Welfare & Pensions

 A 59-year-old former soldier with diabetes, found dead in a flat with six tea bags, an out-of-date tin of sardines, and a pile of freshly printed CVs. An unsent letter that said "please judge me fairly."

Transcript

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Welfare and pensions. The same government that gave this country its most beloved institution, the NHS, also introduced something else in those post-war years, something that still divides opinion in Britain to this day, the welfare state. But before we get into how it works now and what's been done to it, it's worth understanding what life was like before it existed, because most of the people who have the strongest opinions about welfare have no idea what they're actually arguing to go back to. Before the welfare state, if you lost your job and couldn't find another one, you had 15 weeks of means-tested unemployment benefit if you were lucky. After that you were on your own. If you couldn't pay your rent, you ended up in a workhouse, renamed Public Assistance Institutions, in 1930, but still workhouses in everything but name. At the outbreak of the Second World War, nearly 100,000 people were living in them, including over 5,000 children. If you got sick and couldn't afford a doctor, you didn't see one. If you were old and had no savings, you were destitute. By the end of 1930, unemployment had hit 2.5 million, and the government's response was to cut public spending, cut wages, and raise taxes on the people who could least afford it. There were soup kitchens in the 1930s. There was genuine, visible, widespread hunger in one of the richest countries on earth. In 1942, in the middle of a war, a man called William Beveridge published a report that changed everything. He identified what he called the five giant evils standing in the way of a decent society want, disease, ignorance, squalor, and idleness. The report proposed a system of social insurance funded by flat rate contributions from workers that would provide support from the cradle to the grave. No more workhouses, no more means tested humiliation. If you paid in while you could work, you'd be looked after when you couldn't. The public response was extraordinary. Half a million copies were sold. Cues formed outside the government bookshop. It was the most popular official report in British history, and it formed the foundation for the welfare state that Labour built after winning the 1945 election by a landslide. That system, for all its flaws, transformed the lives of millions of people. It wasn't perfect, and Beveridge himself would have been the first to say so, but it meant that for the first time in this country's history, losing your job or getting ill didn't have to mean losing everything. I know this because I've been there. About twelve months after starting my business, I needed help. I'd gone a full year with no wages and things were looking dire. The business was growing, but it wasn't paying me yet. Every penny was going back in, and we were running out of road. My wife was at university and working part-time, so I turned to the government for some support. We got around£700 a month to live on. Rent alone was£600, but my friend who owned the flat said not to worry about it. He'd be okay until I was on my feet. This is the same friend who said earlier in the book, mate, if anyone can make this work, it's you. Without that friendship, without that one person saying don't worry about the rent, what would I have done? Closed the business, got a job stacking shelves, lost over£100,000 in two years of my life. And even with the rent taken care of,£700 a month doesn't go far. Electric and gas were the best part of£200. Food for two of us, another£200 minimum. Car insurance, fuel, phone, the basics. There was nothing left. There was nothing to gain from being on benefits. It was survival, not lifestyle. And that's the lie that needs confronting head on, because this idea that people on welfare are living some comfortable existence at the taxpayer's expense doesn't survive five minutes of contact with the actual numbers. A couple aged 25 or over with one child currently receives a universal credit standard allowance of£617.60 a month, plus a child element of£287.92. That's£905.52 a month for a family of three before housing costs, which works out at roughly£209 a week or about£30 a day.£30 a day to feed, clothe, and look after two adults and a child, cover energy, water, council tax top-ups, transport, phone, school costs, and everything else that comes with keeping a household running. The average rent for a two-bedroom property outside London is somewhere between£700 and over£1,000 a month. Energy bills are running at£150 to£200 a month. A basic weekly food shop for a family of three is at least£70 to£80 if you're careful. Closer to£100 if you're not. If you have savings above£16,000, you get nothing at all. If you have savings above£6,000, your payments start being reduced. So tell me genuinely where is the incentive? Where is the comfortable lifestyle? Where is the person choosing this overworking? Because when you actually sit down and add up what people receive and what it costs to exist in this country, the gap between the two is not a gap you choose to live in. It's