Posted: 04 Feb 2015 06:30 AM PST
Nicholas HopkinsEmma Laurie
The Care Act 2014 reinforces the expectation of leaving housing wealth as an inheritance, which perpetuates inequalities across generations, argue Nicholas Hopkins and Emma Laurie. Intergenerational fairness requires homeowners to use a greater proportion of their housing wealth to fund social care rather than relying on the state.
The issue of funding social care costs is one that provokes strong feelings. Many homeowners resent the idea of having to sell the family home to pay for residential care costs. But with an ageing population, a real concern is raised over who should pay. The Commission on Funding of Care and Support (the Dilnot Commission) was an independent body tasked by government with reviewing the funding system for care and support in England. Its report, Fairer Care Funding, provided advice and recommendations to government and was subsequently enacted in the Care Act 2014.
The Dilnot Commission’s overriding objective was to make the system of funding adult social care fairer as well as sustainable. The Commission took the view that it was fair to limit the extent to which an individual is required to draw on their own wealth, including housing wealth, to pay for the costs of their care. It also recommended that the home should not have to be sold during the owner’s lifetime in order to pay for social care costs.
To achieve these two objectives, the Care Act 2014 places a cap on individual liability for care costs and provides a scheme of Universal Deferred Payment (UDP). UDP is intended to prevent ‘forced sales’ of the home. Despite its name, it is not intended to be available to everyone. We consider that the measure is justified and that its operation could be confined to those who would otherwise have to sell their home. This could be achieved by making UDP available only to those who could not pay the capped sum from non-housing assets.
Our concerns with the Care Act 2014
Our principal concern lies with the Act’s treatment of housing wealth through the cap. Its effect is to preserve individual wealth and, in practice housing wealth, at the expense of the public purse. Ultimately, it will benefit those who will inherit that wealth. The use of public funds to preserve an inheritance lies at the heart of our criticism.
By passing a greater proportion of the costs of social care to the state, the Act will inevitably have undesirable – and unfair – consequence for the younger generation of taxpayers. We therefore advocate a phased scheme which would aim to change the expectation of leaving housing wealth as inheritance and, instead, inculcate an expectation of using housing wealth to fund social care costs.
This will be a controversial argument for many people. We understand the sense of unfairness felt by current homeowners at having to use housing wealth to pay for their social care costs and the desire to leave housing wealth as an inheritance. The ability to provide an inheritance is one of the bases on which homeownership has been promoted. Equally, there is understandable confusion about the different funding models for health and social care. While health care is provided free at the point of delivery, social care is means-tested and incorporates an assessment of a person’s assets to determine eligibility for financial support from the state.
The need for intergenerational fairness
Nevertheless, the wider concern of intergenerational fairness requires homeowners to use a greater proportion of their housing wealth. There is a growing recognition that issues of intergenerational fairness must form part of the ‘social contract’ between individuals and the state. In the UK, life expectancy has been growing while the birth rate has been falling. The consequence is popularly referred to as a ‘demographic time-bomb’, and the phenomenon of an ageing population is a policy concern that has been taken up at international, European and national levels.
But government policy on the need for intergenerational fairness is inconsistent. On one hand, the government has taken steps to increase the age of eligibility for the old-age pension and further increases are planned. On the other hand, it has passed the Care Act 2014 which entails a greater proportion of the costs falling on the state and, inevitably, the younger generation.
Inculcating an expectation of drawing on housing wealth to fund older age care can address our concerns of intergenerational fairness. Such a policy reflects the principle of asset-based welfare, which entails expanding asset holdings among low-income households as a means of reducing wealth inequalities and promoting wealth-creating behaviour among citizens.
Successive governments since the 1950s have consistently encouraged homeownership and, as a result, housing wealth now exceeds other forms of investment to become by far the largest element in personal disposable assets. Homeownership has spread wealth more widely than any other form of asset or investment. Despite doing so, housing wealth is unequally distributed. Many older property owners have seen large, tax-free capital gains over the past few decades due to the rising value of property. The proportion of housing wealth held by older people is forecast to grow, while the term ‘generation rent’ has been coined to refer to those younger people who have no realistic prospect of buying their home. Inculcating an expectation that people will look to their housing asset, rather than to the state, to fund their welfare can reduce those intergenerational disadvantages by requiring homeowners to use the wealth in their lifetime.
