Mixed Economy of Welfare Essay


Mixed economy of welfare has laid the foundation for the development of the modern social policies in the United Kingdom, lying at the heart of the modern welfare state in the nation. Modifying and changing welfare policies over time, changing British governments have created a system in which distribution of welfare has been structured in a specific unique way. Liberal reforms enacted in Britain since 1834 have laid the foundation for the modern welfare state.

1. What Is Mixed Economy Of Welfare?

The phrase “mixed economy of welfare” came into use in the late 1960s to signify the modern European welfare state model. Originally, “mixed economy” referred to the combination of private and public ownership of enterprises that balances capitalist individual ownership with state regulation.

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The concept of “mixed economy of welfare” is related to the fact that “economies through which welfare systems are maintained, financed and provided are frequently mixed systems containing public, private (commercial) and voluntary agencies, as well as mixing systems of formal (organised) care such as social services and informal care such as that provided by family or community” (Reddin, n.d.). Another term that seeks to explain the same “mix” is “social division of welfare” introduced by Titmuss that divides the welfare system into three tiers: social (services provided by the government), occupational (sponsored by employers), and fiscal (tax relief provided, for instance, to individuals putting their funds into personal pension accounts) (Reddin, n.d.).

In the states that rely on the mixed economy of welfare, governmental policies aim at securing a number of providers of welfare policies. Diversity of providers secures availability of choice for consumers who can rank providers in terms of competitiveness. Presence of a range of providers adds stability to the welfare system.

2. British Welfare Policies In The Nineteenth Century

The British welfare state takes its origins in the Elizabethan Poor Law, adopted in 1601 and amended in 1834 on proposal from the commission headed by Edwin Chadwick. The law vested parishes with the responsibility to the poor who territorially belonged to these parishes, aiming to relieve the social tension created by the marginalisation of large masses of population under the Industrial Revolution. According to the law, beggars had to be returned to their parishes for assistance. The 1834 Poor Law “took the institutionalisation of welfare literally; its recipients were required to enter a workhouse” (IDeA, n.d.). Those who began living in the ‘House’, a conventional name for the poor law institution, could expect “a standard of living … which was below that on which the poorest labourer could survive” (Field, 1999). This provided a mighty incentive for citizens to stay out of the welfare system as long as it was humanly possible under the conditions.

The system that existed in the nineteenth century was thus hardly efficient. The system of health care distribution, for instance, was often arbitrary. It included a network of local hospitals run by regional officials in addition to the national panel of medical professionals supported with contributions from the nation-wide insurance scheme gathered by mutually owned societies (Field, 1999). In these conditions, the poor often received low quality of services.

3. The Liberal Reform

The Liberal Reform of welfare came in the early twentieth century after the Labour Government headed by Lloyd George came to power in 1906. The administration made a revolutionary innovation of introducing an old age pension for those over 70, nonetheless revolutionary even if the average male life expectancy was only 48 years (Field, 1999). The 1911 law introduced national health insurance and unemployment insurance, based on contribution levels defined by Parliament and run by mutual and friendly societies.

The policies of the Labor Government to a great extent took after those of the German policy-makers, in particular Bismarck in copying the insurance principle. The government was reluctant to use tax increases for financing welfare so as not to repel the electorate and decided to leverage funds through insurance contributions. Lloyd George overcame the opposition to his reforms by introducing “tripartite financing from worker, employer and taxpayer” (Field, 1999).

The 1925 Widows’, Orphans and Old Age Contributory Pensions Act introduced by Chamberlain’s government lowered the pension age to 65 and introduced benefits for widowhood. The period between the two world wars was characterized by soaring unemployment and resulting struggle of the administration to provide assistance to the jobless at the time when insurance payouts had to be sustained.

The principle of tripartite financing laid the foundation for mixed economy of welfare, in particular its ‘mixed’ component since it defined that from now on the financing for welfare projects has to come from an assembly of sources. The government was only one; the others were contributions provided by workers and employers. Later policies included re-shuffle between the three key providers of welfare funds, elevating the role of some in comparison to others.

