A smarter approach to the welfare state

Type: Think Pieces Written by Ross Harvey | Wednesday 23 February 2011

The welfare state is out of date. The principle of 'Free at the point of delivery' must be replaced by 'Paid for at the point of delivery', so that those who can afford to pay for their healthcare and children's education do so in proportion to their earnings. The result, argues Ross Harvey, would be huge savings as market efficiencies are introduced to moribund sectors, without leaving the country's poorest behind.

After the Second World War, few people had a bank account. They were about one third as rich, had ten years less life expectancy, penicillin was the most expensive drug and a hip operation wasn’t even the stuff of sci-fi yet. So the state had to contrive a cashless system for the nation’s welfare and ‘free at point of delivery’ was born. This required a bureaucracy that over the years has fed on itself and is now so large that there is no template for its management and its expense devours funds needed at the coalface. It is a property of technology that it replaces people but change is the only constant and the only serious alternative to wider mpoverishment.

The sacred formula ‘Free at point of delivery’ must be stood on its head to become the next big idea ‘Paid for at point of delivery’ – except for those whose income tax returns entitle them to get it for free. Whatever the cost, the amount you pay will depend upon last year’s income tax return.

"Smartcard" technology has recently made great strides. The French are experimenting with giving every individual a smartcard with their complete medical history on it. This, in the land of the grand projet, is surely a more practical approach than our own absurdly grand projet of a centralized computer database that has already cost billions and is, apparently, still nascent. Such a smartcard could link to Inland Revenue records of last year’s income tax return and so access a new reading every year. This is not a measure of net worth* as it entails no further intrusion than has already been undertaken to tax one.

Your income tax status would determine your contribution: low incomes, the old and the young would be free; high incomes would have to pay in full and most people would have to pay in part**. Nor need there be broad bands of subsidy as the technology allows a precise calculation to be made for each individual. The government would determine, each budget, what the thresholds for non-payment and full payment would be as well as the intermediate percentages that would be payable. A by-product of this system would be to blur the lines, over time, between public and private provision. R. Sutherland sent this to George Osborne's economic advisor, who is also a believer. Part of the value, he believes, is that by making transparent the value people get from public services, satisfaction would massively rise.

This same technology could also be used for education. Again with the pupil’s educational history and qualifications (initially blank but complete before one seeks employment) encoded on the card and with the same facility to link to the parents’ last year’s income tax return, they would be free to try to get their children into the schools of their choice with most people having to pay in part but again the low incomes are free and high ones pay in full. In theory, such a proposal would put ‘public schools’ on the same footing as ‘state schools’ but boarding is a separate expense for which only scholarship pupils from low income homes would be eligible. Even so, the sharp lines between private and public sector provision could become blurred. The aim is to achieve a practical means of increasing personal freedom, raising standards and using money more efficiently.

Competition for the best schools might require further screening. Failed schools would go to the wall and competition would raise standards overall so that in time nearly all neighbourhoods would have a decent school, perhaps entailing larger classes with better teachers. Good schools and good hospitals are created by leadership and example, qualities nourished by an open, competitive environment. Local authorities could retain the right to run schools and hospitals but not the right to be sole providers, though that may sometimes happen, faute de mieux.

I believe this scenario would be much cheaper to administer than vouchers that would require large-scale bureaucratic involvement rather than mere technology.

Advantages of this scheme

The state would have to run a fund to pay schools and hospitals what the smartcard determines individuals need not pay but the state would no longer run hospitals, doctors, nurses, teachers, schools or universities. The savings from dismantling the central and regional bureaucracies now in charge could be great enough to affect the entire income tax structure quite to the point where the threshold for paying income tax could be seriously raised. In a buoyant economy (when it returns) there is surely no better welfare than not taxing the least well off while confining handouts to the seriously disadvantaged. Under such a dispensation the workshy would have no system to ‘play’ and would have to think the unthinkable and do something.

Empowered people would be customers; either as patients or pupils, rather than supplicants in a queue for hospital treatment or serfs directed to where they must go to school. The individual would feel more self-respect and would have more responsibility and more choice. The state can concentrate on what it can do best – legislating and allocating and then leaving it to the market and modern technology to magic the money to where it is needed. Chronic disorders, medical or educational could be allowed for

The left would find it hard to rubbish as ‘uncaring’. It comes close to the spirit of the old Christian/Marxist adage “from each according to their ability, to each according to their need”- all this using only modern technology rather than state bureaucracy. The best professional talent and organisation will become more widely accessible and all will have fewer forms to fill and more time to do their jobs.

Many people have a fondness for steam engines but modern society, the modern economy and modern technology have made them redundant. Many retain a fondness for the old NHS but changes in society since its inauguration make it no less redundant than steam. The main obstacle to radical reform is redundant attitudes and perhaps the reluctance of people with power over our lives to let go of it.

They should be disobliged.