Homeownership has not been explicitly promoted with the idea that the wealth will be drawn upon to fund the owner’s older age. Combined with the lack of understanding of the difference between health and social care, it is perhaps unsurprising that a strong sense of unfairness is felt at the prospect of housing wealth accumulated over a lifetime being dissipated by the requirement to fund a few years of social care. However, rather than attempting to change expectations, the Dilnot Commission’s proposals, as implemented by the Care Act 2014, appear uncritically to accept the perception of unfairness. The Act reinforces the expectation of leaving housing wealth as an inheritance, which perpetuates inequalities across generations. As a result, the funding model provided by the Act is neither fair nor sustainable.
Getting people into employment will not on its own ensure decent living standards and reduce poverty, finds Peter Taylor-Gooby. His research shows that, while higher employment is associated with lower poverty, other factors are more important. The most important factor in reducing poverty levels across the countries looked at was the strength of contractual rights, and other policies, such as access to child care, policies to reduce discrimination against women were also significant.
Most people think paid work is the royal road to a better life for people of working age. The value of work is at the centre of policy thinking across the board, from Labour’s Compulsory Jobs Guarantee to UKIP’s commitment to ‘enroll unemployed welfare claimants onto community schemes or retraining workfare programmes’. Ian Duncan Smith’s Universal Credit puts work ‘at the centre of our welfare system’. The EU’s 2020 Growth Strategy ‘is about more jobs and better lives.’ And so on.
The idea that getting people into work will solve the problem of achieving decent living standards for those of working age was given extra impetus as unemployment rose from about 5 to over 8 per cent between 2008 and 2012, paralleled with a rise in working-age poverty. Now unemployment is falling back towards pre-crisis levels but, as IFS analysis shows, poverty among working age adults is failing to respond. The poor quality of many of the new jobs indicates short-comings in the case for paid work as the foundation of welfare.
Most of those in poverty live in working households. Among families the proportion in households with at least one member in work rose from 50 to 68 per cent between 1996 and 2013 according to the DWP’s Households Below Average Incomes statistics. The job market started to recover from its low point in 2012 but many of the jobs on offer are far from satisfactory. The number of part-time workers rose from 7.2 million to 8.2 million between the recession in 2008 and 2014, the numbers of involuntary part-timers from 0.7 to 1.7 million and the number of temporary workers from 1.4 to 1.7 million. The Labour Force survey shows a doubling of zero-hour contracts between 2007 and 2013 to 300,000.
These statistics suggest that we need to pay attention to the quality as well as the quantity of jobs created. Our new research examines factors affecting employment and poverty across 17 European countries for the period of prosperity and growth between 2001 and 2007. This is the time when the sun shone, the most favourable period in recent history for the work = welfare = decent living standards project. The research shows that, even at this time, new welfare was much more successful at getting people into work than at reducing poverty.
Employment rates rose across Europe, especially for women. However, far from declining, poverty rates also increased (by the standard EU 60 per cent of median income measure) from 18 to 18.6 per cent between 2001 and 2007 in the UK, and also in other successful economies such as Germany (11 to 15.2 per cent), Sweden (9 to 11.5 per cent) or Poland (16 to 17.3 per cent). One explanation is to do with access to paid work. Governments need to make sure that even more people move into work. This is the logic that lies behind the EU’s Employment Strategy and Horizon 2020 programme and behind national work-centred policies such as Universal Credit. Then the great recession swept everyone towards work at any price policies, redoubling the stress on paid work.
These were the good times, when, if ever, the link between work and decent incomes should be strongest. Higher employment is associated with lower poverty, but the analysis shows that, even during this period, other factors were more important. In fact the most important factor in reducing poverty levels across the countries was the strength of contractual rights. Other policies such as access to child care, policies to reduce discrimination against women were also significant.
The level of employment plays a role in ensuring decent living standards, but one that is less powerful than that of employment rights. The suggestion is that while employment is probably a good thing, if we want people to be better off, we also need to make sure that the quality of jobs is adequate. The best way to ensure that is to strengthen contractual rights against dismissal and to promote trade union membership. Recent trends in policy to weaken employment protection, to undermine the role of trade unions and to introduce high fees for access to employment tribunals move us in entirely the wrong direction. Shovelling people into low-paid jobs is all the fashion, but it is not the answer to the problem of poverty among those of working age.