a gap you survive in because you have no other option. And yet the narrative persists. Benefit scroungers, skyvers versus strivers. Hardworking families versus those who won't help themselves. It's been drilled into the public consciousness so effectively that millions of working people who are themselves one redundancy or one illness away from needing the same support will sit in front of a television and nod along to the idea that the person down the road on universal credit is the reason their taxes are high. Not the corporations paying less tax than their cleaners, not the banks that crash the economy, not the£111 billion a year in debt interest flowing to institutions whose names we're not allowed to know, the person getting£30 a day to feed their kids. That's who we're supposed to be angry at. And if the amount isn't punishment enough, the sanctions system makes sure of it. Universal Credit operates on a regime of conditions. You must attend appointments, you must prove you're looking for work, you must meet the requirements set out in your claimant commitment. If you fail to meet any of those conditions, even once, your benefits can be sanctioned, meaning reduced or stopped entirely. Miss a single job centre appointment, and you can lose your income. Not some of it, all of it. David Clapson was a 59-year-old former soldier who suffered from type 1 diabetes. After missing two job centre appointments, his benefits were stopped. He was found dead in his flat, his stomach was empty. There were six tea bags and an out-of-date tin of sardines in his kitchen. There was no electricity to power the fridge that kept his insulin cold. Near his body was a pile of freshly printed CVs. He had been looking for work right up until the end. He died in 2013, two weeks after his money was cut off. Errol Graham was severely mentally ill and had been receiving incapacity benefit, then employment and support allowance for years. When he missed a work capability assessment, the DWP tried to contact him by phone and visited his home twice. He didn't respond because he had cut off all contact with the outside world, which is what severe mental illness can do to a person. The DWP stopped his benefits anyway. Because his employment and support allowance was stopped, his housing benefit was automatically cancelled too. Deprived of all income, unable to ask for help, he slowly starved to death in his Nottingham flat. When bailiffs broke down his door in June 2018 to evict him for non-payment of rent, he weighed four and a half stone. There was no food in the flat, no credit on the gas or electricity meters, and an unsent letter to the DWP was found that said, Please judge me fairly. Jodie Whiting took her own life in 2017 after her benefits were stopped. Her family are still fighting through the courts for a second inquest to examine the DWP's role in her death. Philippa Day was found collapsed at her home in 2019 beside a letter rejecting her request for an at-home benefits assessment. She had been diagnosed with unstable personality disorder and had previously told people the benefits system made her feel inhuman. An inquest found 28 errors in the handling of her case. These are not isolated incidents. A BBC investigation identified 82 claimant deaths linked to DWP activity. Mental health vulnerabilities were a contributing factor in 35 of them. The DWP's own internal reviews, which were kept secret for years and only came to light through freedom of information requests by the Disability News Service, found that one in five of the benefit-related deaths they reviewed involved someone who had been sanctioned. Research by academics at Sheffield Hallam University found that DWP staff and managers had deliberately inflicted psychological harm on claimants, operated unofficial sanctioning targets, and pushed disabled people into distress. The DWP kept all of these findings hidden from Parliament, even while MPS were voting on further cuts to disability benefits. And here's perhaps the most telling detail of all. Beveridge, the man who designed the welfare state, was explicitly opposed to means testing. He'd seen what it did to people in the 1930s, the humiliation, the intrusion, the poverty trap it created. His whole system was built on the principle that if you contributed while you could work, you'd receive support as of right when you couldn't. No begging, no proving yourself worthy. Universal credit is means tested to the penny. It is in almost every respect the opposite of what Beveridge intended. The system that was built to protect people from the five giant evils has been slowly, deliberately reshaped into something that punishes them for being poor. Now let's talk about pensions, because this is where the whole thing gets quietly terrifying. The deal is supposed to be simple. You work for 35 years, you pay national insurance every month out of your wages, and when you reach a state pension age, the government pays you a pension. You've paid in, you get something back. That's the understanding most people operate under, and it's not entirely wrong. But the reality beneath it is a lot less reassuring than people think. The National Insurance Fund was established on July 5, 1948, the same day as the welfare state itself. The idea