closely into the circumstances of the family. This is the opposite of a modern welfare state. In modern times, a claimant will answer questions on a form but will not be questioned ‘very closely’. He or she may be treated with ‘civility’ but would be lucky to receive ‘goodwill’.

Chalmers told the deacons to go through stages before offering money. First, they were to see if there was any kind of work that would enable the poor person to avoid becoming dependent on charity at all. Second, he was to ask whether the person’s relatives and friends could help. Third, he was to check whether there was any charity the person was receiving from any other church.

If, after this, the deacon felt that money should be given to the person, then he might give a temporary amount. If the deacon felt that a regular allowance should be made, he would call in another deacon to look at the case in even more detail, enquiring into the rent paid, any earnings received and so on. His view was, ‘in proportion to the care with which you investigate will be the rarity of the applications that are made to you’. This kind of ‘tough love’ charitable work was new at the time. It has its echo in modern America now where some charitable organisations now befriend people in difficulty.74

And how did Chalmers’s charitable work turn out? During the four years he was running it, only twenty new applications were accepted from the population of 8,000 – a rate far below that elsewhere. So much money was saved that the parish was able to contribute to the endowment of a school.

Chalmers’s work and his writings influenced charity work during the whole of the rest of the century and his ideas spread across the world. His ideas were forgotten the more the twentieth century progressed.

But it would be quite wrong to get an image of Britain being a place where most of the people were giving to charity and the rest were receiving it. Something else happened that was even more important. It was utterly different, very positive, and even inspirational.

Henry Brady was a teacher at Ackworth School near Pontefract in Yorkshire. He was married, with children. This was a time when lives could easily be cut short by disease such as tuberculosis and typhoid. Cholera had begun to take lives, too. One of those who died from it was Henry Brady. Unfortunately he was not old enough to have saved much, so his wife and children were suddenly in serious difficulties without his income. The family were Quakers and may well have received some support from their community. But it was far from ideal.

The next year, 1829, when Ackworth School had its usual annual reunion, Samuel Tuke and Joseph Rowntree were among the former students who attended. They heard of the death of Henry Brady and the unfortunate circumstances of his wife and children. They wondered whether there was something that could be done which would stop people getting into that kind of difficulty in future. Was there some way in which people could protect themselves against similar disasters?

They came up with some ideas. Two years later, in 1831, they went to another of the annual reunions and put forward a suggestion. They proposed a ‘friendly society’. The object would be to offer ways in which members could counter the risks of life. A variety of policies would be offered but the central one, at first, would be a ‘whole life’ policy. People, such as the late Henry Brady, would be able to pay in a regular sum. If they died, a large lump sum would be paid to their surviving families. Most people who took out such policies would not die young, of course. So the money they subscribed would look after the minority of families which did suffer a calamity. It was a simple idea.

The society they started was called Friends Provident Institution. That same friendly society has since grown. As laws have changed it has had to change its legal status so it is now called Friends Provident PLC. It has become a vast company with £29 billion of investments. Its roots lie in the death of that one teacher, Henry Brady in 1828.

Friends Provident was just one of thousands of friendly societies created in the nineteenth century. Once the Poor Laws had been tightened up in 1834 and again later, people had every reason to protect themselves against all manner of things: old age, illness and unemployment.

The Manchester Oddfellows friendly society was, according to tradition, set up by a group of friends meeting in a pub. Plenty of other friendly societies were first established in a similar way. Others were based on religious communities like Friends Provident. Others still were based on professions such as medicine or on a particular place.

Wherever you lived, you were likely to have a choice. In Cottenham, Cambridgeshire, nine different friendly societies were active in the early 1870s although there were only 500 members of friendly societies there in all.75 You could choose a society that fitted your needs and tastes. It was a strength compared to state welfare that William Beveridge himself recognised and admired. He said that in a totalitarian state, the only thing you could do if you did not like the institutions was change the government. But in ‘a free society’ anyone unhappy with the institutions could make a new institution. ‘The field is open to experiment and success or failure … The new institution may fail or remain limited. It may grow according to the life that is in it, and growing may change the world’.76

That is what the friendly societies did. They grew up spontaneously and changed the world. They transformed Britain along with other mutual and co-operative societies. They spread to America, Australasia, Canada and elsewhere.

The growth of friendly societies was an astonishing phenomenon. Between 1803 and 1877, the membership more than tripled to 2.7 million people. In the next decade nearly another million were added. In the decade after that, more than a million were added. In the thirteen years after that, nearly two million were added. The numbers were not just going up. They were galloping – much faster than the population at large. And these were only the registered friendly societies. There were also unregistered ones, which were thought to have just as many members.

In 1892, the total membership of the registered societies came to 3.8 million, which represents around three million people, allowing for those who were members of more than one society. Adding another three million for members of the unregistered societies brings the total to six million out of an industrial male population of seven million.77 That is without counting 873,000 members of trade unions, some of which offered benefits similar to friendly societies.

The chief registrar of friendly societies during that time, Sir Edward Brabrook, estimated that there was only ‘a kind of residuum’ going without some kind of insurance against the risks of life.

The friendly societies offered security against the risks of life. But they offered something else as well. New members of many friendly societies had to go to lectures to understand what they could expect of the society and what the society would expect of them. New members at the Ancient Order of Foresters were told that they should be ‘affectionate and trustful’ as husbands, ‘regardful of the moral and material well-being of your children and dependants’ as fathers, ‘dutiful and exemplary’ as sons and, as friends, ‘steadfast and true’.

A judge or a baron of commerce could easily be junior to a dock-worker within a friendly society. A poor manual worker could become chairman of his local lodge. In the lodges of the Manchester Unity, the chairman would have two ‘supporters’ who would sit on each side of him at a meeting.78 Traditionally the chairman would choose one person who was experienced in the rules and practices of the society and the other would be a personal friend. The office of chairman was rotated so that, over time, almost everyone would hold the post. It gave an experience of give-and-take, of community action and of voluntarily holding and responding to authority which few people now enjoy.

Commercial insurance companies started offering insurance against illness, too. But they were forced to give it up because of the high level of fraud. Friendly societies were able to go on offering sickness benefits because they suffered much less fraud. Members felt a sense of commitment to the community they had entered which they did not feel to a remote commercial company.

Most people who write about the friendly societies, do so – as here – with a barely repressed enthusiasm and admiration. Doubtless they had their faults. At the very least, one can readily imagine, as in a golf club, some leading members getting carried away with their sense of self-importance. But it is hard not to believe that they helped many people become better than they otherwise might have been as well as offering security against many of life’s dangers.

Their great flowering, however, was about to be undermined. They were to be dealt two blows. The first wounded. The second was mortal. Because of these two blows, there is only a rump of friendly societies today and few people have even heard of them. Who destroyed the friendly societies and why?

A trip to Germany

David Lloyd George went for his summer holiday in 1908 to Germany. It was a rather unusual affair. This rising political star found someone else to pick up the bill. Mr Henry, a rich and, apparently, pompous MP, also in the Liberal Party, paid the expenses and came along. According to the gossip, he generously provided something else, too: his wife. The sleeping arrangements are not recorded, but the trip provided the perfect cover for a liaison.

Making up the party in a junior role was Harold Spender – a journalist who wrote for the relatively down-market Daily Chronicle. He was taken along, no doubt, to ensure the trip was reported in the British press in the way Lloyd George would want.

They took a train to Amiens in France, where they were met by their ‘motor’.79 As a result of a ‘happy miscalculation’ they spent the first night at a clean little auberge just within France, high up in the Vosges mountains. The next day they drove down to Strasbourg and happened to be there on the day when Count Zeppelin was starting his new airship on a voyage. The local crowd patriotically sang Deutschland über alles and the airship rose, then burst into flames and crashed. Lloyd George’s party arrived just after this terrible moment and was confronted by the crowd fleeing in alarm.

The supposed purpose of this bizarre holiday was for Lloyd George to study German social policy. For a while, he seemed more interested in making pronouncements on foreign affairs but eventually he devoted three days of serious study to the subject.80 He went to the Imperial Insurance Offices on one of these days to learn about the details of the German health and old age insurance policies. The officials flatteringly told him that they had never met such a ‘quick-witted man’ who had achieved an ‘extraordinary grasp’ of the issues, placing him ‘on a level with the most perfectly equipped specialists’. Mind you, this account comes from Harold Spender, the journalist taken on the trip to report things the right way.