For more, see “Can ‘New Welfare’ Address Poverty Through More And Better Jobs?” by Peter Taylor-Gooby, Julia M. Gumy and Adeline Otto.
About the Author
Peter Taylor-Gooby is Research Professor of Social Policy at the University of Kent’s School of Social Policy, Sociology and Social Research. He chaired the British Academy New Paradigms in Public Policy Programme (2010/2011) and is Chair of the REF Social Work and Social Policy and Administration panel 2011-15, a Fellow of the British Academy, a Founding Academician at the Academy of Social Sciences and, previously, a Fellow of the Royal Society of Arts and President of the British Association for the Advancement of Science, Sociology and Social Policy Section.
This paper summarises nine detailed reports assessing the social policies of the
UK Coalition government elected in 2010. What did the Coalition set out to
achieve? How much was spent and saved? What policies were enacted and with
– The Coalition made ‘tackling our record debts’ its most urgent task. However, it also aimed to
deliver radical reforms to achieve ‘a stronger society, a smaller state and responsibility in the
hands of every citizen’.
– Rapid and far reaching reforms were enacted: re-structuring the NHS; expanding the number of
Academies; starting to introduce Universal Credit; pension reforms; widening non-state provision,
increasing local autonomy and reducing eligibility for services and benefits.
– The Coalition’s decisions to offer relative protection to schools, pensions and the NHS meant that
its austerity programme was more limited overall than its rhetoric suggested, and was
concentrated in particular policy areas. Total public spending fell by 2.6 per cent between
2009/10 and 2014/15. However, “non-protected” services were cut by around one-third.
– Although the Coalition stressed the importance of the “foundation years”, real spending per child
on early education, childcare and Sure Start services fell by a quarter between 2009-10 and
2012-13 and tax-benefit reforms hit families with children under five harder than any other
household type. Provision for adult social care users fell 7 per cent per year during the Coalition
period to 2013/14.
– Despite a promise that the better-off would carry the burden of austerity, changes to direct taxes,
benefits and tax credits affected poorer groups most. After initial protection ended, estimates
suggest that poverty increased to 2014/15 and will get worse in the next five years.
– It is too early to assess the full effect of the Coalition’s structural reforms (such as changes to the
school system). Whoever is elected in May 2015 will face many continuing issues including child
poverty, unaffordable housing, pressure on the NHS and social care from an ageing population, a
regionally unbalanced economy, low wages and insufficient affordable childcare. The ‘cold climate’ for social policy – very high public sector debt and a high deficit – also remains.
The Coalition’s Inheritance
The Conservative – Liberal Democrat Coalition that took power in May 2010 inherited a particularly tough fiscal climate. By the end of 2009/10 net public sector debt had reached £956.4bn (62 per cent of GDP), while the current budget deficit stood at £103.9bn (6.9 per cent of GDP). These figures were very high for the UK by recent standards and reflected the impact of the global financial crisis that affected most major world economies in similar ways. Strategic choices had to be made: should public spending be maintained in a Keynesian move to support economic growth, or cut in order to pay down the debt quickly? Should efforts to balance the public finances focus on tax increases or spending reductions? Who should bear the burden of these efforts?
On the issues that are the principal concern of our enquiry – social outcomes, poverty and inequality – the Coalition inherited a better situation than its predecessor. Labour’s social policy programmes had delivered expanded public services. Socio-economic gaps in access to services had decreased. Economic and social outcomes, such as pupil achievements and child poverty, had also generally improved, while differences between the most and least deprived social groups narrowed.
But a lot remained to be done. Child and pensioner poverty had fallen, but overall income inequality had not. There were still large social class gaps in health, early childhood development, school achievement, university participation, and neighbourhood living conditions. An ageing population made the funding of health, social care and pensions increasingly challenging. Other pressures included rising unemployment, concerns about the quality of care, and a chronic under-supply of housing.
What were the Coalition’s aims and goals?
The incoming Government declared that its most urgent task was to tackle the country’s debts. But it also insisted that fairness would lie at the heart of its decisions “so that those most in need are most protected”. The better-off would be expected to: “pay more than the poorest, not just in terms of cash, but as a proportion of income as well”.
