Introduction

In this chapter, we consider the changes made to social security – increasingly known as ‘welfare’ – during the period of the Conservative–Liberal Democrat coalition government, and in the early days of the majority Conservative government. First, we set the context in terms of the amount of spending on social security policy. As the largest single budget of any government department, social security was clearly a key target for a coalition government determined to reduce public spending. However, policies were driven not just by fiscal goals, but also ideological aims in terms of changing individual behaviour and reducing the role of the state in preference to the market.

The chapter then gives an overview of the key social security reforms before focusing separately on policies relating to those of working age and those over state pension age. This has become an increasingly important distinction since 2010, with those of working age (whether or not with children) being the key target for reform, leaving pensioners relatively protected from austerity cuts.

The chapter then reviews the impacts of the reforms alongside the key themes of reform, identifying the influence of the Liberal Democrats on coalition policy. It then compares these recent reforms with those of the previous New Labour governments (1997–2010) and the prior Conservative governments (1979–97). We conclude that there is much continuity but also some radical change, not least the introduction of benefit caps and the effective abandonment of policy to reduce child poverty. An intensification of the neoliberal project is further being pursued by the 2015 Conservative majority government.

Background: the 2010 context

Following the 2008 financial crisis, the New Labour government provided the banks with £124 billion in the form of loans or share purchases, which required a transfer of cash from the government to the banks (National Audit Office, 2011). At the same time, social security expenditure was increasing due to rises in unemployment. The coalition government came into power with a key focus on reducing the public sector deficit and national debt. As the largest single budget of any government department, social security spending would be a key target. At £210 billion in 2010/11, or over 13% of gross domestic product (GDP), spending on social security was around twice as large as spending on the National Health Service (NHS).

In recent years there has been increasing academic, policy and public interest in personal assets, and in the growing gap between rich and poor. This book brings these two issues together. Although they are conceptually distinct, they are also strongly related, with the rich having significant levels of assets while people at the bottom of the economic distribution have very few, if any. It is aimed at a wide audience, including students, academics, policy makers, journalists and members of the general public. It draws on debates from a range of disciplines including sociology, economics, politics and philosophy, and it touches on policy issues in relation to taxation, housing, pensions and education. It is therefore an ambitious book and one that we do not see in any way as definitive, but as a contribution to an important debate on wealth and the wealthy.

But why should we be interested in wealth and the wealthy rather than in the seemingly greater social problem of poverty and low income? We are not arguing that poverty and low income are unimportant, but these issues have received a great deal of attention from academics and policy makers for decades; there has been much less discussion of wealth and the wealthy. The first two chapters in the book consider why wealth and the wealthy are important issues for social science and, in particular, for social policy. We argue that wealth is an important issue because there has been increasing emphasis placed on personal assets by both Conservative-led and Labour governments in recent years. This shift towards personal assets and more individual responsibility for welfare has, however, failed to achieve its aim of greater individual financial security and wellbeing and so, we argue, a new settlement is needed. We also argue that wealth, in the form of personal assets, is important because it plays a different role in people's lives than income. There is growing evidence that wealth might have an independent effect on people's health, prospects and general wellbeing. Chapter One considers the evidence here.

The wealthy are an important subject for social science for a number of reasons. First, there is increasing discussion about whether or not the gap between rich and poor causes various social and economic problems.

Introduction

This chapter is the first of two that critically discuss policy responses to wealth and the wealthy, starting with wealth. Under the Labour government 1997–2010, there was much discussion of asset-based welfare policies but relatively little accompanying policy action. ‘Asset-based welfare’ was never a holistic policy on assets but focused on financial savings primarily for people on low incomes. Policy has, indeed, rarely joined up the links between pensions, housing and savings, and one goal of a comprehensive policy on assets would be to do this. Such a policy would also need to consider how more affluent groups are affected by policy (for example, through the existence of tax relief on private pensions and the provision of tax-free Individual Savings Accounts, ISAs). Such a policy would also need to consider policies on assets in relation to the other ‘pillars’ of the welfare state and in particular income-based policies and services.

We begin this chapter with a discussion of the possible goals for a comprehensive policy on assets. We then turn to asset-based welfare and policy on savings before considering policy in housing wealth and pension wealth. The role of the tax system is also vitally important here alongside the various schemes that exist in relation to different forms of wealth. Much of the discussion of assets assumes that they are a household resource, shared equally by members of the same household. But we saw in Chapter Four that this is not necessarily the case, and so we consider the implications of this for policy.