was beverages, a ring-fenced fund separate from general taxation into which contributions would flow and out of which pensions and benefits would be paid. Crucially, it was designed as a tripartite scheme, workers paid in, employers paid in, and the government, the exchequer, also paid in. All three contributed to keep it healthy. That was the deal. For the first couple of decades it more or less worked as intended. Surpluses built up during periods of high employment, and the fund had enough reserves to ride out leaner years. But from the 1960s and 70s onward, as those surpluses grew, successive governments of both parties started taking what were politely called contribution holidays, reducing or skipping the exchequer's own payments into the fund because there was so much money sitting in it. Rather than strengthening the fund for the future, they treated the surplus as an excuse to stop paying in. Then, in 1989, Margaret Thatcher's government went further. It abolished the Exchequer's contribution to the National Insurance Fund entirely. The government simply stopped paying its share into the system it had helped create. The tripartite deal that Beveridge had designed, workers, employers, and the state all sharing the burden, was broken. Workers and employers were still paying in every month, but the government had quietly walked away from its side of the arrangement. The recession that followed exposed the problem almost immediately. By 1993, under John Major's government, the fund was struggling and a treasury grant had to be reintroduced to keep it afloat. That grant continued until 1997 to 1998, covering the tail end of Major and the early months of Tony Blair's first term. So within four years of Thatcher pulling the government's contribution, the fund was already in trouble and taxpayers were bailing it out through the back door. Under Blair and Gordon Brown through the 2000s, the economy grew, employment rose, and the fund started building up healthy surpluses again. By 2005, the surplus stood at over£34 billion. By 2006 to 2007, it had reached£38 billion. The government actuaries department forecast it would grow to over£114 billion by 2012. On paper, the fund looked strong, stronger than it had been in decades, but it was an illusion because every penny of that surplus was invested in government securities through the debt management office, which is a technical way of saying it was lent back to the government at low interest rates. The government took the surplus, spent it on whatever it liked, and left an IOU in the fund. It wasn't savings. It wasn't invested in anything that would generate real returns. It was lent to the very institution that was supposed to be protecting it and spent. That forecast of£114 billion by 2012 never materialized. It was quietly revised due to what the government actuaries department called errors in assumptions. And by 2016, the projected surplus had been downgraded to just£30 billion. By 2014 to 2015, under David Cameron's government, the fund had fallen below the recommended minimum working balance and needed a Treasury supplement to keep it going. The last time such a top-up was needed was 2015 to 2016 and then the final act. By 2018 to 2019, under Theresa May's government, the entire accumulated surplus of£30 billion had been absorbed into the Consolidated Fund, which is the government's general spending pot, and spent every penny, gone. Decades of surpluses built up from millions of workers' contributions lent to the government and never returned. The cupboard was bare. So to lay this out plainly, Attlee's government created the fund in 1948 with all three parties contributing. Governments of both colours took contribution holidays through the 60s and 70s when surpluses built up. Thatcher abolished the government's contribution altogether in 1989. Major had to reintroduce emergency grants within four years because the fund couldn't cope. Blair and Brown presided over a period where the surplus grew to£38 billion, but it was all lent back to the government and spent. Cameron's government watched the fund fall below minimum. And by 2018 to 2019, under May, the accumulated surplus was completely gone. Nobody's hands are clean. Every government that has had access to this fund has taken from it, and not one of them has ever built it into something that could genuinely sustain the pensions it promises. The fund now operates hand to mouth. Around£100 billion flows in each year from contributions, and roughly£100 billion flows out in pension and benefit payments, with 95% of that going on the state pension alone, which cost over£110 billion in 2022 to 2023. The government actually has stated plainly that the fund is not sustainable in the long term through any contributions alone, primarily because of an aging population. More people drawing pensions, fewer workers paying in, and a fund with no reserves because the reserves were borrowed and spent years ago. So when people say I've paid in all my life, I deserve my pension, they're absolutely right in principle. But the money they paid in isn't there. It was never saved, it was never invested. It was spent the year it arrived, and when there was a surplus, it was spent too, and now the only thing keeping the system running