Lloyd George gave an interview – to the Daily Chronicle of course – on his arrival back in Southampton docks. He announced that government insurance for sickness and invalidity was ‘one of the most magnificent pieces of social organisation that the world at present possesses’. It was ‘wonderful’. It was ‘gigantic’.

Lloyd George was building up to introducing something similar in Britain. Why was Lloyd George so keen to find a ‘wonderful’ answer? What was the problem which was in need of a solution? Had Britain suddenly developed a new problem with sickness and invalidity which it had never experienced before? No. Something else had changed. The politics had changed.

In 1883, the Fabian Society was founded. In 1884, the franchise had been extended from three million to about five million voters. Keir Hardie, a former miner who never went to school, became a Member of Parliament as an Independent in 1892 and was the first leader of the Independent Labour Party in the House of Commons. The ideas of Marx and Engels were spreading within and outside the Labour Party. The working classes were being encouraged to see themselves as victims of the capitalist economic system. Between 1886 and 1903, Charles Booth issued a series of reports suggesting that one-third of the population was on or below the poverty line. R. Seebohm Rowntree issued a report in 1901 arguing that 27.84 per cent of the population was in poverty.

These changes in working-class perceptions and political power changed everything. They even changed the language. The word ‘unemployed’ was first found in a dictionary in 1888. Before that time, unemployment had existed, of course. But it was previously something that happened because of a downturn in a particular industry, or because someone was between jobs or because someone was work-shy or incapable. Now theories began to be developed as to how it was a systemic failing of capitalism. It therefore had to be given a new title.

Two years previously, in February 1886, came a major wake-up call for the bourgeoisie nervously watching these developments. There was a riot in the prosperous West End of London. It was nothing compared to what the Continent had experienced over the last century, but it helped convince many of the richer people that something had to be done to palliate the irate workers.

In 1906, the Liberals overwhelmingly won the election. But Labour got thirty seats – a great leap from the two it had before. Labour then started winning by-elections. The threat to the Liberals was obvious. By 1908, the Liberal government was struggling for direction and for some way to head off the threat of socialism. That was the moment that Lloyd George made his trip to Germany. That is why a great scheme supposedly for the benefit of the working class was something that this canny politician was keen to embrace. Lloyd George was not an expert in social policies. The action he took was that of a politician trying to save his party’s – and thus his own – skin.

Lloyd George brought forward his Bill in 1911 for insurance against sickness and invalidity. The contributions were fixed, as were the benefits, so everyone still had every reason to save and be thrifty with their money. There were no reductions in payments if you had savings.

This Bill was not intended to hurt the friendly societies. Lloyd George, like most people, was a great admirer of the friendly societies. The last thing he wanted to do was hurt them. The administration of this insurance was even to be in the hands of the friendly societies, such was the respect in which they were held. But this was the first blow they suffered. The voluntary membership which the friendly societies had was beginning to be replaced by a compulsory, state system.

The new law went well beyond the German model in one very significant way. The second part of the Bill, introduced by the young Winston Churchill (then also a Liberal), brought in national insurance against unemployment. This was the first compulsory national insurance scheme introduced anywhere in the world. Churchill thought he could make a name for himself. He wrote to the Prime Minister, Herbert Asquith: ‘The Minister who will apply to this country the successful experiences of Germany in Social Organisation … will … have left a memorial which time will not deface.’

Typically, Churchill made it sound all very grand. But the fact remains that the vast majority of people were already covered. About ten million out of the twelve million who came to be covered by national insurance in 1911 were already insured though their friendly society or trade union.

This was, perhaps, the moment when the modern welfare state began. Most people think it was 1942 or 1945 but 1911 is when the core was put in place. And it was not long after then that it began significantly to affect British society. The inter-war years were the first to feel its impact – and they did so in a way that is completely unknown to most people. We are now coming to the first of three main charges against the social security aspect of the welfare state.

The first charge

For the next fifteen years or so after the National Insurance Act was introduced by Lloyd George and Churchill, it was extended and liberalised far beyond the original conception. Insurance for the unemployed originally only covered 2.25 million people. But in 1916 it was extended to cover four million. In 1920 it was made to cover two-thirds of the employed workforce.81 The conditions and amounts of the benefits grew as politicians vied to show how generous they could be. In 1918, former soldiers who were unemployed were given benefits quite beyond anything that could genuinely be called ‘insurance’. Soon after, the rule that people had to pay contributions for a certain length of time before getting benefits was bent. In no time, the state stopped being an insurer in a real sense and became a benefactor instead. The state was heading fast towards high spending on the unemployed and the ill.

Many educated people reckon they have a pretty good idea what happened in the inter-war years. First there was the ‘Roaring Twenties’. Then there was the Wall Street Crash, which came down hard on Britain as well as America. Things were made worse than they need have been because Britain clung to the gold standard which was harshly deflationary at precisely the wrong time. So we got ‘The Great Depression’. The king and many politicians were appalled at the conditions of the long-term unemployed. Then along came the war, which increased demand and belatedly saved the day. After the war, the welfare state was created to make sure nothing so awful as the depression could hurt Britain ever again.

I used to believe this account. It has been taught in schools and universities and replayed, in whole or in part, in countless books, radio interviews and television documentaries. But there is a problem. It does not fit the facts.

There was actually significant economic growth during the inter-war years. The average rate of growth between 1921 and 1938 was 2 per cent, not very different from the growth rate just before the First World War.82 There was no long-term shortage of demand.

Unemployment was not predominantly long-term either. A Royal Commission on Unemployment Insurance in 1930 found that claimants had on average experienced 7.3 separate periods of unemployment in that single year. The taking of many short bursts of unemployment was extremely commonplace. This was made possible by the conditions of unemployment benefit. So the idea of persistent low demand and long-term unemployment is not accurate.

Also, large-scale unemployment did not take place only after the Wall Street Crash. There were high levels throughout the 1920s and 1930s. The average rate was 14 per cent and the figure never fell below 9.5 per cent. The usual story about the inter-war years does not account for why unemployment should have stayed so high for so long. It does not explain why unemployment in those years was consistently higher than in the pre-war years too. In only two years from 1855 to 1920 was unemployment as high as it was in every year from 1921 to 1938. Though the economy grew for six straight years from 1932 to 1938, unemployment still did not fall below 9.5 per cent. After six years of growth, unemployment was still three times higher than the pre-war rate. It is true that the stock market crash and adherence to the gold standard caused a major economic problem. But was something else contributing to the unprecedented level of unemployment?

One big thing that had changed compared to previous decades was the national insurance for the unemployed introduced by Winston Churchill. Could that have had anything to do with it?

By 1931, weekly benefit exceeded half average weekly earnings. The benefit could be drawn by someone who had made thirty weekly insurance contributions at any time in his life. He could draw the unemployment benefit for an unlimited period. It sounds dry and technical.

But the potentially powerful effect of these terms becomes clearer when you imagine someone who had below-average earnings. Let us say, 30 to 50 per cent below average. That person received between 80 and 100 per cent of the money he could get by working by getting unemployment benefits instead. Such a person would not be as desperate to get a job. Such a person certainly would not accept a new job paying less than the benefit. Benefits were increased in 1936 and 1938 to the point where they were nearly 60 per cent of average wages.

What about the frequent short-term unemployment reported by the government in 1931? Could it have had anything to do with the terms of the benefits?

It was easily possible, under the terms which existed then, to work for three days in the week and be unemployed on benefits for the other three. The system even had a nickname. It was called ‘three on the book, three on the hook’. Workers could also rotate their jobs in what came to be called the ‘OXO’ system. Each day you worked was an O and each day you took benefit instead was an X. The employee would get the benefit of plenty of days off with little, if any, reduction of income. Meanwhile the employer could keep available to him a bigger workforce to cover any upturn in demand for his product.

William Beveridge was among those who observed this. He remarked that some industries, such as cotton, were tending to practise short time working ‘continually’ and ‘to keep an excessive labour force together at the cost of the unemployment fund’.83 So while the Wall Street Crash and the effort to adhere to the gold standard certainly contributed to severe unemployment in the short term, the high level of continuing unemployment may have been caused by the benefits.

The welfare state – at least as far as social security was concerned – was much bigger and more ‘generous’ before the Second World War than most people realise. It is hard to resist the conclusion that it contributed to The Great Depression.

We now get to the moment where most accounts of the welfare state begin. But even here, there are major misunderstandings. People think it worked pretty well to begin with. But then unemployment became a persistent problem. However they have no real explanation of why it worked pretty well to begin with and why unemployment then spoiled the picture. It may be possible to explain both.