4. Beverage Report

The effort to improve Britain’s welfare policies did not stop even in the era of the Second World War, and in 1941 a study group led by an Oxford academic Sir William Beveridge was established in order to research the conditions of the poor and find better solutions for reforming this area of governance. Beveridge Report first published in November 1942 made a breakthrough in British welfare system.

After Beveridge Report, the nation “saw the birth of the NHS, joint provision by employer and employee for the time when the latter would be out of work, and new family allowances” (IDeA, n.d.). While previously the poor were split into ‘deserving’ and ‘undeserving’, in the post-Beveridge era the very fact of UK citizenship guaranteed access to welfare.

The implementation of the policies was aimed at overcoming several major obstacles to mass prosperity in a series of acts. School education was modified with the 1944 Butler Act, family allowances established with the Family Allowance Act of 1945, and the minimum health care was set with the 1948 National Health Act.

This welfare reform created a fully-fledged welfare state after 1948, increasing the role of the state component of welfare. The state was now increasingly seen as responsible for the provision of certain ‘welfare’ services including pensions, minimum health care, unemployment benefits, basic education etc. The reform institutionalised the provision of welfare, creating a framework for responding to poverty, although it did not target elimination of poverty.

5. Thatcher’s Policies

For a few decades, the progress made as a result of reforms initiated by William Beveridge seemed satisfactory to many, and no major initiatives were undertaken. However, into the 1970s, the ideal of full employment promised in 1944 was becoming dim. At the same time, fraudsters that used tricks to receive their benefits began to worry taxpayers, assured by politicians that these tricks cost them millions of pounds. Worries persisted as to whether the welfare state was not overemphasized in UK politics and whether the compensations were not overblown.

The pinch to trim back public expenditure on welfare and to scale back state participation in matters of welfare came to the fore in the policies implemented by Margaret Thatcher’s Conservative Government in the 1980s. Mrs. Thatcher’s conservative economic policies including the monetarist ideas presupposed decrease in public spending on welfare by way of securing more efficient provision of these services. Decreasing the state provision of services, Mrs. Thatcher’s pushed toward commercialization of this sphere to include greater scope of services delivered by private providers. Financial incentives for welfare provision were also cut back, including subsidies for social housing, a fact which led to a sharp rise in rents for poor tenants (Hills, 1998, p.4).

As direct consequence of the Conservative policies, the range of provided services shrank. The social tension was stimulated by the fact that “the increase in unemployment and erosion of the real value of many benefits greatly widened social inequality” (Ingram, 1998).

Thatcher’s policies in the realm of pension provision can serve as an example. In 1975, the previous Labour Government introduced the Social Security Act that established the Basic State Pension, rising in line with increases in earnings or prices “whichever was greater”, and State Pension Related Scheme (SERPS), an additional pension scheme based on “earnings-related National Insurance contributions” (Kent, n.d., p.4-5).

Under the Conservatives, in 1982 indexing was changed to prices instead of earnings, against the background of earnings growth outstripping that of prices. As a result, the Basic State Pension dropped from roughly 20% of average earnings in to only 15% in 1999 (Kent, n.d., p.5). The new Social Security Act of 1986 reduced the SERPS almost by half by taking whole employment history rather than 20 best years as basis for payouts, reducing survivor’s benefits and contribution levels as percentage of earnings. Moreover, the Social Security Act of 1986 stimulated employees to ‘opt out’ of SERPS, moving to personal pension accounts. As a result, by 1994, the number of personal pension holders reached 6 million, and 5 million people had abandoned their occupational pensions (Kent, n.d., p.5).

This demonstrates that within the components of mixed economy of welfare, the focus was shifted toward private provision, leading the nation away from employer-funded and state-funded schemes. In particular, reduction of the government’s role in redistribution of funds within the economy was the focus of Thatcher’s policies. The government actually started its first White Paper on public spending schemes with the phrase “public expenditure is at the heart of Britain’s present economic difficulties” (Hills, 1998, p.1). Welfare policies were therefore attuned to the need to reduce the state’s engagement in the economy and to offset cuts in income tax rates.