is the hope that tomorrow's workers will keep paying in fast enough to cover what today's pensioners are owed. National insurance isn't optional. If you're employed and earn above the threshold, currently around£12,570 a year, it's deducted from your wages automatically before you even see the money. You have no choice. You can't opt out. It leaves your pay packet every month for your entire working life. And here's where most people's understanding of it falls apart. Because if you ask the average person in the street what their national insurance pays for, the most common answer would be the NHS. It's right there in the name, national insurance, and it feels like a health insurance contribution. Others would say it pays for benefits and welfare. Both of those answers are partially right, but they miss the biggest piece of the picture. National insurance actually funds three things. The largest share goes into the National Insurance Fund, which pays for the state pension, and contributory benefits, like job seekers allowance, employment and support allowance, and maternity allowance. A second allocation, roughly 20% of NI receipts, goes directly to the NHS, which came to£34.8 billion in 2024 to 2025. In 2003, Tony Blair raised NI by 1% specifically to increase NHS funding. And in 2022, there was a short-lived health and social care levy that added 1.25% to NA for exactly the same purpose before it was scrapped later that year by Kwasi Quateng. The remainder goes toward other elements of the welfare system. So your national insurance contributions are being split three ways before they even arrive anywhere, and none of those three destinations involves putting money aside for your future. The portion that goes to the NHS is spent immediately on today's patients. The portion that goes to benefits is spent immediately on today's claimants. And the portion that goes to the state pension is spent immediately on today's pensioners. There is no pot. There is no savings account with your name on it slowly building up over the course of your career. The money goes straight out the door the moment it arrives. Today's workers pay for today's pensioners, today's patients, and today's benefit recipients. When today's workers retire, tomorrow's workers will pay for them. As long as there are enough workers paying in to cover everything being drawn out, the system holds. When that balance shifts and it is shifting, the system starts to crack. Meanwhile, general taxation, the income tax and VAT and corporation tax that most people think of as where the government gets its money, also funds a huge portion of public spending, including additional NHS funding, welfare top-ups, education, defence, housing, and everything else. So the truth is that both National Insurance and General Taxation Fund, both the NHS and the welfare system, the lines between them are blurred to the point of being almost meaningless, and the whole thing is structured in a way that makes it nearly impossible for an ordinary person to work out where their money actually goes. Which, if you've been paying attention to the rest of this book, is probably not an accident. The full new state pension is£230.25 a week, which is£12,05 a year. That's if you have the full£35 qualifying years of national insurance contributions. If you have fewer than 10 qualifying years, you get nothing at all. The Trussell Trust calculated in 2023 that a single adult in the UK needs at least£29,500 a year for an acceptable standard of living. The state pension pays less than half of that. The state pension age is currently rising to 67 between 2026 and 2028, and is due to rise again to 68 between 2044 and 2046. Every generation is being asked to work longer before they receive what they were promised. And the accrued obligation, the total amount the government has already committed to paying out in future state pensions based on contributions already made, was estimated at over£4 trillion as of 2015. That's not a forecast, that's money already owed. The government doesn't have it. It will have to come from future taxes and future borrowing, which means future workers and future debt. To understand what this actually means for a real person, let's follow someone through their entire working life. Imagine someone born in 1979 who starts work at 21 in the year 2000 on a salary of 18,000 pounds. By 2010, they're on£25,000. By 2020, they're on£35,000. By 2030, they're on£45,000. They carry on working, their salary creeps up, and they reach state pension age at£68 in 2047. That's£47 years of paying national insurance out of every single pay packet. Over the first decade, earning an average of around£21,500. Their NI contributions would total roughly£17,500. Over the second decade, averaging£30,000, roughly£27,000. Over the third, averaging£40,000, roughly£28,000. Over the fourth, averaging£50,000, roughly£29,600, and the final seven years would add another£21,000 or so. Their total employee national insurance contributions over£40,000. Year career comes to somewhere around£120,000 to£130,000. But remember, not all of that is even notionally pension money. Roughly 20% has gone to the NHS and further portions to other benefits, which means the amount that's theoretically earmarked for their future