This chapter does not merely document the different policies but also critically assesses their role. For example, should those on very low incomes be encouraged to save rather than spend on their current needs? Should those on very low incomes be encouraged to become home owners and potentially risk mortgage debt and repossession? Should people on low incomes save in private pensions if the state is providing a means-tested benefit in retirement that might make them little, or no, better off in retirement for having saved?

The goals of a comprehensive policy on assets

In Chapter One we documented the shift from collective responsibility and risk through state welfare provision towards more individual responsibility and risk through private welfare provision.

Introduction

Chapter One focused on why wealth, in the form of personal assets, matters. This chapter explains why the wealthy matter. As argued in the introduction, ‘wealth’ and ‘the wealthy’ are related but represent two distinct sets of issues. Most of the wealthy have high levels of personal assets but some might be considered ‘wealthy’ (or ‘rich’) due to extremely high levels of income – they may be ‘income rich but asset poor’. This raises the issue of who might be considered ‘wealthy’ and we discuss this, in detail, in the next chapter. In this chapter, however, we argue that there are four key reasons why social policy should focus more attention on the wealthy.

The first is that, partly as a result of some of the trends discussed in Chapter One, the gap between rich and poor has grown since the 1980s, and an increasing body of empirical research suggests that this gap between rich and poor, as distinct from poverty itself, has negative effects on society, for example, in relation to health outcomes. If this is the case, then this provides a reason why social science, and social policy in particular, should not only concern itself with discussing ways of reducing poverty but also ways of reducing the gap between rich and poor.

The second reason for focusing on the wealthy is that the concentration of wealth among a very few people at the top may have contributed to, if not caused, the economic crisis that the world is still struggling to recover from at the time of writing this book.

The third reason for paying attention to the wealthy is that, regardless of the empirical evidence on the social or economic effects of inequality, a large gap between rich and poor may be unjust if those who become rich do so through luck of birth rather than merit. It is therefore important to consider the extent of equal opportunity within an unequal society and the role of policy.

And, finally, even if equal opportunities exist there may nevertheless be injustice if the resulting amount of wealth accumulated by some people goes beyond what might be considered a fair reward for differences in effort, skill and so on.

Introduction

In recent years there has been growing concern about the concentration of wealth at the top. But, as we saw in Chapter Three, there is no agreement about who is ‘rich’ or ‘wealthy’. Rather than allow this stumbling block to derail any discussion of this group, we use a range of measures in this chapter to investigate three groups. The first group is ‘the rich’ who we define as the top 10 per cent of the income/asset distribution. The top 10 per cent, however, do not necessarily see themselves as receiving high incomes. let alone as privileged or wealthy or rich, as they are often not aware of how high they are in the wider distribution of income and assets. Indeed, as we saw in Chapter Two, people at the top often place themselves in the middle of the economic distribution (Rowlingson et al, 2010). We define the ‘rich’ as the top 10 per cent because, as we saw in Chapter Four, this group's income and wealth sets them apart from the rest of society. The distribution of income and assets increases quite considerably at this level, which means that this group has a great deal more economic resources than the rest of society. For example, the top 10 per cent own 100 times more wealth than the bottom 10 per cent, and they own 50 times more than the average (median). And as we shall see in this chapter, it enables them to establish private lifestyles and modes of consumption. This group also has the ability to exclude themselves from some elements of society as they can afford private forms of welfare such as fee-paying schools and private health insurance. This fits in with John Scott's conceptualisation of the privileged (Scott, 1994).

Many of the group we label ‘the rich’ may not consider themselves wealthy, but the group we label the ‘richer’ (top 1 per cent) are much more likely to appreciate their economic power and status. This group have pulled away from everyone else in the last decade or so and we therefore consider them on their own as a key ‘richer’ group.

Introduction

Wealth in the form of personal assets has received increasing attention in recent years from researchers and policy makers. This is for two main reasons. First, in the UK there has been an increase in policy emphasis on personal asset holding since the 1980s and a growing proportion of the population now own some kind of personal wealth. For example, 70 per cent of households are owner-occupied. This shift has been the result of deliberate policy change, from 1979 onwards, aimed at reducing state provision of welfare and collective ownership of wealth. We have seen this in the state withdrawing from providing social housing and instead encouraging people to become home owners. The state has also reduced levels of entitlement to the state retirement pension and encouraged people to take out their own private pensions – although the success of this policy has not been as great as with home ownership. And the state has privatised a number of industries and companies, selling off shares to individuals. This decline in the collective ownership of wealth and the corresponding rise in personal asset holding is part of a broader shift from collective forms of responsibility and risk through the state to more individual forms of responsibility and risk. These are significant trends, affecting the lives of us all. They demand analysis of the causes, consequences and policy implications of such trends as while some people have benefited from these trends, others have been left behind.