The true nature of William Beveridge – the most famous man in British welfare – provides part of the answer. He was not the man people think him to be. And his report was not what most people think it was.

Born in 1879, Beveridge was the son of a British judge working in India.85 He was an upper-class Victorian. The home in which he was brought up had twenty-six servants. He went to public school – at Charterhouse – and then to Balliol College, Oxford. He was undoubtedly extremely clever, if rather pompous and self-regarding.

At Balliol he was influenced by the Master, Edward Caird, who used to urge undergraduates to ‘go and discover why, with so much wealth in Britain, there continues to be so much poverty and how poverty can be cured’. Following that instruction, William, at twenty-four, went to Toynbee Hall, the university foundation for the poor in the East End of London. In 1905, on Caird’s recommendation, he became a leader-writer for the Tory-supporting Morning Post which was later merged into the Daily Telegraph.86 In 1907 he visited Germany to study the social insurance system there a year before Lloyd George did the same. His writing on social insurance issues brought him to the attention of Churchill, who recruited him to work as a civil servant. Over the next three years, Beveridge created a national network of labour exchanges for Churchill. He was the first director of them. Beveridge was part of the Lloyd George-Churchill team which kicked off the modern welfare state. And like Lloyd George and Churchill, his hopes and ambitions were miles away from what the welfare state has become. He wanted people to remain self-reliant. He wanted self-sufficiency and mutual support through friendly societies to continue. He never had it in mind to destroy the welfare system that already existed before the welfare state.

He carried with him the idea – powerfully expressed by Chadwick in 1834 – that benefits should never be so high as to deter a low-paid worker from taking a job. He knew the risks of benefits. But he thought that the problem of poverty could be overcome if only everyone was compelled to take out insurance against the risks of life. It was a ‘third way’ which avoided the problems both of excess harshness and dangerous generosity. There would be no hardship because everybody would be insured. End of problem.

One of the curiosities of Beveridge and his report is that he did not want to write it. He regarded himself as a leading figure who should have a vital job. After working for Churchill, he had been Director of the London School of Economics and Master of University College, Oxford. He had been at the top for decades. He had known Sidney and Beatrice Webb, the prominent welfare reformers, and Churchill. He was in touch with the leading economist John Maynard Keynes. He wanted to organise the workforce for the war effort.

But Ernest Bevin, whom he worked for at the time, did not much like this pompous, pushy man, so asked him to write the report as a way of ‘getting rid of someone whom he had come to see as a pain in the neck’.87 The report he was meant to write sounded tedious in the extreme. He was to ‘undertake, with special reference to the inter-relation of the schemes, a survey of the existing national schemes of social insurance and allied services, including workmen’s compensation, and to make recommendations’. It was a mere tidying-up operation. Famously tears ‘started to his eyes’ because he was so disappointed. He sulked for a few months, completing other work.

An extraordinary article which was turned up during the research for this book appeared in Picture Post in March 1942. It was obviously written with his co-operation. It said Beveridge was a brilliant person ‘presiding over an investigation into social insurance’. ‘But is this job worthy of him?’ the writer asked. Beveridge himself was quoted saying ‘It’s very interesting. But it’s post-war. I could only be satisfied with it if I thought you young fellows could win the war alone.’ The final words of the article were ‘can we afford to waste such talents?’

This was part of Beveridge’s sulk. But once he had reconciled himself to the task, Beveridge set about turning this ‘waste’ of his talents into a triumph. He went miles beyond his original brief. He adopted the language of a grand, new plan for making a better Britain. He made it appear that he was recommending something brand new and extraordinary.

Beveridge himself started the continuing myth about his report – that it was radically generous. He made his plan seem bold and comprehensive. He depicted a future Britain that was nothing to do with his remit. He talked of a national health service. He ‘assumed’ full employment, being a believer that Keynes’s theory of ‘aggregate demand’ had solved the problem of unemployment. He grandiloquently wrote of defeating the ‘five giants’: want, ignorance, disease, squalor and idleness. By throwing in ‘ignorance’ he barged into the field of education for good measure.

The apparent overarching ambition of his plan, couched in language that made it appear thoroughly logical and achievable, answered a kind of longing in the British public. Homes were being destroyed and lives lost. People wanted to believe that at the end of it all, they were making sacrifices for a better tomorrow.

Beveridge’s report was to be published on the first day of December 1942. The night before, a queue formed outside Her Majesty’s Stationery Office in London. The report flew off the shelves as quickly as a novel by Dickens or the next volume in the story of Harry Potter. Sales topped a hundred thousand in the first month. Copies were circulated to the troops. In addition to the full report, a cut down summary was available for threepence (1-1/4p). The two versions together sold six hundred thousand copies.

In a survey at the time, nineteen out of twenty people had heard of the report and almost all were in favour of it.88 Virtually all politicians felt they must endorse it – Churchill among them. In March the next year, he made a broadcast which reflected and increased the enthusiasm. He declared ‘you must rank me and my colleagues as strong partisans of national compulsory insurance for all classes, for all purposes, from the cradle to the grave’. Most people who talk about a welfare state offering care ‘from the cradle to the grave’ have no idea it was Churchill – who by then had long since changed from being a Liberal to a Conservative – who created the phrase.

So what did Beveridge propose? It was very simple. Everyone would make flat-rate contributions to a national insurance scheme. Those who fell ill, became unemployed or reached retirement age would, in return, receive flat rate payments. That is it. The rest was detail.

The attractions of his plan were many. No one would fall through the net because everyone would, compulsorily, be covered. The same scheme would apply to everyone, rich and poor. That appealed to the wartime sense that ‘we are all in the same boat’.

But beneath these populist appeals, there was gritty Victorian reasoning that many people did not notice at the time and have not recognised or understood since. He asserted that the benefits should be at a ‘subsistence’ level. Subsistence! The word is barely noticed by most writers about the report. Subsistence level means ‘a standard of living barely adequate to support life’.89 The person credited with launching a new period of generosity in welfare only recommended a bare minimum. The benefits should only be basic, he argued, otherwise they would discourage voluntary insurance and savings. Beveridge was a great admirer of the friendly societies and indeed of charities and other voluntary organisations. His was meanness with a purpose – to preserve self-reliance while at the same time eliminating poverty – real poverty.

This is not the Beveridge of folklore. This is the real, Victorian Beveridge – someone who wanted to interfere in people’s lives as little as possible and to leave them with maximum responsibility and freedom. He wanted anyone on benefit to be required to go to a work or training centre. The unemployed must not be allowed to stay that way long term.

Beveridge thought that there would be little need for the means-tested benefit of national assistance because nearly everyone would be covered by his insurance plan. But anyone who did claim such a benefit was to have his ‘means’ [income and assets] examined and would be subject to unnamed conditions about his behaviour.

Beveridge rejected, on balance, a separate housing benefit based on the cost of someone’s rent. Housing needs should be wrapped up in the weekly benefit, he said. Everyone would get the same amount. He thought it would be unfair to give someone living in a large house more benefit than someone in a small one. He worried that the administration would be more complicated if it were made to cover precisely each rent paid. Under the Beveridge plan, anyone who became unemployed while living in a large or expensively located home might have to give it up and move somewhere more modest.

People who looked at the detail and actually read his words understood that the old Victorian was not proposing the bonanza which many assumed then and continue to believe. John Maynard Keynes, the economist, advised Beveridge on his costings and said ‘the Chancellor of the Exchequer should thank his stars that he has got off so cheap’. Members of the economic section of the Treasury believed that the Beveridge plan was actually cheaper than the provision which existed previously.90

They had every reason. Beveridge recommended unemployment benefit for a single man after the war of £1.20 a week.91 On the basis of his own calculations and expectations, this £1.20 would only have been worth 96p in pre-war money because of high inflation during the war. The benefit would have been only 13 per cent above the 1938 level of 85p – a modest rise indeed over the period of seven years between 1938 and the end of the war.

But alongside even this relatively modest increase, he recommended that, after six months, work or training would be ‘required’. This was surely intended to end some of the pre-war abuses of the welfare state. So the idea that Beveridge introduced an era of open-handed liberality does not fit his actual proposals.

Of course, Beveridge could only recommend what the rates should be and guess how wartime inflation would eventually turn out. But inflation continued so that, by 1946, prices had risen 65 per cent since 1938. The result was that the basic benefit was only worth 72.5p in 1938 money – a major drop. But a bigger fall was coming. The benefit was only increased occasionally, so its real value was undermined by inflation. In 1947, its real value had slumped to only 67.5p. And in 1950 – after all the hullabaloo about the Beveridge Plan and all the excitement over a new Labour government bent on providing generous social security – the benefit reached a new low of only 65.2p in real terms. It was a decline of 23 per cent since 1938.

