The long career of nanny state

Nicholas Timmins has provided us with a highly readable account of the evolution of the welfare state over the past half century. It is thorough, fair and illuminating, drawing on many different sources, including 50 interviews with key participants, and written in a lively style.

The first third of the book is devoted to the beginnings of the welfare state from the publication of the Beveridge report in 1942 to the change of government in 1951. Beveridge, who did not invent the phrase "the welfare state" and had no liking for it, had been itching for a major part in the organisation of the war economy and was fobbed off by Aneurin Bevan with what was conceived of as a tidying-up operation on a wide range of heterogeneous social services. This task was transformed by Beveridge into the preparation of a blueprint for their comprehensive reorganisation, radical at the time if rather modest and conservative in retrospect, and to the commanding of irresistible support. When it came to tackling Beveridge's "five giants on the road of reconstruction" - want, disease, ignorance, squalor and idleness -the measures taken were inevitably framed by others.

The first move -Butler's Education Act of 1944 under the coalition government - owed nothing to Beveridge; and it was Bevan who brought the National Health Service into existence in 1948. Beveridge had called for a national health service and full employment. But it was on national insurance to cover the cost of pensions and social services that his report concentrated; and contrary to the idea that Beveridge was a kind of high priest in a New Jerusalem, the national insurance fund in its early years added substantially to national savings, not the reverse.

Two somewhat shorter sections of the book cover the boom years from 1951 to 1974 and then the Thatcher years after 1979, with two chapters sandwiched between on the critical years of Labour government from 1974 to 1979. Because of the different elements in welfare, the narrative has to be split up in successive chapters to deal with the separate developments in education, health, housing, social security and the various social services. This makes the long tale of reform and attempted reform under different headings rather dizzying, but Timmins does his best to lighten the narrative by amplifying the bare facts with circumstantial comments and recollections from ministers, officials and others.

Decade by decade, radical proposals for change were advanced, sometimes with little immediate effect, sometimes replacing one administrative structure with another and bringing on a major crisis. On one side was the constant pressure for economy, attempts to find ways of keeping the burden on the taxpayer within limits by restricting benefits or devising less costly ways of providing them. This was coupled with efforts to reform the system of benefits for other reasons to meet new needs, to enlarge the consumer's choice or to give beneficiaries more freedom in the use of the aid provided. The Beveridge universal flat-rate system gave way to means tests, shutting out some, and to earnings-related schemes varying benefits between contributors.

Change was unremitting and took many forms. Old-established benefits were cut or abandoned, while new benefits were introduced at a level of expenditure quite unforeseen. The maternity grant and the death grant, for example, which dated back to Beveridge and were among the more popular benefits, were held at the same nominal value through 40 years of inflation and discontinued in 1984 with "barely a stir". On the other hand, extra payments to those on supplementary benefit (half of whom were unaware that such payments were made) ballooned from £44 million in 1981 to £220 million three years later. The National Health Service in 1987 was "technically bankrupt"; at other times it seemed possible that hospital consultants, or alternatively GPs, would resign in droves. When the basic state pension was uprated with prices instead of with earnings after 1981 it took just over ten years for it to fall from around 20 per cent of average earnings to 15 per cent and looked likely to fall further to 8 per cent by 2030. On the other hand, (private) occupational pensions have spread to a much larger proportion of workers: in 1994 55 per cent retired with an occupational pension against a third in 1979.

The welfare state may appear to be in process of steady contraction. But, as Timmins makes clear, there has been no fall in what the state spends in total on welfare, whether measured in real terms or as a proportion of GDP. On the contrary, it was higher in the early 1990s than ever before. In 1993 welfare cost the government, that is, the tax payer, "almost £160 billion, virtually two-thirds of government spending and more than a quarter of national income". It is not that the supply of funds has been cut; the big change is in how they are spent. In part, means tests limit the section of the population that benefits. This is true, for example, of optical and dental services and of prescription charges. More dramatic has been the expansion in independent residential and nursing homes funded through social security. While the National Health Service continues to spend almost £1.5 billion on its long-stay beds, £2.5 billion is furnished in income support to those in nursing and residential homes who are eligible.

This illustrates a second trend: the combination of public funding with private provision of services. The government no longer insists that what is purchased with public money must be provided within the public sector. It seeks to encourage more competition between suppliers by making use of the private sector and tries to develop internal markets within the public sector. These trends are the counterpart under Conservative governments of their privatisation of the nationalised industries.

Some of the trends over the period might have been usefully illustrated by graphs. One or two bar charts appear at the end without explanation. They show the growth of spending on welfare, year by year but, although drawn from a common source, are not altogether easy to reconcile with one another. In one, for example, welfare spending by the government in 1976 is higher than in 1991 as a proportion of GDP, while the other shows the reverse. They do show, however, that within the total over those years education lost share both to health and, still more, social security. The situation in the early 1990s, however, is distorted by the high level of unemployment that held down tax revenue and pushed up public expenditure, contributing to a budget deficit that reached £50 billion. As Keynes warned us many years ago: "Look after unemployment and the budget will look after itself."

Keynes also argued for a rigorous separation of current and capital expenditure and for a separate capital budget. Unless required to balance current revenue and current expenditure Chancellors, he suggested, would be encouraged in spendthrift ways. A capital budget, however, would allow them to expand capital expenditure in order to ward off depression, balancing the extra spending against extra borrowing. The same need for a capital budget strikes the reader of this book. When the sale of council houses brings in an extra £28 billion - more than the privatisation of British Telecom and electricity combined - the same danger exists that the capital will be dissipated needlessly in current spending. A capital budget would help to ensure a firm distinction between current and capital flows and a proper regard to future needs.

Sir Alec Cairncross is chancellor, University of Glasgow.