Beyond deficit reduction, the Coalition set a further goal of improving social mobility and creating a
society where “…everyone, regardless of background, has the chance to rise as high as their talents and ambition allow them”. Reforms to ‘welfare’, taxation and education were promised, with devolution of decision-making powers from central to local government and communities. Defining its core values as “freedom, fairness and responsibility”, the Coalition pledged to deliver “radical reforming government, a stronger society, a smaller state and power and responsibility in the hands of every citizen”.
What did the Coalition do?
Cut public spending, rather than raising taxes
A fundamental decision announced in the Coalition’s first, “emergency” Budget was to target deficit reduction through spending cuts (77 per cent) much more than tax increases (23 per cent). On the taxation side of its strategy, the Coalition raised the VAT rate from 17.5 to 20 per cent, and increased Capital Gains Tax for higher rate taxpayers. Yet room was also made for sizeable tax cuts – including raising the Income Tax personal allowance from £6,475 to more than £10,000. Corporation Tax was cut, and, from 2013/14, the Income Tax rate for people earning over £150,000 was reduced from 50 per cent (recently introduced by Labour) to 45 per cent.
Gave relative protection to the NHS and schools, but made deep cuts to other budgets
The Government chose to maintain spending in some policy areas and implement deeper cuts
elsewhere. Budgets for the NHS and schools, accounting for more than a quarter of total departmental expenditure, were relatively protected. Spending on health grew in real terms by 2.7 per cent between 2009/10 and 2013/14: a real increase although a smaller growth rate than in previous years and much lower than the increase in need (for example as measured by the increasing elderly population). Schools expenditure fell by less than one per cent up to 2012/13 (the latest data available). A Pupil Premium, paid to support pupils from low-income families, helped maintain school budgets and also directed money towards those in more disadvantaged contexts.
Although funding for schools and 16 to 19 year-old learners was protected, the budget for adult skills training was reduced by 26 per cent between 2009/10 and 2013/14. Higher education spending was also cut – by 44 per cent in the short-term – as government grants for teaching were replaced with student tuition fees and loans.
The biggest losers among ‘non-protected’ services were those provided by local councils. Between 2009/10 and 2014/15, local government funding in England fell by an estimated 33 per cent. Within particular service areas, spending on children aged under five fell 21 per cent between 2009-10 and 2012-13, with falls of 11 per cent for early education and 32 per cent for Sure Start. These reductions coincided with a 6 per cent increase in the number of under-fives. Spending on housing and community amenities, which includes funding to build social housing, fell by 35 per cent between 2009/10 and 2013/14. All the main central government funding streams for neighbourhood renewal were removed. Budgets for residential homes and other adult social care community services were cut by 7 per cent between 2009/10 and 2013/14, while the population aged 65 and over grew by 10 per cent.
Uprated pensions, while reducing other social security budgets
Pensions were protected from Coalition commitments to curtail spending on social security. A ‘triple lock’ was put in place requiring them to be uprated each year by earnings growth, price inflation or 2.5 per cent, whichever was highest. In contrast, cuts were made elsewhere by restricting eligibility for tax credits and working-age benefits and imposing new conditions on claimants. Benefits were made less generous by a change to the inflation index used for annual adjustments and by below-inflation increases from 2012-13, as well as cuts for particular groups.
Restructured the welfare state
Alongside spending cuts, the Coalition embarked on an extensive restructuring of welfare state
institutions. In education, it vastly extended Labour’s programme of directly-funded Academies, and enabled ‘Free Schools’ to be set up by groups of parents, charities or other institutions. Higher education regulations were changed to allow new providers to offer degree qualifications. In the NHS, government introduced major reforms emphasising competition, decentralisation, a range of provider types (public, private and third sector) and outcomes. Delivery of a new, consolidated Work Programme, helping jobseekers to gain employment, was contracted-out on a ‘payment-by-results’ basis. Social housing providers were encouraged to seek more private funding for new homes, charge rents closer to market levels, and move away from ‘tenancies for life’.
‘Localism’ provided another key theme. Government regional offices and regeneration programmes, were abolished in favour of local decision-making. Local government finance was reformed to provide more incentives for economic development. In addition, two elements of the social security system – the Social Fund and Council Tax Benefit – were devolved to local authorities, both with reduced budgets. New rights were also conferred on community groups. Local government assumed new responsibilities and powers in the context of public health and the public health budget was devolved. However, with the exception of public health, the expansion of local powers and responsibilities took place at a time when budget cuts gave local authorities less capacity to make use of them.