So Beveridge, combined with inflation and the government’s parlous condition at the end of the war, significantly cut benefits during this period – the very opposite of what most people think. Beveridge also made the conditions under which benefits were given rather tougher and less easy to manipulate than they had been before the war.

These facts may make it easier to understand what might otherwise be one of the great puzzles about the welfare state. Why was unemployment low to begin with? And why did it keep rising afterwards?

In 1946, the unemployment rate was a mere 2.5 per cent. It fell to the 1.6–1.8 per cent range soon after and kept returning to that level right until 1966. But from then until the early 1980s, every new peak in unemployment was higher than the previous one. And even when the jobless total fell back during the short periods of growth, it never fell as low as it had done on the previous occasion. The long term trend in joblessness was up, up, up. It reached 3.3 million in 1986, whereas it had been as low as 216,000 in 1954. Why?

People do not always look at the numbers when studying welfare. But sometimes the numbers matter a great deal.

In July 1948, unemployment benefit for a single adult – at £1.30 a week – was 19 per cent lower than it had been ten years before. And what was the level of unemployment? Only 1.3 per cent of the workforce. The benefit was low and unemployment, similarly, was low. In 1951, the benefit was raised by a quarter, which must have seemed a big jump. But inflation since 1948 had reduced the value of money by more than that. So benefits stayed low in real terms. Unemployment stayed low, too.92

In 1955, things began to change a little. In May that year, after Sir Anthony Eden had taken over as Prime Minister from Sir Winston Churchill, benefits were dramatically increased. The rate for a single person leapt 23.1 per cent whereas inflation in the previous three years had only amounted to 6.5 per cent. For the first time since 1938, the real income of the unemployed was increased. But of course wages had risen quite a bit over the previous seventeen years, so the benefit was still lower than it had been compared to average wages. In 1958, when Harold Macmillan, another Conservative, was Prime Minister, the government did it again. It was a jump of a quarter in the benefit to £2.50 even though inflation between the two dates had amounted to only half that. Further jumps in benefit rate well above inflation came in 1961 and 1963. It was as if the Conservatives felt they had to show how generous they were. Not to be outdone, when Labour finally regained power in 1964 under Harold Wilson, it boosted the benefit by another 18.5 per cent to £4 a week.

In the decade beginning in April 1955, unemployment benefit soared 72 per cent above inflation. The gap between what someone could earn by working and what he could receive on benefit was dramatically narrowed. Even after adjusting for inflation and wages, the benefit was now at a new high.

If benefit levels were going to affect unemployment, you would expect them to take time. People would not give up their jobs just to go on benefits. But if they lost their job, they might not pursue a new one so energetically if they found benefits were high. One would therefore expect the higher benefit rates to impact only after some two to six years. Bearing this in mind, was there a rise in unemployment after the major rise in benefits in 1955–65? Yes, it mushroomed. After 1967, unemployment never went below 2 per cent again.

Over the next nine years, the rate of unemployment benefit continued rising in real terms. The real value reached a new peak in July 1974 after Harold Wilson had given the benefit one last boost after winning the election in March that year.

What happened to unemployment? Two years after the 1974 hike, it had risen to 5.7 per cent. Benefits stayed high through the 1970s, only declining a little under Labour. So what happened to the jobless rate? Two years later, in 1981, it stood at the unheard-of rate of 11.4 per cent. The peak would be the next year when it reached 13 per cent of the workforce.

As the real value of unemployment benefit rose, so – after a lag – did unemployment.

The connection between benefit levels and unemployment appears all the stronger when we consider what happened next.

The real value of unemployment benefit reached a peak of £54.95 (at 2001 prices) in 1985. Ever since then, the value of the benefit in real terms has been similar or lower. By April 2001 it was down to £53.05. Meanwhile, of course, average earnings have continued to rise. The result is that it has gradually become worthwhile for more people to work again. For a married couple, the benefit as a percentage of average earnings has fallen from 32.3 per cent in 1977 to only 19.8 per cent in 2001. To compound this, income tax payable on average earnings has been reduced too, widening further still the gap between earning and living on benefit. And what has happened? Unemployment has fallen. Reduced benefits have been followed by fewer people out of work.

The theory that high unemployment benefits lead to high unemployment is comprehensible in theory and is backed by the evidence. The theory fits the low level of unemployment after the war, the rise from the late 1960s to the early 1980s and the subsequent decline. On this basis, I conclude that the welfare state had the major role in causing post-war unemployment – unemployment which has been on a scale never known before in British history. That is the first charge against social security and the welfare state.

Some may object that countries such as Sweden have managed high rates of benefit without causing unemployment at such a high level. This points to something else, apart from the value of benefits, which affects the impact.

Sweden has offered high benefits. The highest rate amounts to over £52 per working day at the time of writing.93 But the conditionality of the benefits has been tough. That highest benefit is related to earnings. It is only available to those who have made earnings-related contributions to a voluntary insurance scheme. Those who have not contributed get less than half as much. Those contributing to the voluntary scheme only get the benefit if they have been a member of one of the forty schemes over the previous year. During that time they must have been employed for at least six months. The benefit is only receivable for three hundred days. In the words of the Swedish government, the scheme makes ‘heavy demands’ on the unemployed person to ‘find a job quickly’. The individual ‘must accept an offer of work even outside his or her previous occupational sphere, must accept a change of pay or must be prepared to relocate.’

These sorts of conditions are almost as tough as those which would apply to a private scheme and it is not surprising that the Swedish system has its origins in private employment insurance. It is still divided into forty semi-independent schemes based on different kinds of work. But in Britain during the 1960s, 1970s and 1980s, it was regarded as far too harsh to expect a jobless person to change occupation, take a drop in pay or move to a different town.

Though the level of unemployment is well down on the 1980s, there were still a million people officially unemployed in 2003. That number of jobless people was regarded as scandalous in the early 1970s and perhaps it should still be regarded as scandalous.

But actually, the real numbers of unemployed may be far higher than one million.

For in addition to the official unemployed there may be a much bigger number of hidden unemployed. Here are some of the reasons to suspect it.

There was a remarkable rise in the number of people incapacitated by illness during the 1980s and early 1990s. People claiming invalidity benefit – now renamed ‘incapacity benefit’ – jumped from six hundred thousand in 1979 to 1.5 million in 1995.

There were a few curious things about this massive increase in incapacity that swept the country. One was the very particular nature of the kinds of long term diseases and disabilities which from which people suffered. Out of the 2.4 million people claiming incapacity and similar benefits in May 2002, by far the biggest categories were the 819,000 people apparently suffering ‘mental and behavioural disorders’, a category which includes ‘stress’, and 523,000 people afflicted with ‘diseases of the musculoskeletal system and connective tissue’, which includes backache. These two conditions have something in common. It is virtually impossible to prove whether people have them or not. The two categories account for over 56 per cent of all diseases causing incapacity. Meanwhile those suffering with readily verifiable conditions came in much smaller numbers. Those with diseases of the ear, for example, amount to only 9,800.

A second curious characteristic about this wave of incapacity was that it predominantly affected people in areas with high unemployment. Backache appeared to be something people particularly got if wages were low in relation to invalidity benefit.

A third thing worth noting was that the conditions attached to invalidity benefit were different from those relating to unemployment benefit. The benefit was paid indefinitely, not for a fixed term. This made it a more desirable benefit.

But the most notable thing about this sudden attack of disability was the timing. It took place after the invalidity benefit rates were increased. When Beveridge designed his plan, he recommended everyone should get the same whether they were unemployed or incapacitated. This recommendation was followed until 1973 but then Edward Heath’s government broke away from this principle and paid 5 per cent extra to the incapacitated. The incoming Labour government under Harold Wilson went a great deal further so that by November 1978, invalidity benefit was worth 22.4 per cent more than unemployment benefit. It has kept and slightly increased its premium to unemployment benefit ever since. The great rise in long term incapacity took place immediately after the big rise in the rates of invalidity benefit.

It is hard to imagine that many of the 900,000 extra people who claimed benefits in 1995 compared to sixteen years earlier were truly incapable of work. Dr Alan Paterson, a government occupational therapist, estimated in 1997 that 80 per cent of claimants were able to work and described the benefit as ‘the biggest scam in the country’.

