Cost of Living: Public Well-being

Lord Layard Excerpts

Thursday 20th October 2022 Lords Chamber

[Lord Layard (Lab)]

My Lords, we all know the problem facing our country: as a nation, we have become poorer. Our import prices have risen more than our export prices and, on that account, we are 5% poorer than we were a year or so ago. That is a lot of money—over £100 billion a year—and it is something we cannot escape.

This is the issue that the Chancellor is facing: who should bear the cost of the loss in our national income? It could be working people, the owners of capital or the public services—those are the only three parties that could be cut to bear this cost. Or it could be some combination. This is an agonising dilemma; I think the Chancellor called it “eye-watering”. So how should the Chancellor decide between these three parties and the sub-groups within them? What criterion should he use to make the decisions? The answer of course lies in the brilliant way in which my noble friend formulated the issue for this debate: it should depend on the way in which each of the alternative options would affect the well-being of the population. This is the new approach—it is totally feasible, and we should adopt it.

For example, we know a lot about what affects well-being. The first thing we know is that a loss of real income matters more to the poor than to the rich. To be specific, the loss of £1 hurts a person on low income 10 times more than someone who is 10 times richer. So, as others have said, the top priority for the Chancellor must be, as other speakers have said, to fully protect the real incomes of those on lower incomes.

When it comes to richer citizens, there are real issues about what is most important to them at the margin: is it their own spending power, in real terms, or is it also the services on which they depend? Here, too, well-being science provides important insights. In explaining the spread of well-being, real income is not the most important thing: health always comes top, especially mental health, as the noble Baroness said. Then comes stable family life, happy work and workplaces and safe communities—and only then comes income. When people are asked—in a survey commissioned by Sainsbury’s, for example—about their main worries in daily life, it may surprise Members of this House and the political class that the order is the same: income and debt come about sixth in the list. So public services are crucial to all of the other things that affect well-being, as well as income.

We desperately need a fully functioning NHS, proper social care and a functioning court system—and we do not have any of them. We also need safety on our streets. These services are already under massive pressure, which will get worse due to unanticipated inflation. The last thing they need is further cuts of the kind that are being discussed these days. So, if well-being is the goal, services also have a case for some inflation protection—why are we going to protect only households and not services? At the very least, they should not be subjected to further cuts. To balance the books, we have to look elsewhere: proper taxation of excess profits in the energy sector, for example, and a sensible approach, from next April, to how far we protect the real incomes of families with above-average incomes.

Let me give some illustrative figures that I think are relative to the issue of what is in the interest of people with above-average income. If a person suffers from clinical depression or an anxiety disorder such as PTSD, their well-being—measured in terms of life satisfaction—falls by 0.7 points out of 10. Similar is true of addiction, personality disorder and eating disorders, which wreak havoc on so many families and communities—0.7 points out of 10. By contrast, if a person’s real income is halved, their well-being falls by 0.5 points or less.

Let us apply these apply these numbers to the Chancellor’s dilemma. He could be spending money on psychological treatments. Good ones exist for most mental health conditions but are simply not available to millions of the people who need them. An extra £1 billion a year here would make an incredible difference. By contrast, the Government presently spend £120 billion annually on protecting people’s real incomes. There is a huge difference there.

We could just ask: suppose we took £1 billion away from the protection offered to people with above-average incomes and gave it to mental health? What would happen to well-being? I can tell noble Lords from the evidence that the impact on well-being of giving £1 billion to mental health would be 50 times higher than giving the money to people with above-average incomes. I think that calculations for other public services would confirm the case for at least protecting them, and probably expanding them.

We constantly hear, as if it were shocking, that public expenditure is now at its highest level relative to national income than at any time since the 1940s. Of course, that is just as it should be. It is exactly right. As people get richer, the impact of extra income on their well-being declines. That is what economists for several centuries have called the diminishing marginal utility of income. But if you think about the impact of health on well-being, that remains exactly the same, however rich you are. So do the impacts of ignorance, loneliness, addiction and crime. We should be giving proper attention to the public services which can help us with the things of enduring importance to human beings; in particular, the social infrastructure of their lives.

If we want to maintain national well-being in these difficult times, the top priorities must be to protect the real incomes of the poor—I hope the Minister can say something about that—and to protect the public services on which we all depend.