pension is significantly less than what they've paid in. The rest has already been spent on other people's health care and other people's support. On top of that, their employer also pays national insurance on their wages, currently at 15%. Over the same career, the employer's contributions would come to roughly£150,000 to£180,000. That money is part of the cost of employing you, but you never see it and you never benefit from it directly. The total NI generated by this one person's working life is somewhere around£270,000 to£310,000. What do they get back? The state pension, which in today's terms is£12,05 a year. That figure does go up each year under something called the triple lock, which means it rises by whichever is highest out of inflation, average earnings growth, or 2.5%. So it won't stay at£12,05 for the duration of their retirement. It will creep up over time. If we assume an average annual increase of around 3% over their retirement, someone living to 85 would receive a total of roughly£260,000 to£280,000 over 17 years. If they live to£90, roughly£360,000 to£390,000 over£22 years. That sounds healthier, but remember this person and their employer contributed somewhere around£270,000 to£310,000 over£47 years, a large portion of which goes to the NHS and other benefits before it even reached the pension fund, and none of it was ever invested or grown. It was spent the day it arrived. So even with the triple lock increases, they're essentially just getting back roughly what was paid in on their behalf, with no real return on nearly five decades of contributions. What if that money had been invested instead of spent? Before I go any further, I should explain what an index fund is, because I've spent a good portion of this book talking about how the financial system is rigged and how investments can be used to extract money from ordinary people, so it would be dishonest to throw the phrase out without being straight about what it means and what the risks are. An index fund is one of the simplest forms of investment. Rather than paying a fund manager to pick individual stocks and try to beat the market, which most of them fail to do consistently anyway, an index fund simply tracks an entire market. If you invest in a fund that tracks the FETSE 100, for example, you're effectively buying a tiny slice of the 100 largest companies listed on the London Stock Exchange. If those companies go up in value overall, your investment goes up. If they go down, yours goes down too. There's no one making clever decisions on your behalf and charging you a fortune for the privilege. The fund just follows the market, which is why the fees are low. Over the long term, and this is the important part, stock markets have historically gone up. Not every year, not without some stomach-churning drops along the way, and there are no guarantees, but over periods of 30 or 40 years the trend has been consistently upward. A commonly cited long-term average for global stock market returns is somewhere around 7-10% per year before inflation, and I've used a conservative 5% in the calculation that follows to account for inflation and fees. If you'd invested money in a global index fund in 1980 and left it alone until 2025, you'd have done very well despite the crash of 1987, the dot-com bust, the 2008 financial crisis and COVID. The key word is time. Over short periods, the stock market is a casino. Over long periods it's historically been one of the most reliable ways to grow money, which is precisely why pension funds, insurance companies, and sovereign wealth funds invest heavily in them. Now back to our person. Their employee NI contributions over 47 years totaled roughly£130,000. If that same money had been placed in a basic index fund averaging 5% annual return instead of being sent straight to the Treasury, the early contributions would have had decades to compound. The£17,500 paid during the first decade would have had an average of£42 years to grow, turning into roughly£136,000 on its own. The£27,000 from the second decade with an average of£32 years would have grown to about£129,000. The£28,000 from the third decade to about£82,000. The fourth decade's£29,600 to about£53,000. And the final seven years£21,000 would have grown to about£25,000. The total pot at retirement would be somewhere in the region of£425,000. And remember, this calculation only uses the employees' contributions. If the employer's NI, another£150,000 to£180,000 over the same career had gone into the same fund, the pot would be closer to£900,000. Nearly a million pounds from one person's working life. Let's just look at a pot of£425,000. This could provide an income of well over£20,000 a year, nearly double the state pension, and you'd still have the capital sitting there earning returns, meaning you could draw on it for decades without running out. Instead, that£130,000 went straight out the door the moment it arrived. Split between pensions and the NHS and benefits, earning zero return, building zero capital, and the best this person can hope for is£12,050 a year starting at age 68, assuming the system still exists in its current form when they get there, which nobody can guarantee. Is an index fund risk-free? No, nothing is. Markets crash, recessions happen. There