The Labour Party in the 1980s shouted from the rooftops that the Conservatives were cunningly hiding unemployment in invalidity benefit. It was right about hidden unemployment lurking in this benefit although the great rise in numbers was a result of the actions of Heath and Wilson rather than Margaret Thatcher.

In 2002, researchers at Sheffield Hallam University estimated that half of those on sickness benefits should be described as ‘hidden unemployed’. So with 1.5 million on incapacity benefit in 2003, 750,000 were really unemployed.

But have any more unemployed people been tucked away outside the official statistics for unemployment?

The core benefit of the modern welfare state is income support. It is the main means-tested benefit. Among the recipients, 2.2 million are of working age.

The numbers of people on income support who are registered as ‘disabled’ has rocketed to one million. Assuming that half of these are like those on incapacity benefit and are really unemployed adds another 500,000. Add in another 260,000 people on income support who are of working age and neither disabled nor lone parents and it brings us to a grand total of 2.3 million unemployed. This is without counting any of the 861,000 lone mothers on income support. If the lone parents were included, the total would be 3.1 million.

Income support, in itself, would probably not discourage work too heavily in many cases. But often it is combined with housing benefit. The individual would lose both and other ‘passport benefits’ on taking a job.

In 1985, largely as a result of the housing benefit, 1.87 million people were working who got little financial advantage out of it.94 They would have received more than 70 per cent of their earnings by just loafing around. That is why unemployment – both open and hidden – was particularly high in the 1980s. It is still high today, even after attempts to ‘make work pay’ such as the working families’ tax credit.

Sheffield Hallam University, using a different approach, estimated that there were 2.8 million unemployed people as of January 2002.95 That represented an unemployment rate of 9.5 per cent.

So when people assume that unemployment is a solved problem, they are taking an overly sanguine view. It is certainly less bad than in the mid-1980s. But there is still a massive army of unemployed. There has been such an army now for two decades and more. Long term, mass unemployment has become a persistent feature of British life.

Some may suggest that it does not really matter. More may feel, ‘Yes, of course it matters’. Those in the first camp need an answer. But even those in the latter may be surprised by why and how ‘it matters’.

The unemployed have not starved. They have generally kept their homes. Most of them have been financially worse off but not by a very great deal in those cases where the parent or parents have been low-paid and there have been children.

But joblessness can be profoundly damaging in ways that are not immediately obvious. Being out of the job market means not gaining experience and then promotion to higher-paid work. There is also the effect on other people. The unemployed, instead of contributing through tax to services like the police, take from the pot instead. This increases the tax and national insurance contributions others have to pay. Higher taxes have acted as a discouragement to enterprise and work, leading to a less prosperous economy altogether.

What about the effect on the feelings of the unemployed and the way they lead their lives? Does unemployment make people unhappy? Most people might think, ‘Yes, I suppose it might make people somewhat unhappy. But it is probably manageable. The main problem would be the loss of income.’

This may not be true.

In the hit British film The Full Monty, the leading characters are all unemployed. The story is of how they put on a male strip show to raise some money. But before this triumph over adversity, the film suggests that unemployment has done far more to them than make them poor.

Gaz, or ‘Gary the lad’ – the leading character played by Robert Carlyle – is cocky and better able to take knocks than most. He has been made redundant from the local steel works. ‘Miserable at his financial castration and unable to cope with being a househusband’, he starts to drink too much and not long afterwards he begins ‘fooling around.’96 Mandy, his wife, leaves him, taking their son. Gary adores his son and is miserable at being allowed only two days a week access to him. Then his wife applies for Gary to have no further access to their son at all.

Dave Horsfall is Gaz’s best friend and accomplice. Since being laid off, his self-esteem has gradually been chipped away. He has put on weight. Dave has succumbed to ‘the hopelessness that enveloped many of the unemployed’. His worsening depression is beginning to drag his wife Jean down with him. Jean tells a friend, ‘it’s like he’s given up. Work … me … everything.’ He does not even have sex with his wife.

‘Lomper’ is no friend of theirs but he too has been made redundant. He has a temporary job as a security guard but that will soon end. Gaz and Dave come across him as he is attempting to commit suicide by gassing himself in a car.

The whole basis for The Full Monty is the idea that unemployment is devastating to people not because of the money but because of the emotional effect.

For many years, the European Union has been asking people how they feel, in the Eurobarometer survey. This survey includes the question: ‘On the whole, are you very satisfied, fairly satisfied, not very satisfied, or not at all satisfied with the life you lead?’

Among employed people, only 12 per cent said they were ‘not very satisfied’ or ‘not at all satisfied’. Among the unemployed, those on the unhappy side of the divide amounted to 41 per cent. The unemployed are more than three times as likely to be unhappy.

Those who are familiar with social science may immediately object: ‘Yes, but this could be misleading. Unemployed people are poorer than average. Perhaps more of them are divorced or separated, too. It could be poverty or loneliness making them unhappy rather than the lack of a job.’ But the unemployed are more unhappy than those in the lowest quartile of income or those who are divorced.

Two academics, Professor David Blanchflower of Dartmouth College in the USA and Professor Andrew Oswald of Warwick University, have taken the raw figures from the Eurobarometer surveys between 1975 and 1998 and separated out the identifiable factors which could affect happiness.97 In the jargon of social science, they are ‘controlled’ for other factors. They calculated that the depressing effect of being unemployed, excluding other depressing circumstances, is minus 1.18 – the largest influence, positive or negative – identified in their whole study. Being jobless, according to their analysis of the Eurobarometer figures, is an outstandingly powerful depressant.

Men are hit particularly hard. They are, on average, twice as depressed by unemployment as women.

The following figures are not ‘controlled’. But in the light of the analysis by Blanchflower and Oswald, we have reason to think they largely reflect the impact of being unemployed more than anything else:

Why do so many die? Generally they die of the same things as everybody else. But they suffer one cause of death far more than people in work: suicide. Attempted suicide is ten times more common among the jobless than those in work.98 Unemployment clearly does cause very serious unhappiness. It is part of the knock-on damage caused by social security.

Digging a little deeper still, why does joblessness have such a terrible impact?

Sigmund Freud suggested that work was mankind’s strongest tie to reality. Without it, we are likely to be psychologically damaged. Professor Marie Jahoda, who specialised in the study of unemployment, suggested99 that employment through structured time, social experience in areas less emotionally charged than the family, participation in a collective effort, regular activity, status and a sense of identity satisfied psychological needs. These may come, perhaps, from our long evolutionary history. For hundreds of thousands of years, human beings have acted in groups and may have come to feel it is important to participate in a group and to have a status in it.

John Burnett has collected together comments made by the unemployed.100 Here are a few:

Burnett comments, ‘Men in their middle years with family responsibilities … feel their role as a breadwinner diminished and their status in the household and society “demeaned” – a word often used.’

Unemployment may also change the way people behave towards the rest of the world. Here we may be getting towards a connection between the welfare state and the change in the behaviour of the British. Here are a few more quotations assembled by John Burnett:

Burnett comments, ‘Such symptoms of rejection and alienation from family and society seem to be shared quite widely by the young jobless’.

A picture emerges from Burnett’s testimonies of older people who become depressed and younger people whose depression alternates with outbursts of anger.

In one experiment, unemployed school-leavers were interviewed three times in Birmingham over a period of twenty-four weeks.101 At the beginning they were despairing and pessimistic. Later they became resigned and apathetic. But one psychological response remained the same throughout: ‘a diffused hostility against the community’.

Do the unemployed commit crimes more than other people, then? Academic studies have varying views but the majority conclude that unemployment does indeed contribute to the likelihood of someone committing a crime. It is not the only factor but it is a significant one.

A study was made of sixteen- to eighteen-year-old offenders in Northern Ireland.102 It found they were twice as likely to commit crimes when not in work, education or training. In Germany, 560 juvenile delinquents were investigated.103 It turned out that 27 per cent of them were unemployed. Delinquency was shown to be far more common among the unemployed than among those in work. These figures are not ‘controlled’. But the evidence, put together, points to a simple conclusion. Unemployment helps to cause crime.

It also surely causes what you could call ‘incivility’ – anti-social behaviour which does not amount to crime. The ‘diffused hostility’ reported in the Birmingham study means a man is more likely to start swearing and threatening others, a youth is more likely to paint graffiti on the wall, a woman on a train is less likely to stand up to allow a pregnant woman to take her place.