The second reason for social policy to focus on assets as well as income is that income is not the only important economic resource. It certainly plays a vital role in relation to people's livelihoods, but assets play their part. Some research suggests that assets have a positive effect on people, independent from income, and if this is the case, then social policy should not only concern itself with discussing ways of increasing incomes for those in poverty but also ways of increasing their assets.

This chapter discusses each of these reasons in more detail.

From collective welfare to individual assets

The year 1979 was a major turning point in British history. The new Conservative government hit the ground running with a range of policies designed to ‘roll back the frontiers of the state’.

Introduction

In Chapters One and Two we argued that there were strong reasons for focusing our attention on wealth and the wealthy. In the course of those chapters we used the terms ‘wealth’ and ‘wealthy’ without too much discussion, but these terms are used in different ways at different times and there has been very little discussion among academics about what these mean, particularly compared with the extensive discussions of ‘poverty’ and low income. This chapter takes ‘wealth’ first and discusses how we might conceptualise, define and measure wealth. It then takes the same approach with ‘the wealthy’.

Conceptualising and defining wealth

As argued in the previous chapter, wealth has received relatively little attention from researchers. It is a term commonly used but not necessarily used in a consistent manner. So what is it? Our focus in this book is on wealth in the form of personal assets, but it is important to remember that there are other forms of wealth. For example, wealth can also be conceptualised as ‘capital’, and this term has been the subject of much debate. Various forms of capital have been identified at different times, for example, property and other forms of financial/ economic capital as well as human capital (skills and education), social capital (social networks and relationships) and cultural capital (symbolic goods including attitudes, language and habits) (Bourdieu, 1986; Putnam, 2000). All forms of capital play a role in relation to people's life chances and wellbeing, but the relative strength of each and the relationship between them is unclear. For example, economic capital is likely to play a major role in helping people increase their human capital, through paying for education and training. But cultural capital may also play a role if parental attitudes are such as to encourage children to focus on education. It is argued that social capital varies among different socioeconomic groups such that those from more middle-class backgrounds have ‘weak social ties’ across a large number of contacts which enables them to accumulate more ‘bridging capital’, and those from working-class backgrounds have ‘strong social ties’ which enables them to accumulate more ‘bonding social capital’ (Granovetter, 1973; Putnam, 2000).

Introduction

There is a very high level of wealth inequality in Britain today, far higher even than the level of income inequality. This chapter presents analysis of the distribution of wealth using a range of sources of data, such as the Wealth and Assets Survey (WAS), Family Resources Survey (FRS) and Her Majesty's Revenue and Customs (HMRC) (formerly the Inland Revenue) data from people's estates. It compares the distribution of wealth with the distribution of income and then looks at particular types of wealth: financial savings, private pension wealth, property wealth and physical wealth. The analysis then considers the distribution of wealth by different groups in the population, for example, by age. Age is particularly important because the ‘lifecycle model’ suggests that some degree of wealth inequality is due to the fact that younger people will inevitably have had less time to accumulate wealth than older age groups. This chapter also looks at the distribution of assets among black and minority ethnic (BME) groups as well as different faith groups and social classes. Gender divisions are also considered, alongside a discussion of the within-household distribution of assets. Finally, the chapter analyses the role of inheritance and lifetime gifts in relation to intergenerational wealth inequality.

The distribution of wealth

The distribution of wealth is even more unequal than the distribution of income. For example, our analysis of the WAS 2006–08 shows that:

• • the bottom 30 per cent in 2006–08 owned only 1 per cent of wealth;

• • the top 10 per cent owned 44 per cent.

If we turn to income, our analysis of the Households Below Average Income (HBAI) 2007/08 dataset shows that:

• • the bottom 10 per cent of the population received only 1 per cent of income;

• • the top 10 per cent received 31 per cent.

Figure 4.1 illustrates this point further by dividing the population into deciles (tenths of the population). Shares of both income and wealth increase as we move up the deciles, with the top decile (the richest tenth of the population) having a particularly high share compared with other groups. The figure clearly illustrates that much higher level of wealth inequality compared with income inequality as the bottom three deciles (30 per cent) have virtually no wealth at all, and the top 10 per cent have 44 per cent.