Oct. 18 (Bloomberg) -- British Prime Minister David Cameron threw a party Oct. 14 to celebrate his predecessor Margaret Thatcher’s achievements. This week, he will set out plans to tackle something even she couldn’t in her three terms: the U.K.’s welfare state.
In doing so, he’s challenging the doctrine that the government should offer, in Winston Churchill’s words, security “from the cradle to the grave,” and he risks opposition from all sectors of society -- including his Liberal Democrat coalition partners -- after the longest recession on record.
“Thatcher would have liked to do these reforms,” said Tim Bale, author of “The Conservative Party from Thatcher to Cameron” and professor of politics at Sussex University. “The problem is, when you have 2-3 million unemployed, to be seen to be making things harder for them is politically difficult.”
Cameron, 44, aims to virtually eliminate the biggest peacetime budget deficit by 2016, with cuts in ministries averaging 25 percent under a June 22 blueprint that protects the National Health Service. Total government spending would fall by 0.7 percent a year in real terms. Under Thatcher, 85, who was known as the Iron Lady, it rose by an annual 1.2 percent over her 11 years in power to 1990.
Opposition Labour Party lawmakers say that with one of his first cuts, removing child-benefit payments from wealthy parents, Cameron is more than stoking the fury of stay-at-home mothers. They say he’s undermining the principle of “universality” that has underpinned British welfare, health and education services for 60 years -- that everyone had access regardless of wealth.
Cameron defended the move in Parliament Oct. 14, telling Labour leader Ed Miliband it was wrong that poor voters in Miliband’s district should pay taxes to provide child benefits for their representative in the legislature.
“It’s a worrying line of argument,” said Stephen Timms, a Labour spokesman on welfare and pensions. “It could be applied equally well to the health service. It’s an alarming pointer to Conservative thinking.”
The budget plan is winning over investors. Gilts have returned 7.4 percent since Cameron replaced Labour Prime Minister Gordon Brown in May, more than the 4.5 percent gain by German bunds and the 6 percent increase in U.S. Treasuries, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
As he enacts the spending cuts in the Oct. 20 Comprehensive Spending Review, Cameron risks derailing an economic recovery. Jobless claims in September had the biggest increase in eight months, a sign growth is losing momentum. Unemployment in the quarter through August totaled 2.45 million.
“This looks like it’s going to turn the economy right down and I think it’s going to be a terrible, terrible mistake,” former Bank of England policy maker David Blanchflower said today in a Bloomberg Television interview. “My fear is that” the first quarter of next year “is really going to look terrible.”
Sterling fell against 13 of its 16 most-traded peers today. The U.K. currency dropped 0.6 percent to $1.5893 at 1:17 p.m. in London. It was little changed at 87.47 pence per euro, near the lowest in five months.
The principles of the British welfare state were laid down during World War II and implemented in its aftermath. It was a cross-party project, with Churchill, a Conservative premier, giving his support.
It included setting up the National Health Service, to provide free treatment for all, the introduction of free secondary schooling, payments to mothers of school-age children, and payments to pensioners, the unemployed and the sick.
According to Bale, Cameron follows the tradition of the “One Nation” group of Tories who opposed making many of these benefits universal on the grounds they would tie the middle classes into the state and discourage individual initiative.
In Cameron’s speech to the Conservative Party’s annual conference Oct. 5, he said the modern welfare state had “measured success in tackling poverty by the size of the check that we give people.” Instead, he said, “let us measure our success by the chance that we give.”
Cameron, though, is appealing to an electorate that polls show is divided on the merits of the cut in child benefits. After the move was announced, a YouGov Plc poll found that while 83 percent supported the step in principle, 46 percent said basing it on individuals’ incomes was unfair.
“The government, which claims ‘fairness,’ has put itself in the absurd position of saying that children should play a bigger role in getting the deficit down than the banks,” Labour Treasury spokesman Alan Johnson said today in his first economic policy speech since he was appointed Oct. 8. “Families take the strain while the bankers grab the bonuses.”
“I understand there needs to be a cut-off point, but I don’t think it’s been thought through fairly or correctly. I don’t think it’s fair,” said Paul Bygrave, 34, a father of two who lives in Dartford, southeast of London, a district that switched from Labour to Conservative in the May 6 election. Bygrave, parts manager at a BMW dealership, said he won’t lose out because both he and his wife earn below the 44,000-pound ($70,000) annual threshold even though their combined income exceeds it.
Living on Benefits
Cameron and Chancellor of the Exchequer George Osborne have both spoken about the anger of people who get up to go to work while their neighbors stay in bed and live off benefits, a line that resonated with voters like Bygrave. He has a cousin with seven children who is out of work and has everything paid for by the state.
“Financially, they’re probably better off than I am and they don’t work. I work a 45-hour week to be in the same place they’re at,” Bygrave said. “They could be doing more to help themselves.”
The YouGov poll found that view is widely held, with 86 percent of voters backing a 26,000-pound-a-year cap on the benefits a family can receive. Implementing it will present more of a challenge.
“People will lose their houses and there’s no doubt that the Tories have set themselves up for really bad headlines when the first families are made homeless,” said Roy Sainsbury, a professor of social policy at York University who has advised lawmakers on welfare. “People will realize that these people aren’t scroungers but people in really dire circumstances.”
Liberal Democrat Concern
Ministers should be concentrating policy making on helping the “99 percent” of unemployed people who want to work, rather than following newspaper headlines and concentrating on people who abuse the system, Sainsbury said.
Some Liberal Democrat lawmakers have expressed concerns that cuts to the welfare budget are targeting the worst off. Osborne said yesterday that persistent welfare cheats face having their benefits cut off for three years.
“The government’s got to be careful because there’s already children in poverty in this country and if too much is cut it could make the situation worse,” said Kelly Jarvis, 30, as her daughter played in Dartford’s park. “They have to be careful to make sure that people who genuinely need it aren’t penalized for it.”
Jarvis, who is worried she may lose the disability allowance paid to her 11-year-old son with cerebral palsy, is already feeling the pinch in the government’s austerity program. The number of diapers provided for her son has been cut to four from five a day.
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