The unemployed themselves suffer most from unemployment. But the rest of us are affected too. We pay for the benefits, the hospitalisation of those who become unwell, the policing. We may become victims of the crimes and we receive the everyday incivility.

Oh no! Not welfare fraud!

Now for the second main charge against the social security aspect of the welfare state. There is one kind of crime – apart from suicide – particularly associated with the unemployed and others on benefit. It is fraud.

The subject makes people very angry. In the 1980s, some newspapers and the Conservative government suggested that there was a great deal of fraud going on in the benefits system. This was greeted with fury by most of the Labour Party and certain newspapers. They argued that only a tiny minority of people made false claims and that talking about fraud was just a mean pretext for cutting benefits and oppressing those who were already ‘socially excluded’. What is the truth of the matter?

In 1998, I went with officials from the Benefits Agency – which hands out the money – on a fraudster hunt. We were in and around Chislehurst, amidst leafy suburban streets in south London and on the edge of Kent. We started at a large building site. We visited the canteen and found a woman who was working there part-time. The officials pressed a button on a mobile phone which automatically dialled their central office in Leeds. Within twenty seconds they discovered that the woman was claiming benefits and she was not declaring the income from her part-time work.

Later the same day, we went to a ‘road stop’. It was something I had never seen or heard of before. A range of officials of different sorts were gathered together. There were people from the Contributions Agency (which then collected national insurance), from the Inland Revenue (which collects tax), from Customs and Excise (which levies duties on petrol, alcohol and cigarettes), the DVLA (Driver and Vehicle Licensing Agency) – which taxes those who want to drive – and the immigration service. The officials were accompanied by police officers, the only ones allowed to stop people. Every now and then, the police would pull over a car or van. The occupants would be interviewed by any of the agencies which thought they might find some law being broken.

A large, white, hired van was pulled over. Richard, one of the officials I was with, started his routine dialogue. The driver’s name was Irish. We will call him O’Rourke. He had light brown hair and was in working clothes. He stood awkwardly with his hand against the side of his head.

After calling up the Leeds central office, Richard said, ‘You are claiming jobseeker’s allowance aren’t you sir?’

‘But I haven’t signed on for ages,’ Mr O’Rourke protested.

Richard did not contradict him. ‘It may be that the details from your local office have not yet reached the central computer,’ he politely suggested. ‘How long have you now been in work?’

Mr O’Rourke seemed to have difficulty remembering. He suggested it might be since the end of February or so. Richard said that he would write down mid-February. Mr O’Rourke did not disagree.

Richard was completing a form which he offered to Mr O’Rourke. ‘If I could ask you to sign this to get the claim closed down so it is not left outstanding’, he said. Mr O’Rourke readily signed the form which stated that he was working and that he no longer qualified for welfare benefits.

‘Thank you for your time,’ said Richard. ‘You can go now’. Off Mr O’Rourke went, looking rather relieved.

You might be surprised at how respectfully Mr O’Rourke was treated, considering that he was, to put it bluntly, stealing. But it was all very decorous – as if the official was directing Lord Eminent to his seat at the opera.

In another instance, a minibus was stopped which was found to contain eleven Nepalese women accompanied by two Nepalese men. The interviews were difficult because they did not speak much English – or at least, appeared not to. Richard told me they were probably working in the rag trade. Four of the women were taken by immigration officials because they appeared to be illegal immigrants. They would not be paying tax, of course. Two were claiming benefits to which they were not entitled. Not many of them were paying the national insurance contributions due.

In the end, the work of Richard and the other Benefits Agency officials was cut short. So many people had been arrested on suspicion of being illegal immigrants that there were no police left to stop the cars and vans. Nevertheless, in a few hours the Benefits Agency had detected six people claiming benefits to which they were not entitled. The saving to the taxpayer of stopping these benefits was estimated to be £18,000.

It is the essence of things that we cannot know exactly how much fraud there is – especially organised fraud. But in 1997, the Benefits Agency completed an experiment.104 It zoomed in on four thousand of those claiming the major means-tested benefit, income support. Every one of them was interviewed in depth about their circumstances. Of course, even this process could not be guaranteed to find every case of fraud. But the results were astonishing nonetheless. Even among pensioners nearly one in twenty was definitely or possibly committing a fraud. Among the disabled, the figure was 11.7 per cent. But the incidence of fraud became worse still among two of the biggest categories of people claiming income support: the unemployed and lone parents. For the unemployed, 23.3 per cent were definitely or possibly committing fraud. Among the lone parents, the figure reached an horrific 26.7 per cent. In other words nearly a quarter of the unemployed on income support were claiming benefits fraudulently and more than a quarter of lone parents were committing fraud too.

The scale of the fraud went unreported in many newspapers, perhaps because it did not fit in with their agendas. But this report, by the Benefits Agency itself, showed that fraud is extraordinarily commonplace. It is routine. It is normal.

In what way were the lone parents cheating the system? By far the most common way, accounting for nearly half of the fraudulent cases, was claiming to be living alone while in fact living with a partner. The next most common way of cheating was falsely claiming to be not working at all or earning only a little.

How common is housing benefit fraud? Lambeth Council did a large study of fraud by private sector landlords receiving the benefit directly. It found that 18 per cent of the claims were fraudulent.

There are a variety of benefits available to the ill and disabled. In 1998, the government estimated that two of seven people claiming disability living allowance were entitled to none of that benefit at all.105

Putting it all together, there are the 850,000 or so claiming incapacity benefit fraudulently, 200,000 to 250,000 lone parents claiming income support to which they are not entitled, other substantial numbers of unemployed fraudulently claiming income support, many people also claiming illness and disability benefits such as the disability living allowance and there is fraud committed by some of those on jobseeker’s allowance. And this is just the fraud that is officially acknowledged.

Large-scale welfare fraud does not consist generally of determined crooks who occasionally appear in the newspapers if they are caught. It consists instead of well over a million people who are committing relatively small-scale crimes – ones which, individually, are not considered important enough for a great expenditure of time and money by the authorities. These crimes are so commonplace that you only have to walk onto a building site or stop twenty or thirty cars to find people committing them. This is a nation with a large proportion of welfare cheats. Walk down the street and you are passing them all the time.

Unfortunately – for those interested in the truth – governments have usually been slow to admit how bad the situation is. It reflects too much on their own performance. In 2002, when the government more than doubled its estimate of the cost of fraud and mistakes in two of the major benefits – income support and jobseeker’s allowance – from £1.32 billion to £3 billion, the news was quietly revealed in a parliamentary written answer.106

The creation of new benefits permits new fraud – sometimes on a spectacular scale. Disability living allowance, defrauded by at least two claimants out of every seven, was only invented in 1992. But the outstanding case was that of individual learning accounts. New Labour created it amidst much fanfare to subsidise education and training for adults. It became so renowned for being defrauded that the government had to close the whole thing down in 2001. Frank Field MP, the former social security minister, has said, ‘fraud is so serious that no minister would dare to tell the public its true scale.’

Official fraud estimates by government are highly variable and influenced by the politics of the day. They are simply untrustworthy. If 50 per cent of those on sickness and invalidity benefits are in fact capable of work as indicated by Sheffield Hallam University and more than 20 per cent of lone parents and those registered as unemployed are fraudulent too, as indicated by a government survey in 1997, then the cost of fraud is extremely high. An average 15 per cent fraud rate across all benefits would mean a total bill of approximately £15 billion.

One of the key problems is that governments, while boasting of their ‘zero tolerance’ of fraud and occasionally instituting a new, hitherto unprecedented crackdown on fraud never before seen on Earth, actually spend relatively little effort on it. There were 160,000 cases of fraud in housing and council tax benefit in 1999. There were only 800 successful prosecutions.

What is the price of welfare fraud? Does the price consist of money taken from taxpayers? Yes, that is part of it. If the total fraud bill is in the region of £15 billion, that is 5p in the pound for everyone paying the standard rate of income tax. And the tax does not just come from the rich. It comes from everybody else. A poor widow aged seventy pays income tax on any money over £6,100.107 She pays VAT when she goes to the shops. Poor people are made to pay for the fraud. That is part of the price.

Another part is the impact on the way people think. If you imagine yourself as a typical welfare cheat, you are continuing to accept benefits even though you are breaking the law and cheating other people. Human nature being what it is, you do not think of it as shameful. You think, ‘I would be short of money if I didn’t keep on taking the benefit. Anyway, everyone’s doing it.’ You might even feel, ‘I’d be a mug not to do it’. That kind of thought is a massive change from the kind of thought which would have been normal fifty years ago. The huge temptation to fall into welfare fraud has damaged people’s morality.