The Coalition also shifted the boundaries of welfare provision, in many cases moving away from
‘progressive universalism’ towards greater targeting. Eligibility was restricted for some benefits and services. Extra conditions were imposed, particularly for out-of-work benefits, along with tougher penalties for not meeting them. In some areas, financial responsibility underwent a wholesale shift from the state to the individual; for example, by trebling university student tuition fees in England and by introducing adult learning loans. In social care there were moves in both directions: on the one hand tighter eligibility criteria for receipt of social care services shifted responsibility towards individuals and their carers; on the other hand the Care Act 2014 introduced a lifetime cap on the total long-term care costs individuals would in future be required to pay.
Embarked on reforms to the content and design of services
In some policy areas the Coalition’s reforms went deeper into the content and design of services, living up to its promise of sweeping changes. These changes are described in detail in the papers that underpin this summary report. For example, the school curriculum and examination system in England were overhauled, justified on the grounds of making them more rigorous, and a new system of teacher training was introduced. In adult skills training, the Coalition instituted changes to the length and quality of apprenticeships, designed to bring England closer to European systems. One of the most ambitious reforms was a complete overhaul of working-age benefits and tax credits, bringing most of them into a single system, Universal Credit (UC), designed to incentivise work and get rid of complicated overlaps in means-tests and taxation. While many people support the principles behind UC, it proved challenging to implement, and there are remaining concerns about its design and the capacity of the IT system to cope with the number of monthly changes in circumstances which will be required. Just 18,000 people were receiving it late 2014, against an original target of 2 million.
What were the results?
Cuts in many services and increasing pressure on others
‘Unprotected’ services have been substantially reduced. In adult social care, where spending was cut despite a growing elderly population, there was a falling caseload (down 25 per cent from 2009/10 to 2013/14) (Figure 1) and ‘intensified’ focus on supporting those with the greatest needs. Housing policies made little impact on the supply of new homes. Between 2010 and 2013 an average of 139,000 new homes per year were completed, compared with 190,000 under Labour. There were 17 per cent fewer adult learners as course funding was curtailed, and loans introduced. Centrally funded neighbourhood renewal activity was drastically reduced, while economic regeneration programmes performed well below expectations in terms of business and job creation. Despite Government endorsements for voluntary activity and a ‘Big Society’, Third Sector budgets also fell, with cuts estimated between 50 and 100 per cent in some deprived neighbourhoods.
Falling number of people receiving community-based, residential or nursing care
services through local authorities, (England).
In early years services, the number of Sure Start children’s centres fell from 3,631 in April 2010 to 3,019 in June 2014, although survey data showed that many of those remaining expected to maintain, or even expand, the services they provided, in part by making them more targeted. There was also new early education provision for 2-year olds and the number of health visitors and Family Nurse Partnership provision for teenage parents expanded.
‘Protected’ areas have been less hard hit. In education, the Coalition kept school funding resources broadly stable. In England, the number of schools increased, pupil-teacher ratios were maintained, and while the average class size increased in primary schools, it fell in secondary schools. Although there were more 16-19 year learners, the proportion not in education, training or employment fell. Health services were protected relative to other areas but pressures on access and quality began to emerge as increases in demand outstripped increases in spending. The proportion of cancer patients seen within 62 days declined and fewer hospitals met their Accident and Emergency waiting-time targets. Public satisfaction with the NHS, measured by the British Social Attitudes Survey, fell from 70 per cent in 2010 to 60 per cent in 2013. Among employment services, the new Work Programme proved cheaper, though no more effective, than its predecessors.
Tax and benefit changes benefited richer groups more, while contributing nothing to deficit
Despite the Coalition’s insistence that “those with the broadest shoulders should bear the greatest
burden”, the poor bore the brunt of its changes to direct taxes, tax credits and benefits from May 2010 to 2014-15. Up to 2014/15, the poorest twentieth lost nearly 3 per cent of their incomes on average from these changes (not allowing for VAT and other indirect taxes) and people in the next five-twentieths of the income distribution lost almost 2 per cent. With the notable exception of the topmost twentieth, those in the top half of the distribution were net gainers from the changes. Perhaps surprisingly, overall the ‘welfare’ cuts and more generous tax allowances balanced each other out, contributing nothing to deficit reduction.