6. New Labour And Welfare Reform

The Labour Government in 1997 came to office on the wave of dissatisfaction with Conservative policies that generated wider inequality within the UK population. To satisfy all those disappointed with Tory rule, the Labour politicians had to make mutually contradictory promises: they “promised big business that it would cut the cost of public spending” and “workers they would embark on policies to resolve the deep social problems created under the Tories” (Ingram, 1998).

The Labour policies aimed at encouraging current benefit receivers to support themselves with the help of retraining programs, including single parents, older workers, and the disabled. For this purpose, the government has striven to boost employment numbers, especially among welfare recipients. Targeting “socially excluded” groups such as the elderly, the homeless and school drop-outs tackled by the special Social Exclusion Unit within the government, the Labour reforms tried to put them in access of social institutions (Hills, 1998, p.19).

The overall message was clear: the indigent and disabled should increasingly shoulder the burden of self-support, shouldering responsibility for their livelihood. The role of the state was to provide them with appropriate means for that. In the meantime, the Labour continued with cuts in public spending, for instance, implementing a reduction in benefits to single parents in 1997, amid discontent in Parliament (Hills, 1998, p.19).

In the area of pension provision, the Labour government has been seeking to further reduce the involvement of the state and to increase the role of employers and workers. At present, pension funding in the UK comes from public sources (60%) and occupational and private schemes (40%). The aim is to reverse the proportion by 2050 (Kent, n.d., p. 7). This would allow the government to shift the burden of pension provision toward employers and employees.

Another notable Labour innovation was the replacement of Family Credit, a system for assisting low-income working parents, with Working Family Tax Credit in 1998. The new credit was to be repaid wholly through the wage package, at a rate dropping in proportion to the rise in income (Hills, 1998, p. 20). The new law was supposed to decrease the cost of low-wage workers to the employer and to increase the cost of highly-paid ones. The project has been criticized on the grounds that it put the “minimum guaranteed family income” at the level of £180 per week, against the official poverty line of £210 (Ingram, 1998).

In the area of health care, the Community Care Act of 1990 reduced the role of NHS as nation-wide health care provider. Instead, the emphasis was shifted towards local community services that unlike national-level provision, can be charged for (Kent, n.d., p. 15). Moreover, the NHS beds that were virtually free to users starting in 1993, according to the Community Care Act, had to be provided for residential fees to the elderly above a certain income limit (Kent, n.d., p. 15). The result was the shift in resources from public to private health care providers.

Overall, the New Labour continued with cutbacks in pubic spending. Pensions, benefits to single parents and other disadvantaged social categories, free health care – all these items were scaled back on the government level to ensure greater participation of the private sector including employees and employers.


Mixed economy of welfare embodied in the British welfare state has called forth close interaction of public and private elements within the modern system of welfare provision in the United Kingdom. The government was endowed with leading role in the welfare state by the reforms of 1948. Since then, political debates have been driven by worries that benefits provided are either insufficient or excessive. Cuts in public spending on welfare were usually targeting an increase in the participation of the private providers in this area. A decrease in the role of the government and its agencies normally shifts the burden towards employers and workers, redefining the scope of each element in the mixed economy of welfare. This, for instance, is evidenced in the social policies of the past two decades. Whichever way the British political system will direct future welfare reforms, the mixed economy of welfare will likely remain in place, including government, companies and workers in the task of welfare provision.

Field, F. (1999). The Welfare State – Never Ending Reform. BBC: Society and Culture, 8 August. Retrieved January 4, 2005 from
Hills, J. (1998, August). Thatcherism, New Labour, and the Welfare State. London School of Economics, Centre for Analysis of Social Exclusion, Case Paper, Case 13. Retrieved January 4, 2005 from
IDeA. Lessons from history: charity in the UK. Retrieved January 4, 2005 from
Ingram, M. (1998, 21 August). Blair government in crisis over welfare. World Socialists Web Site (WSWS). Retrieved January 4, 2005 from
Reddin, M. (n.d.). The Mixed Economy of Welfare. Retrieved January 4, 2005 from
University of Kent. (n.d.). Welfare reform in the UK, 1985-2000. Retrieved January 4, 2005 from
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