No Brexit Generation Game For The Welfare State

Matthew Donoghue

Brexit, it is claimed, has widened an intergenerational divide. Baby boomers voted for Brexit, while millennials remained silent. This argument remains although youth turnout in the Brexit referendum was, in fact, relatively close to the UK national average. Focusing on a generational divide suits a simplistic oppositional narrative that has pervaded many Brexit debates, yet as we argue in our recent paper in the Social Europe/FES Brexit Paper series, such a complex issue cannot be reduced to these simple narratives. The future of the UK welfare state in the context of Brexit depends more on wider structural issues related to British political economy, rather than the intergenerational dimensions within it.

Mikko Kuisma

Structural issues with the liberal welfare state

The roots of the problem lie in the British liberal welfare model. Social security benefits are modest, are aimed at poor relief and are designed to ensure that as many people as possible rely on the labour market for their income. Though some elements advocate for specific forms of state intervention, the liberal welfare state operates on a largely laissez-faire principle. The role of the individual is central to liberal welfare regimes and it only increased with Thatcherite reforms, many of which were upheld (though perhaps softened) by New Labour. The neo-liberal welfare state justifies intervention to increase labour market efficiency and reduce the state’s welfare burden financially and in terms of user numbers. It is highly stratifying, exploiting the notion that there are two distinct groups in a welfare society: those who pay for the welfare state and those who benefit from it.

Intergenerational transfers have been relatively marginalised in the UK until recently. Austerity has increased pressure on the intergenerational contract. Younger generations tend to remain in education for longer, enter the labour market later and have less access to credit. Older generations’ assets are used more readily by parents to support their children. In many cases, the older generations leverage more debt against their assets, such as releasing equity from their homes. Some transfers have also moved the other way, particularly in cases where children must finance their parents’ social care. As the state withdraws from welfare provision, assets become more important., Public pension funds have been invested in a much riskier fashion and some private pensions have propped up failing companies. This has left a shortfall which has been plugged by limited personal and family assets. A saving grace of many of the older generations, their main asset is often the house they live in. Millennials are less lucky; acquiring property is increasingly difficult, whilst retiring with a pension looks like a distant dream.

While the welfare state does need to address an ageing population, we contend that the immediate issue for the post-Brexit welfare state is dealing with increased employment instability and unsustainability. Though, this added flexibility in the labour market may be preferable for some employers in a period of historically low economic growth and a visible lack of recovery from the financial crisis, degradation in the quality and tenure of employment hurts households. The labour market has in the past been able to rely on migrant labour as a pressure valve, but this is likely to tighten post-Brexit. This will be detrimental also to the intergenerational contract, leading to a disproportionate increase in the dependency ratio and a decreasing quality of health and social care. Fewer migrants will also mean a diminished tax base for health and social care, as migrant workers tend to contribute more than they receive from the system. Furthermore, it can intensify demographic pressures by contributing to staff shortages in health and social care. The effects of this are already visible in the NHS.

The likely welfare impact of Brexit

Brexit is clearly a polarising process. Due to the legacy of Liberalism, the UK has a ‘soft’ social contract: the rights and responsibilities of both citizen and state are not clearly set out, while the primacy of the individual over community, society or state makes it increasingly difficult to develop a social contract that goes beyond tacit agreement. Throughout the Brexit campaign individuals’ sensibilities were appealed to. Discourses on sovereignty and ‘taking back control’ were directly aimed at this – Britain as a single nation that did not want to be part of the European ‘club’; a Britain that wanted full control over its laws and customs. The notion of British control becomes individual control. British sovereignty becomes individual sovereignty; the individual’s mastery over their own lives.

A strong individualism combined with high levels of stratification make the UK welfare state particularly susceptible to (largely fabricated) threats from the ‘other’ – hoarding baby boomers, feckless millennials, scroungers, welfare tourists, or unaccountable bureaucrats. Increasing reliance on means-testing and conditionality, in which the need for social support is an individual and behavioural, rather than systemic, problem increases competition between citizens and non-citizens alike. The system exacerbates conflict and tension. Brexit will bring with it significant structural constraints on spending at least in the short term, whilst Theresa May’s ‘hostile environment’ will include EU citizens in the UK – 3.7 million people in 2017.

If the UK must retain an asset-based welfare model, we must ensure that everyone is able to draw upon the required financial resources. UK society is still largely divided by haves and have-nots; social mobility has resulted only in small movements and, in fact, the millennials are the first generation in over a hundred years that will be worse off than their parents. This should be factored into responses. Inheritance tax and housing are good places to start. Considering the importance of leveraging assets for welfare, there should be a differentiation between inheritance taxes that penalise those redistributing assets from low to average value homes, and those with million-pound property portfolios. This should go hand in hand with an urgent focus on providing genuinely affordable homes and social housing. This means ending (or at least significantly constraining) the accumulation of said portfolios as well as the accumulation of property in high-value areas (e.g. London, Oxfordshire, Brighton, etc.). More long-term, and alongside reducing reliance on financial assets as a form of welfare provision, the gradual introduction of more universal provision seems the most sensible option: greater universalism reduces stratification, creates greater opportunities for political and social coalitions, and thus greater opportunities for meaningful social cohesion across different social divides.

Conclusion

Although there is an intergenerational tension in the UK, it is not the central factor driving the UK’s fortunes during or after Brexit. However, emphasising this tension and elevating it to a ‘conflict’ serves the political purpose of diverting attention from more pressing and considerably more difficult structural problems. In fact, Brexit may necessitate an entirely new welfare state. Urgent focus is needed on how to reconfigure British social and public policy to cope with the UK’s new relationship with the EU – whether that is a hard Brexit, a Norway or Switzerland style relationship, or even continuing with full membership – precisely because the prospect of Brexit brings with it intense uncertainty politically, economically and socially. Until we acknowledge that the core threat lies in the political economy of Brexit and the inadequacy of current institutional buffers, tensions across all sectors of society will only increase.

Based upon the authors’ SE/FES Brexit Series Paper (No 2): Brexit Generation Game: How Conflict Between Old And Young Masks Welfare Challenges