The combined impact of direct tax and cash transfers was mostly regressive, moving
incomes from poorer households to those that were better off.
Early protection for the poor, but increasing poverty later
As a result of decisions made under Labour and initially continued, benefits rose in line with inflation during the Coalition’s first two years at a time when real earnings fell during the recession. The result was that poverty measured in relation to median incomes (before housing costs) fell until 2012-13. Income inequality also fell during election year 2010-11 and held steady up to 2012-13 at its lowest level for a quarter of a century. However, figures measuring poverty against a fixed income threshold show an increase over the same period – the more so when housing costs are taken into account.
These latest official figures pre-date most of the Coalition’s welfare reforms coming fully into effect.
Modelling analysis by the Institute for Fiscal Studies suggests there will already have been a sharp rise in relative poverty (and in poverty against a fixed line) between 2012/13 and 2014/15 for children and for working-age non-parents, and then a further rise to 2020/21, with the relative child poverty rate reaching 21 per cent, up 3.5 percentage points from 2012/13. Qualitative evidence suggests growing hardship since 2013 among households affected by a combination of falling real wages, rising fuel and food costs, changes to benefit rules, and sanctions.
Pensioners were protected, children less so
As far as taxes and benefits (including pensions) are concerned, pensioners continued to be relatively favoured. As a share of national income, transfers to pensioners had increased under Labour from 5.4 per cent of GDP in 1996-97 to 6.6 per cent in 2009-10. This was also the proportion in 2014-15, although a peak of 6.9 per cent was reached in 2012-13. However, pensioners with care needs were affected by cuts to adult social care.
Meanwhile the cost of working-age benefits not related to having children fell from 3.4 per cent in
2009/10 to 3.1 per cent in 2014/15, and spending related to children from 2.8 per cent to 2.3 per cent of GDP by 2014-15. Concerns about future social mobility might be raised as young children in low-income families were affected by cuts to spending on services, as well as by reductions in benefits for the underfives. On the other hand, poorer school age children received additional help through the Pupil Premium. Fears that the abolition of the Education Maintenance Allowance and the rise in university tuition fees would widen socio-economic gaps in further and higher education participation have not been borne out to date. In fact the proportion of young people not in education, employment and training fell for the first time in a decade in 2013, and increasing numbers of disadvantaged young people applied to university.
Too early to tell for many social and economic outcomes
Most data indicating changes in outcomes are only available until 2012 or 2013, making it impossible to assess the full impact of Coalition policies. The data available to date show that progress in many areas continued in the new government’s early years, but much of this must be considered the legacy of the previous government, since many policies were not fully implemented in the period covered. An exception is education, where, up until 2013, attainment continued to improve and socio-economic gaps to narrow, although no immediate accelerating effect of the Pupil Premium was evident. Early indications are that these gaps may widen when 2014 results are released, since poor pupils have tended to rely more on the vocational qualifications that now carry less value in school league tables.
The overall picture is that there has been little significant change, as yet, in many of the key indicators of social progress and equity. Health inequalities remain deeply entrenched. There is no evidence of closing socio-economic gaps in child development. Gaps in worklessness and poverty between the poorest neighbourhoods and others reduced as the economy recovered, but not quite back to their preeconomic-crisis levels. The Coalition did preside over positive trends in employment, which rose to a new peak in summer 2014, higher than before the crisis. But wages fell and much of the increase was in self-employment and part time working. Some indicators were less positive. Unmet needs for care among the elderly increased. Housing became increasingly unaffordable and homelessness increased.
Still high levels of debt and deficit, and further cuts to come
The protection of health, schools and pensions from major spending cuts meant that even with
reductions of around a third in some other services, the scope for budget savings was limited. Overall, the effect of all the Coalition’s measures in the current parliament has been to cut public spending by 2.6 per cent in real terms, from £674bn in 2009/10 to £656bn in 2014/15 (at 2009/10 prices). As GDP grew, this brought spending down from a peak of 47.1 per cent of GDP in 2009/10 to 43.7 per cent in 2014/15.