Benefit fraud has also undermined respect for the law. So, of course, has tax fraud, the other side of the same coin. Tax fraud is like benefit fraud in that it is caused by the strong temptation and the ease of getting away with it. It is not unreasonable to think that honest returns would be more numerous if the tax rate (including national insurance) fell to only 18 per cent. It easily could do so, if it were not for the cost of social security.

We have got accustomed to lies which we avoid calling ‘lies’. But if we lie as a matter of routine to the government, do we expect to tell the truth to other people? Do we expect other people to tell the truth to us? On BBC Radio 5 Live in December 2002, one of the presenters remarked that the then Leader of the Opposition, Iain Duncan Smith, had misled people in his curriculum vitae. She added that Tony Blair, the Prime Minister, had done the same. Then she joked that she and other presenters would not have got their jobs if they had not made things up too. It was all a joke.

It is a tremendous change from Victorian times and the first half of the twentieth century. The telling of a lie was a matter of great shame. It would blacken a gentleman’s name to be caught out in one. In June 1963, when John Profumo was exposed as having lied to the House of Commons, he resigned immediately and his career as an MP was finished. Yet ministers more recently have failed to tell the truth and stayed in – or returned to – office. Peter Mandelson told an untruth on a form applying for a mortgage. He failed to mention to the Britannia Building Society a loan of £373,000 which he had received from his friend and colleague Geoffrey Robinson. In so doing he ‘breached the Code of Conduct for Members of Parliament’ according to the parliamentary standards watchdog, Elizabeth Filkin. He also failed to inform the House of Commons of this loan. But the House of Commons Standards and Privileges Committee interviewed him using first-name terms and was keen to take into account any possible excuse including that he was busy with the Labour Party conference at the time. In the ensuing scandal, he did lose his job. But ten months later, in October 1999, he was made Northern Ireland Secretary. We now make excuses. Fifty years ago, there were no excuses.

Who cares about means-testing?

So the welfare state is charged with creating mass unemployment that continues to this day, resulting in misery for those directly affected and making a significant proportion of them less civil or even criminal. It is also charged with creating widespread fraud which, in turn, is likely to have damaged morality and respect for the law. But there may be another kind of damage that is more subtle and rarely recognised. This is the third main charge against social security in our welfare state.

Means-tested benefits have become dominant as the years have gone by. They have often been favoured by the Treasury because they have the apparent advantage of ‘putting money where it is most needed’. But there is a major problem with means-tested benefits, as anyone who has looked at this from society’s point of view – rather than the Treasury’s – has realised. Every major figure in the history of welfare has seen it. Chadwick saw it, so did the Webbs, Churchill, Lloyd George, Beveridge and, most recently, the Labour Party specialist in welfare policy, Frank Field. Only those who know little of social security do not know it.

The problem with means-tested benefits is that they send out three bad messages – ‘the three don’ts’:

DON’T save

DON’T earn

DON’T tell the truth.

Those on means-tested benefits get the message ‘Don’t save’ because if they do, they can lose their entitlement to any means-tested benefit. Income support, for example, is only available in full to people with less than £3,000 of savings. It is not available at all to anyone who admits to savings of £8,000 or more. These limits, in early 2003, have not been changed since at least 1995.

The least well-off get the message ‘Don’t earn’ because means-tested benefits are reduced as their earnings rise and tax can start on incomes from below £5,000.108 For much of the existence of the modern welfare state, working for the low-paid has been barely worthwhile. In 1994, for example, a couple with two children earning £120 for a sixteen hour week would take home £188 net income including benefits. If they worked twenty-eight hours a week instead, it would bring in only an extra £2 a week. Who would be so saintly or mad as to work an extra twelve hours for a mere £2?

Those on means-tested benefits also get the message ‘Don’t tell the truth’ because they can get benefits if they lie about their assets or income. Lying – or ‘forgetting to tell the truth’ – is very often the difference between money coming in or not.

Means-testing also encourages ‘the five ‘dos’:

  1. DO fill in long forms.
  2. DO lose your benefits if you are too old, proud, busy or ill-educated to fill out the forms. Almost six hundred thousand pensioners were not getting the means-tested ‘minimum income guarantee’ in 2001.109
  3. DO give up your privacy. Every little change in your personal circumstances must be revealed to strangers.
  4. DO agree a scam. Your employer may suggest he pay you a low wage but that you won’t suffer because your income will be made up by means-tested benefits.
  5. DO put your job in danger. The Citizens Advice Bureau announced in February 2001 that a small number of people had been sacked because they wanted their employer to claim the working families tax credit on their behalf. The employers found the WFTC forms, instruction leaflets and procedures too complicated and onerous. The Citizens Advice Bureau said that ‘many people’ had agreed not to claim the WFTC because of the associated hassle.

THE THREE ‘DON’TS’ IN ACTION

‘DON’T SAVE’

A kindly godmother wished to give £3,000 to her eight-year-old goddaughter for her education expenses when she grew older. But the godmother learnt that if she gave the money to her goddaughter, the mother would lose some of her benefits entitlement.110

‘DON’T EARN’

The Citizens Advice Bureau in Stroud, Gloucestershire was advising some people on benefits in 1997 that they were better off on the dole. Caroline Pymm, who ran the bureau, said ‘We frequently tell people that by the time they take child care and travelling costs into account, they are better off without a job’.

‘DON’T TELL THE TRUTH’

Social security inspectors visited a company which distributed magazines. The employees included Count Dracula, Ronald McDonald and Jack O’Nory. Twelve people were prosecuted. The workers were going under assumed names because if they worked under their real names, they could lose their welfare benefits.111

In recent times, Gordon Brown has significantly increased the amount of means-testing in Britain. It is now estimated that 38 per cent of households are on one means-tested benefit or another. Nine out of ten families are able to claim the children’s tax credit – which involves filling in a fifty-six-question form accompanied by forty-seven pages of advisory notes.112 He has been keen to ensure that it is always financially advantageous to work, which is sensible in itself. But he has only been able to make work moderately worthwhile. And to achieve even this, he has put more people on benefits. That means more people suffer the damaging effects of means-tested benefits.

The means-tested ‘pension credit’ now means that it is not worthwhile for low-paid people to save unless they can amass a very considerable pension fund (see chapter on pensions). The result is that most low-paid people don’t save.

The charge sheet against modern social security has become longer and more appalling as the story has unfolded. Mass unemployment has been made a permanent feature of life, whereas previously it was cyclical and nearly always at a much lower level. It has made many people – especially the lowest-earning third – less well-off than they need have been. The lowest third gets caught in the benefits trap. They are discouraged from being prudent in their expenditure and from saving. They are the ones most affected financially and – perhaps more important – mentally.

Mass unemployment has caused widespread unhappiness even to the point of increasing the number of suicides. Much of the population has been ‘pauperised’ – to use the Victorian word. That is to say people have been made dependent on handouts. In the process they have lost the sense of proud independence which was once normal. They have lost the self-respect that comes from self-provision.

They demand their benefits whereas, once, people of similar means in the late nineteenth century took pride in making weekly contributions to charity. Where previous generations thought of their duty and their honour, they think of their ‘rights’. They have become accustomed to lying to the extent that they do not see it in such moral terms.

WHY FRANK STENT ‘BLEW THIRTY GRAND’

Frank Stent won a £31,000 bingo jackpot in 1994. It was a fabulous win for a 25p stake. He certainly needed the money. He had been unemployed for nine years. His wife had cerebral palsy. They were poor.

But when he got his big bingo win, he deliberately went out and ‘blew it’ in only seven weeks.

He bought an antique gold medallion for £750. He spent £6,000 on holidays and splashed out £500 on children’s games. Judging by the photo of him in the Daily Star, he spent quite a bit on gold chains and bracelets which seem have been an alternative form of saving for him. Why did he behave so strangely?

‘Ideally, I would have bought £20,000 of bonds and banked the rest’, he told the Daily Star. ‘I would have liked a nest-egg for my old age.’ But he understood that if he kept the £31,000, he would lose most of his welfare benefits. He feared that the £180 a week payments he received would be cut to only £70 because they were means-tested. The state encouraged him to throw away money, despite the fact that he was poor.

Frank Stent illustrates that means-tested benefits discourage saving, prudence and self-reliance. They also show one reason why ‘poverty’ figures should not be trusted. The poor in Britain have strong reasons to dump their financial assets – either spending them or exchanging them for physical assets.