would be years where the pot went backwards, but the comparison isn't between a guaranteed safe option and a risky one. The comparison is between an index fund that has historically averaged 5-10% returns over long periods and a national insurance system that takes your money, invests it in absolutely nothing, pays it straight out to someone else, and promises you a fraction of it back in 47 years with no pot, no growth, no capital, and no guarantee that the rules won't change again before you get there. One option carries market risk. The other carries political risk. And if the last 80 years of this book have taught us anything, it's which of those two risks has historically been more dangerous to ordinary people. Then there are workplace pensions. For decades the standard in both the public and private sector was what's called a defined benefit pension, sometimes known as a final salary scheme. Your employer guaranteed you a specific pension based on your salary and years of service. The risks sat with the employer. You knew what you were getting. That model has almost entirely disappeared from the private sector. The vast majority of private sector defined benefit schemes are now closed to new members, and many are closed to any further contributions at all. What replaced them is the defined contribution scheme, where you and your employer put money into a pot. That pot is invested in the financial markets, and whatever it's worth when you retire is what you get. The risk has been transferred entirely from the employer to the worker. If the markets do well, your pension might be decent. If the markets crash the year before you retire, tough luck. Then there are workplace pensions, and this is a completely separate system to the state pension, so it's important not to confuse the two. Your national insurance, as we've just seen, goes straight to the government and is spent immediately. Not a penny of it is invested. But alongside that, since 2012, there's been a second layer, automatic enrolment requires employers to put eligible workers into a workplace pension on top of their national insurance contributions. This is different because this money is invested. It goes into an actual pot with your name on it, managed by a pension provider. Participation has gone from 47% to 79% since it was introduced, which sounds like progress until you look at the contribution levels. The minimum is 8% of qualifying earnings, split between employer and employee. For someone on a median salary that's building a pot that, unless topped up significantly, is unlikely to provide anything close to a comfortable retirement. And the money in those pots is invested in the same financial markets, managed by the same asset managers that we've been talking about throughout this book. BlackRock, Fidelity, State Street, the same names, holding your retirement savings alongside government debt, corporate bonds and equities, taking their management fees along the way. In November 2024, Chancellor Rachel Reeves announced plans to merge smaller pension funds into mega funds to unlock up to£80 billion for investment in the UK economy. On the surface, that sounds productive, but what it really means is that pension money, your money, the money you've been told, is being saved for your retirement, is being earmarked to plug gaps in government investment strategy. The line between your pension and the government's spending priorities is getting thinner by the year. The generation working right now, the people in their 20s, 30s, and 40s paying national insurance and auto-enrolled pension contributions, are being asked to trust a system that has no savings pot for the state pension, that has shifted all the risk of workplace pensions onto them, that keeps raising the age at which they can access what they've paid for, and that is now eyeing their pension funds as a source of investment capital. They are paying for the retirements of the generation above them while being offered no guarantee that anyone will be paying for theirs. And if they dare to question any of it, they're told to be grateful they have a pension at all. The welfare state was built by people who had seen what happens without one. Workhouses, soup kitchens, children, in institutions, the old dying in poverty after a lifetime of work. It was built on the principle that a decent society looks after its people when they can't look after themselves, and that doing so isn't charity, it's the basic contract between a government and the people who fund it. What we have now is a system that pays people less than they need to survive, punishes them for being ill, sanctions them into destitution for missing a single appointment, and keeps the details of who dies and why locked in secret internal reviews that Parliament never sees. Meanwhile, the pensions that were supposed to provide dignity in old age have been hollowed out, marketized, and quietly redirected toward purposes that have nothing to do with the people who paid into them. Beveridge called them the five giant evils want, disease, ignorance, squalor, idleness. Eighty years later, every all of them is still standing. The question isn't whether we need a welfare state, the question is whether the one we have still deserves the name.