14/01/2013 06:40 GMT | Updated 13/03/2013 05:12 GMT

Benefit Caps - No Substitute for Contributions

The bill to cap benefit rises at 1% prompted a row during the second reading in the Commons. For Labour, the 1% limit was unfair on poorer people. But for the coalition tackling Labour's 2010 deficit remains paramount and a 1% - in line with public sector wages - is hardly hairshirt territory.

However a more radical change will be needed to cut the overall level of debt (now through the £1 trillion barrier) and the high levels of public spending (c. 50% of GDP) along with the taxes to fund it. Otherwise UK recovery will remain a distant aspiration with less and less to help the poor. The evidence is on the side of cuts: Cutting public spending has helped to turn a number of 'crisis' economies around - along with reforms for sound legal and financial institutions or to protect property rights (see Going for Growth: The Best Course for Sustained Economic Recovery, by Ludger Schuknecht, Norbert Hoekstra and Holger Zemanek). The current battle to cut the Work and Pensions Bill therefore matters for recovery, but to win the battle the widespread culture of dependency must be tackled.

That culture emerged from the late 1940s particularly with welfare benefits. Sir William Beveridge, the welfare state's founder, had insisted that benefits must be paid for by people themselves paying contributions during time of work. Benefit would then be drawn as a right as people in work had 'insured' themselves against lean times (topped up by the employer and the taxpayer). Those who did not work or contribute enough would be given a smaller, means-tested sum for subsistence - for shelter, clothing and food.

Since the 1940s, governments have broken the Beveridge rule. Indeed the principle of benefit conditional on contribution has been all but done away with. At the outset in the 1940s the Attlee regime opted to pay retirement pensions without contributions conditions being met. In the 1960s and 1970s, as the number of workless households expanded, often headed by a lone parent, governments became the surrogate breadwinner, ignoring the contribution rule. The trend was set and other categories have since moved in to find the taxpayer a genial paymaster.

Today, the principle has been turned on its head. Those who have paid their way through a lifetime of work, tax and NICs are increasingly penalised and means tested. Those who would not have met the conditions and rules of the original welfare state continue to be supported at levels in excess of what were judged to be proportionate and sensible to encourage incentives, work, saving and self-reliance. And in the last two years we have seen the writing on the wall for the popular and widespread contributory pension.

Most people in the UK, quite rightly, want to help the destitute, the poor, the struggling. It is the mark of a decent, as well as comparatively rich, democracy. But it was never seen as possible or desirable for the taxpayer to take the place of the breadwinner for long-term jobless households (barring exceptional cases).

While a safety net can lift people out of danger, suspension in a no man's land is not a way of life. Other than for those special cases recognized as needing long term support, the expectation for the future must be that people will work to support themselves and their families; that they will contribute from earning over their lifetime for income at times when earnings cease. For a debt-ridden Britain, restoring the link between paying for, and receiving, benefit, would be a first step towards balancing the books.