The current budget deficit was reduced from 5.9 to 3.5 per cent of GDP. However, public sector net debt rose to 80 per cent of GDP by 2014/15. Current plans to address this are predicted to reduce public spending overall to 38.2 per cent of GDP by 2018/19. Day-to-day spending on public services (excluding benefits and debt repayments) is predicted to fall to its smallest share of national income at least since 1948.
There is no doubt that the Coalition Government formed in 2010 faced a very tough fiscal climate and ongoing social policy challenges. Its response was to seek to reduce the deficit quickly. It also decided to achieve most of its fiscal rebalancing through public spending cuts rather than increased taxes, and to protect the NHS, schools and pensions – all very big areas of public spending – from major cuts. And it implemented some expensive commitments, notably increasing the income tax personal allowance to £10,000 and a more generous system for uprating state pensions.
These decisions meant that while the overall reduction in public expenditure has been less than three per cent, very substantial cuts were made in unprotected areas, largely in local services. In the tax and benefits system, pensions were protected and benefits to lower income families were reduced, while there were tax reductions for some better off households. Despite the aim that the better-off should contribute a greater share of income than the poor, the reverse was the case across most of the income distribution. Poverty rates measured against a fixed threshold rose to 2012/13 (the latest official data) and are predicted to rise further, and there are signs of increasing material deprivation and hardship arising from a combination of rising costs of living, reductions in the value of benefits and eligibility and short-term benefit sanctions. Meanwhile, the ‘protected’ NHS has experienced real average annual expenditure growth rates that have been positive but exceptionally low, while adult social care services have been cut.
Although current public attention rests on ‘the cuts’, the Coalition’s large-scale reforms designed to
reduce the size of the state, stimulate private and voluntary provision and increase personal
responsibility may ultimately prove its biggest legacy. It is too soon to establish their effects on social and economic outcomes. Whoever is elected in 2015 faces a welfare state in flux, with fundamental changes to the NHS, schools, and benefits still underway. At the same time, many problems that the Coalition inherited remain. Increasing need for health and social care, unaffordable housing, a regionally unbalanced economy, and continuing labour market inequalities all remain to be tackled, as do child poverty, insufficient high quality affordable childcare, a weak system of apprenticeships for young people and relatively ineffective mechanisms for helping workless people back into work. The next Government, like the Coalition, will need to address these issues in the context of high public sector net debt and a current budget deficit, and with many of the most straightforward cuts already made. The climate for social policy and those most affected by it will remain cold for the foreseeable future.
The full version of this paper The Coalition’s Social Policy Record: Policy Spending and Outcomes 2010-2015, is available at http://sticerd.lse.ac.uk/dps/case/spcc/RR04.pdf. It is a summary of nine detailed accounts of changes under the Coalition in all the topics mentioned in this paper: cash transfers, health, adult social care, housing, employment, the under fives, schools, further and higher education and area regeneration. Readers wanting further details are advised to go to the individual papers which can be found at http://sticerd.lse.ac.uk/case/_new/research/Social_Policy_in_a_Cold_Climate.asp. All the papers are part of
CASE’s research programme Social Policy in a Cold Climate (SPCC), funded by the Joseph Rowntree Foundation, the Nuffield Foundation, and Trust for London. The views expressed are those of the authors and not necessarily those of the funders.
Ruth Lupton, with Tania Burchardt, Amanda Fitzgerald, John Hills, Abigail McKnight,
Polina Obolenskaya, Kitty Stewart, Stephanie Thomson, Rebecca Tunstall and Polly
Approaching 1.3 million older people and younger disabled and mentally ill adults
use social care services in England, and 3.2 million are cared for informally, by their
families and friends. How did the Coalition respond to long-term pressures that are
putting care services and carers under growing stress?
– The Government legislated to make more people with modest wealth eligible for publicly funded
support, by raising the capital threshold used as a means test from £23,250 to £118,000 (from
2016) and introducing a lifetime cap on care costs. However, this cannot be expected to have much
impact on continued under-funding for social care as a whole.
– Public spending on social care has failed to keep pace since the mid-2000s with demand for
services from growing numbers of older people. Spending cuts imposed by the Coalition intensified
the pressure on social services from 2010 onwards.
