Reform Contemplates the end of middle class entitlements

Peter Cuthbertson
22 October 2009

Speaking at a luncheon in the City, which Chelgate attended, the economist Dr Patrick Nolan yesterday introduced his report The End of Entitlement. The think tank Reform, which has close links with the Conservative Party, releases the report today, which calls for £14 billion of cuts in welfare spending on the middle classes. The savings would come through:

• means testing Child Benefit (£7.0 billion)
• scrapping the child trust fund, employer-supported childcare schemes, health in pregnancy grants, the healthy start scheme and the Sure Start maternity grant (£1.3 billion)
• abolishing the winter fuel allowance and free television licences for the over 75s (£3.2 billion)
• raising the retirement age to 68 from 2010/11 onwards (£0.2 billion)
• ending concessionary bus fares (£1.0 billion)
• charging student loan borrowers at market rates (£1.2 billion); and
• abolishing the educational maintenance allowance (£0.5 billion).

Nolan argued that middle class welfare now accounted for a quarter of all welfare spending - £31 billion was, he said, a conservative estimate. Despite one of the highest welfare budgets in the developed world, according to the OECD, the failure of so much of this spending has been extensively documented by organisations such as the Centre for Social Justice.

There are two opportunities in the current economic crisis, Nolan concluded. First is to encourage a move by those on middle and higher incomes towards more private insurance, of the sort seen in the Netherlands with private disability insurance. Second is to twin the restriction of middle class welfare with lower taxes, and consequently a faster-growing economy.

Dr Rebecca Driver, Director of Research and Economist for the Association of British Insurers, which hosted the event, discussed the value of personal protection accounts. Someone who contributed 1% of his salary to an account to provide for two emergency periods of unemployment for six months would twenty-eight years before enough had been saved to cover his needs in this period at half the rate of his salary. Therefore insurance operates as an effective way to pool such risks.

Driver also called on politicians to recognise that if government set the price of personal protection accounts, it may find itself in a situation where private firms cannot justify their involvement because they cannot generate profit from it. A competitive, free market approach is the sure way to involve the private sector while keeping costs down for individuals.