There was, sadly for Frank Stent, a sting in the tail of this story. He was getting disability and attendance allowances. His particular benefits were not means-tested. He could have kept the money. When the Daily Star told him, his wife Kim shouted, ‘What? Oh no, I don’t believe it!’

They do not experience the civilising experience of being a member of a friendly society. Their income depends on how much the government gives them – or rather how much the government takes from other people in order to give to them. The process is humiliating and causes alienation, depression and incivility.

We have experienced a rerun of the same problems of government welfare described in the 1834 Royal Commission on the Poor Laws. Unemployment has been created, as then. Morality and decency have been damaged, as then. Prudence and self-reliance have been reduced. Social security has been even more disastrous in the past eighty years than in the early nineteenth century. But our response has been feeble compared to that of 1834. Modern social security has been a disaster which has been barely admitted, let alone reacted to. In the sixteenth century, thinkers like Martin Luther recognised that money should not be given to the poor too freely. In the nineteenth century, Thomas Chalmers was among those who became well known for warning about the harm that could be done if money was too readily handed over. Edwin Chadwick and the Royal Commission saw where the state had been going wrong and what damage was being done. Lloyd George, Churchill and Beveridge – the three men at the origin of the modern welfare state – all admired self-provision in welfare through friendly societies. All were aware of the dangers of over-easy welfare and means-tested benefits in particular. Yet modern British governments learnt nothing from this wealth of history – this long tradition of understanding of the dynamics of welfare. In the 1920s and 1930s, then again in the 1960s and 1970s and again in the current decade, they have just blindly competed to please voters by giving money to the poor without discrimination or intelligence. They have turned the social security aspect of the welfare state into a catastrophe.

It would have been better if modern social security – as initiated by Lloyd George and Churchill and soon corrupted – had never been started. Britain today would be a better place with better people. There would be fewer who are seriously poor in monetary terms and in their spirit.

Notes

49 I have referred to the ‘expropriation’ of the monasteries rather than, as is traditional, the ‘dissolution’ because the word more accurately describes what took place. Their land was taken by the king and that was the main reason for the whole event. ‘Dissolution’ may be regarded as a euphemism which, over many years, has suited those on the king’s side of the argument.

50 Knowles, David, Bare Ruined Choirs (Cambridge University Press, Cambridge, 1976).

51 Ibid.

52 All three were executed in their time. Not a happy precedent for those who offer views on welfare reform.

53 The remarks about cheats were in his preface to Liber Vagatorum, cited in Karl de Schweinitz, England’s Road to Social Security (Perpetua, New York, 1961).

54 Report from His Majesty’s Commissioners for inquiring into the Administration and Practical Operations of the Poor Laws, 1834, p. 97.

55 Ibid., p. 89

56 Ibid., pp. 87–8.

57 Ibid., p. 57.

58 Ibid., pp. 93–4.

59 Speenhamland was a village in Berkshire, which has since been subsumed into Newbury.

60 Royal Commission Report, 1834., p. 41.

61 Ibid., p. 15.

62 Ibid., p. 78.

63 Ibid., p. 46.

64 Ibid., p. 174.

65 Ibid., p. 171.

66 Ibid., p. 177.

67 Nicholls, Sir George, A History of the English Poor Law, quoted in de Schweinitz, England’s Road to Social Security.

68 Royal Commission Report, 1834, p. 56.

69 De Schweinitz, England’s Road to Social Security, p. 122.

70 Mitchell, B. R. and Deane, Phyllis, Abstract of British Historical Statistics (Cambridge University Press, Cambridge, 1962), p. 271.

71 Ibid., pp. 344–5.

72 Deane, Phyllis and Cole, William, British Economic Growth 1688–1959 (Cambridge University Press, Cambridge, 1962).

73 The account of Chalmers is based on that in de Schweinitz, England’s Road to Social Security.

74 They are described vividly in America’s Social Revolution (Civitas, London, 2001) by Melanie Phillips, the Daily Mail columnist.

75 Royal Commission, 1874, quoted in William Beveridge, Voluntary Action (George Allen & Unwin, London, 1948) p. 28.

76 Beveridge, Voluntary Action, pp. 59–60.

77 Green, David, Reinventing Civil Society: The Discovery of Welfare without Politics (Institute of Economic Affairs, London, 1993), p. 65.

78 Green, David, ‘The Friendly Societies and Adam Smith Liberalism’, in David Gladstone (ed.), Before Beveridge (Institute of Economic Affairs, London, 1999) p. 23.

79 Harold Spender, The Prime Minister (Hodder & Stoughton, London, 1920).

80 Some of the details of the trip come from articles by Harold Spender in the Daily Chronicle at the time.

81 De Schweinitz, England’s Road to Social Security.

82 Matthews, Kent and Benjamin, Dan, US and UK Unemployment between the Wars: A Doleful Story (Institute of Economic Affairs, London, 1992).

83 Ibid., quoting from a 1930 essay, ‘The Past and Present of Unemployment Insurance’.

84 Ibid., p. 58.

85 The biographical background on Beveridge comes mostly from Nicholas Timmins, The Five Giants: A Biography of the Welfare State (Harper-Collins, London, 1995).

86 I myself have spent some seven or eight years as a part-time leader-writer for the Daily Telegraph. As a critic of the welfare state, I find it strange that Beveridge, a veritable symbol of it, played the same role. Churchill, who created the first national unemployment insurance in 1911, was also a journalist in his time, writing, among other things, opinion pieces for the Daily Mail, which I too have done. Of course I do not compare myself to either of these multi-talented and hugely important men. But it brings home to me how the people who most powerfully influence the way a country develops are among those few thousand at the centre of politics, the top of the civil service and on the comment side of journalism. Beveridge, in the course of his career, managed to be all three.

87 Timmins, Five Giants.

88 Fraser, Derek, The Welfare State (Sutton, Stroud, 2000).

89 Collins English Dictionary (1984 edition).

90 Fraser, Welfare State.

91 Beveridge, William, Social Insurance and Allied Services (HMSO, London, 1942), section 231.

92 As the years go by, the average income which people are able to earn typically rises. During the war, real wages went down, but afterwards earnings growth resumed. So the attractiveness of benefits declined for two reasons: first because of inflation and second because wages were rising. Deflating the benefits to account for both these reveals that benefit was kept lower than in 1938 all the time from the end of the war until 1957. It was clearly and indubitably profitable for a low-earning man to work in 1957 whereas the advantage had been far less (if any) in 1938. Could that help explain why the unemployment of 1.8 million people in 1938 was reduced to a mere 285,000 in 1957?

93 SEK730 per day for the first hundred days for income-related insurance, for which premiums must be paid. Translated into sterling at SEK 13.96 to the pound (rate in Financial Times on 24 January 2003).

94 The number on housing benefit reached a peak of 4.8 million in 1996. The latest figure available as at January 2003 was 3.8 million.

95 Beatty, Real Level of Unemployment 2002.

96 Words quoted are from the text of the novel by Wendy Holden (Harper-Collins, London, 1998) based on the film.

97 Blanchflower, David and Oswald, Andrew, Well-being over Time in Britain and the USA, rev. ed. (University of Warwick, Coventry, 2002).

98 Allen, Sheila et al., ‘Recent trends in Parasuicide (Attempted Suicide) and Unemployment among men in Edinburgh’, cited in John Burnett, Idle Hands: The Experience of Unemployment 1790–1990 (Routledge, London, 1994) p. 294.

99 Jahoda, Marie, Employment and Unemployment – a Social-psychological Analysis (Cambridge University Press, Cambridge, 1982).

100 Burnett, Idle Hands.

101 Quoted in Jahoda, Employment and Unemployment, p. 51.

102 Crow, Iain et al., Unemployment, Crime and Offenders (Routledge, London, 1989) quoted in Burnett, Idle Hands, p. 295.

103 Heinemann, Klaus, Arbeitslose Jugendliche, quoted in Jahoda, Employment and Unemployment, p. 45.

104 Daily Mail, 6 August 1997.

105 Daily Telegraph, 2 February 1998.

106 Daily Mail, 9 May 2002.

107 Income tax allowance for persons aged 65–74 during 2002/3.

108 £4,615 in 2002/3.

109 House of Commons library research, reported by Paul Goodman MP in House of Commons speech, 14 November 2002.

110 Financial Times, 31 August 2002.

111 Department of Employment press release, 5 August 1992.

112 Daily Telegraph, 18 January 2003, quoting John Whiting, a partner of PricewaterhouseCoopers.