John FitzGerald: Overlooked welfare system key to avoiding rise in inequality

In the immediate postwar years, the United Kingdom and many other European countries developed comprehensive social welfare systems while Ireland lagged well behind.

Ireland’s social insurance system, introduced in 1953, was a pale copy of the postwar Beveridge UK system, and far from comprehensive in its coverage.

Ireland’s poor benefit rates in the 1950s were part of the push factor that resulted in high emigration in that decade, although benefit rates improved in the 1960s as rates kept pace with rapidly rising real wages

The 1970s saw an expansion in the scope of our social welfare system. Payments for lone parents represented a sea change in attitudes in supporting single mothers to raise their children rather than having them adopted. Supplementary welfare allowance replaced the previous discretionary home assistance, which had roots in the Poor Law.

The Commission on Social Welfare in 1986 emphasised the importance of adequate rates of social welfare payments, and a widening of the scope of social insurance. These reforms were subsequently implemented, even at a time of acute financial constraints. In contrast, in Margaret Thatcher’s Britain there was a major row-back of the welfare system.

The result was that while in 1980 Irish people were better off being unemployed in the UK rather than in Ireland, by 1990 this position had been reversed. This has affected the composition of Irish emigration to the UK – where once it was predominantly the unskilled, today it is largely graduate emigration.

During subsequent decades, Ireland’s welfare payments continued to improve in real terms. Today, our welfare benefits are considerably more generous than those in Britain, although there is no evidence of “welfare tourism” by UK citizens.

During the recent economic crisis, the main features of the Irish welfare system were preserved, and welfare spending was largely protected from the huge rein-in of public spending. A limited cut in nominal rates for most payments was offset by a fall in prices, leading to a small increase in the purchasing power of benefits.

Pensioners, however, were exempt from the cuts: as a result, the real value of their State pension increased when incomes were generally falling.

Ireland’s market incomes are very unevenly distributed, and the tax and welfare systems, but mainly welfare, play a very important role in redistributing income. The welfare system protected us from a potential growth in inequality during the recent economic crisis – after tax and welfare, there was no change in income inequality between 2007 and 2014.

Party manifestos

However, in recent years the vital role of the welfare system in Irish society has been taken for granted. In contrast to elections in the 1970s and 1980s, welfare figured very little in the party manifestos in last February’s election, and it wasn’t the focus of significant election debate.

The programme for government contains little by way of social welfare commitments, other than improving the position of those on old-age pensions, and raising disability payments. Indexing welfare benefits more widely to wage increases as the economy picks up is not addressed – without such a commitment, income inequality could begin to rise.

In recent years, we have begun to move from a more passive welfare system focused on paying out benefits, to a more active system trying to support people to move from welfare into work. The merger of the former Fás employment service into the Department of Social Protection has led to the development of the Intreo service as a one-stop-shop to integrate payment of jobseeker payments and provision of support to get a job.

An ESRI study on the key risk factors in being long-term unemployed has facilitated emergence of a targeted approach and earlier intervention. While focused almost exclusively on those on the live register during the height of the crisis, this employment service is now extended to other economically inactive groups such as lone parents, home-makers and spouses, and people with disabilities.

One of the major factors in the risk of unemployment is a poor level of education. Fortunately, one of the side-effects of the recent economic crisis was an increasing tendency to remain in education, particularly for boys, something that should improve their long-term job prospects and minimise future spells of unemployment.

The Nordic model of “flexicurity” is one that combines a generous welfare system with active support to get into work. The key challenge for our welfare system is to provide decent incomes for those who can’t work, while supporting those who can to get jobs.