Facts are vital to the debate on welfare and banking reforms

 
Allister Heath
HYSTERIA never makes for good law, in financial services, welfare or any other area. But while there have been many voices rightly pointing this out in recent days, as the government introduces a series of changes to the welfare state, it is a shame that so few appealed for calm during the height of banker-bashing.

We are getting relatively considered and highly scrutinised and debated welfare reforms (though of course they remain highly controversial), but many of the changes to financial regulation were rushed through in a moral panic, with almost the only opposition emanating from those seeking to make the changes even more drastic, without any real examination of the issues or any proper cost-benefit analysis.

In the same way that just a small number of the City’s hundreds of thousands of employees rigged Libor – a few dozen people, at most – and that there have been very few rogue traders, the extreme cases of welfare abuse are relatively rare. There are, it seems, approximately 130 families with 10 children that are currently claiming at least one out-of-work benefit (and thus collecting a large amount); and there appear to be fewer than five people claiming £100,000 or more in housing benefit. Yet the public perception is that these extreme cases of (perfectly legal) welfare abuse are far more widespread – just as the public is now convinced that most bankers are corrupt, that bonuses are responsible for the budget deficit and that the UK doesn’t gain from hosting the City of London.

Banking and welfare have long needed radical change, of course. The extreme cases need to be tackled – rate-riggers should be jailed, negligent executives punished and nobody should be able to claim six-figures in benefits – but they are not the norm, and most policy needs to be directed at the 99.9 per cent, not the 0.1 per cent. And for that we need facts and evidence, together with testable theories of how the world works, not hysteria, mob rule or class warfare. Facts, of course, are themselves highly contestable; simply citing a few supposedly meaningful statistics or a few plausible academic papers is not the same thing as proving a point.

With some caveats, I’m broadly in favour of the coalition’s reforms to the welfare state, and wish the changes went further. Instead of helping the most vulnerable get back on their feet, the present system all too often traps them in poverty; it is also be unfair to those who work. But I’m worried about Iain Duncan Smith’s decision to rely on complex computer systems, an area in which governments tends to fail.

What is clear is that the case for a return to personal responsibility should be made without seeking to demonise the vast majority of those on benefits. Nobody should feel the need to exaggerate the present system’s many woes.

As to banking reform, what has passed for “debate” has generally been appalling. It is still claimed that investment banking was responsible for the crisis, and therefore that a central solution is to “split” universal banks. The fact that Northern Rock, HBOS and Bradford and Bingley were retail banks, and that RBS’s demise had many causes, is apparently inconsequential. Or what about the bonus caps, driven by envy rather than evidence? There is also still virtually no discussion in the UK of how central banks and global imbalances helped fuel the cheap money bubble.

It is a great shame that those who today are rightly telling us that we must be careful to study the facts on welfare were nowhere to be seen on banking reform.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath