Nicholas Timmins - The Five Giants [New Edition] - A Biography of the Welfare State

Social Security

Already it is possible to see two nations in old age; greater inequalities in living standards after work than in work.

Richard Titmuss, on the impact of occupational pensions, 1955, in Essays on the Welfare State, p. 74

Too small and far too timid a step forward … a little mouse of a scheme.

Iain Macleod speaking on the new Tory pension scheme in the Commons, Hansard, 27 January 1959, col 1013

If housing generated the most controversy between 1951 and 1964, social security, other than pensions, probably provided the least. Particularly in the earlier years, there was a real sense that the problem of ‘want’ had been cracked. True, the failure to pitch insurance benefits high enough meant that many more people than anticipated ended up supplementing them with national assistance. From 842,000 clients in July 1948, the National Assistance Board found itself with a million on its books by 1949 and 1,800,000 by 1954, a figure which then fluctuated by 200,000 either way until the mid-1960s. 65

But many of the claimants were old: full employment saw to that. The stigma and pain of the loathed household means-test had gone. Home visits by local officers armed with discretion to pay extra for special needs formed the core of the service. There was an intellectual understanding by left-inclined social scientists and the more rigorous Tories such as Powell and Macleod that something had gone really rather wrong with Beveridge’s plan for an insurance-based scheme supported by only the smallest of means-tested safety nets; and there was one real attempt in 1955 by the long-forgotten Oliver Peake to float large numbers off the means-test by a 22 per cent rise in insurance benefits. But the Board by the mid-1950s had sunk into a ‘quiet obscurity’. It was believed by its supporters to be delivering a humane and effective service. 66

Benefits in those days of low though increasingly worrying inflation were not uprated annually. Between 1948 and 1964 the insurance benefits were raised six times, while the means-tested ones saw ten increases. 67The two thus marched out of step. As a result confusion over objectives was revealed on both sides of the political fence, although a confusion which paradoxically illustrated the practical consensus over social security whatever the remaining differences in political philosophy. As Deacon and Bradshaw describe in their definitive record of the British means-test: ‘Sometimes insurance was increased by more than assistance – at which point the Government claimed that it was reducing the role of the means-test and the opposition complained that help was not going to those who needed it most. On other occasions, assistance was increased more and then exactly the same debate was held in reverse, with the Government extolling the virtues of selectivity and the opposition complaining about the means test.’ 68

Where consistency was achieved in the mid-1950s was over the joint realisation that the chicken of paying pensions in full from 1948 was about to come home to roost. A large number of the growing army of pensioners who had made only ten years’ contributions were about to retire. The national insurance fund was heading for a horrible deficit. In addition, Richard Titmuss at the London School of Economics, along with others, was drawing attention to a growing gulf in old age between those with occupational pensions and those who had only Beveridge’s subsistence-level state pension which had increasingly to be topped up with national assistance to cover rent. ‘The outlines of a dangerous social schism are clear,’ Titmuss warned in 1955, ‘and they are enlarging.’ 69Labour, as part of its increasing attacks on the government over its failure to fund health and education at the levels needed to match demand, focused on pensions to argue that Conservative policies were failing to achieve sufficient redistribution towards the least well-off, among whom pensioners were the largest group.

Later that year, Gaitskell succeeded Attlee as Labour leader. ‘In his hatchet-burying mood,’ Douglas Jay, the economist and former President of the Board of Trade, who was then a senior Labour figure, recalled, ‘Gaitskell laboured very hard to get everyone, particularly Bevan, Wilson and Crossman, working harmoniously together. Rightly he saw that what Crossman needed was a real hard practical job to do which would divert him from playing politics. So Gaitskell asked him to head a formal and expert Labour party committee to re-think the whole pensions and national insurance system in the light of … ten years experience. I was to join the committee. We also had the exceedingly valuable help of Richard Titmuss, Brian Abel-Smith and Peter Townsend. This was the best job Crossman ever did.’ Jay went on:

The two central principles which in the course of the argument became increasingly clear to us, and in the end won unanimous agreement were these; first that since the ordinary man or woman would rather pay £1 a week as an insurance contribution than as income tax, and so feel that he or she had earned their own pension, the contributory principle was right [a married man with two young children in 1956 still had to earn 97 per cent of average manual earnings to pay any income tax]; and secondly since a single fixed contribution and pension for all must mean either too high a contribution for the lowest paid, or too low a pension for the well paid, it was inevitable that the contribution and pension must be earnings-related in the future if pensions were eventually to ensure a decent living standard in old age. 70

The chief snag, Jay records, was the rapid growth since 1948 of schemes run by employers – occupational pensions. In 1936 a mere 1.8 million people were members of such schemes. By 1956 that had risen to 8 million, around a third of the workforce, chiefly covering white collar staff including the civil service. The employers would resist higher contributions, arguing that they were already paying into their own schemes. A typically ‘English compromise’ was proposed: they would be able to contract out of higher contributions in return for the pensions they paid. Much of the credit for designing the scheme, which aimed eventually at half-pay on retirement against the fifth of average earnings that the existing pension provided, goes to Titmuss and his colleagues. The plan was published in May 1957, enthusiastically endorsed despite Crossman’s confession to his diary that its details remained ‘three-quarters baked’, 71and was thrown down as a challenge to the Tories. It was to take twenty years to come to fruition.

Crossman’s plan was remarkable for abandoning ‘fair shares for all’, the wartime slogan Labour had adopted as a sound socialist tenet. Earnings-related pensions would mean more for the better off – a stark departure from Beveridge’s subsistence principle and a move towards more continental ‘citizenship’ models of social security. But it won union support. A TGWU-backed Fabian pamphlet was already arguing that: ‘The only test by which a pension can be judged is by its relation to the wage packet earned at work. This is the way the boss looks at his pension and that is the way we should look at ours.’ 72The unions also backed a state-run scheme as occupational pensions were commonly not transferable: workers saw them as a form of golden handcuffs, tying people to particular firms and even enforcing discipline within them. The more perceptive Conservative critics, while vigorously in favour of private provision, also saw that lack of transferability meant that existing occupational schemes reduced labour mobility, an issue that was finally to lead to sweeping changes in pension provision in the 1980s. There was therefore the beginning of a cross-party alliance available.