– Overall spending is projected to have fallen by 13.4 per cent over the Government’s five years in
office. Already by 2013/14, 17.4 per cent less was being spent on services for older people. By
contrast, the number of people aged 65 and over increased by 10.1 per cent over the same
period, including an 8.6 per cent increase in the population aged 85 or over.
– The number of people receiving publicly-commissioned adult social care services fell by one quarter
between 2009/10 and 2013/14 from 1.7 million to below 1.3 million. Care at home and other
community-based services were hit especially hard, resulting in an average 8 per cent reduction in
the number of users each year.
– The number of people with learning disabilities using community-based services grew slightly, but
all other client groups experienced cuts. The number of service users among working-age adults
with mental health problems dropped by 37 per cent and the number of physically disabled users
aged 65 or over fell by 32 per cent.
– Local services were increasingly targeted on adults assessed as having the most complex needs.
The proportion of social care clients being supported for five or fewer hours a week declined from
37 per cent to 28 per cent between 2009/10 and 2013/14. The proportion receiving care for more
than ten hours a week increased from 34 per cent to 45 per cent. At the same time, nearly three quarters
of councils now arrange some social care visits as short as 15 minutes.
– Monitoring of care services based on users’ perceptions suggests some quality of life outcomes
have improved. Nevertheless, statistics on the abuse of vulnerable adults show 37,685
substantiated cases in 2013/14, while Care Quality Commission inspections revealed serious
concerns about the quality of care in a fifth of nursing homes and a tenth of residential care
David Cameron promised in 2010 to “cut the deficit, not the NHS”. But how have the Coalition’s policies – including health reforms which are widely viewed as going beyond election commitments – impacted on health?
– While the Coalition has ‘protected’ health relative to other expenditure areas, growth in real health spending has been exceptionally low by the standards of previous governments. Average annual growth rates have lagged behind the rates that are deemed necessary to maintain and extend NHS care in response to increasing need and demand.
– Forecasts warn of an NHS ‘funding gap’ as wide as £30bn by 2020/21 unless the growing pressures on services are offset by productivity gains and funding increases during the next Parliament.
– Major health reforms emphasising decentralization, competition and outcomes have been implemented. These have transformed the policy landscape for the commissioning, management and provision of health services in England. The overall framework for political responsibility and accountability for health services in England has also changed.
– Minimum care standards, inspection and quality regulation have been revised and strengthened following the Mid-Staffordshire NHS Foundation Trust Public Inquiry.
– Key indicators point to increasing pressure on healthcare access and quality. These include indicators on patient access to GPs, accident and emergency services and cancer care. Public satisfaction with the NHS is considerably lower than a peak reached in 2010.
– The UK’s ranking on OECD “international league tables” remained disappointing for some health outcomes including female life expectancy and infant mortality.
– Suicide and mental health problems remained more prevalent following the 2007 economic crisis.
– Health inequalities remained deeply entrenched. The difference in average life expectancy between men living in the poorest and most prosperous areas of England is nine years, and six years for women.
George Osborne’s Autumn Statement was a reminder of the government’s missed targets and missed opportunities, writes John Van Reenen. The Chancellor’s promise to eliminate the structural deficit has failed spectacularly and the UK economy is barely above its pre-crisis level, a major cause of which was the the decision to launch a premature austerity programme in 2010. Crucially, Osborne’s plans fall short in addressing Britain’s chronic problem of low productivity.
There are things to like in the Autumn Statement. The reforms to end the “cliffs” in stamp duty and make it more graduated tax are welcome, but even better would have been to replace stamp duty entirely with a tax on land values. Rather than taxing people who move, tax the unmoveable wealth that they have. And if you have to raise taxes, few will feel sympathetic with multinationals who will find it harder to avoid taxes or banks who won’t be able to offset their accumulated losses against future taxes.
But the economic elephant in the room is what has happened to productivity. GDP per hour is over 15 per cent below where we would have expected on long-term pre-2008 trends. This is why wages are so low and the deficit remains high. There is nothing serious in the Chancellor’s plans to tackle this pressing issue.
Missed Fiscal Targets
In 2010 George Osborne pledged to eliminate the structural deficit by the end of this Parliament – the 2014/15 financial year. This has spectacularly failed to happen with forecasts of government borrowing rising to £91 billion this year and no expectation of balancing the books before 2018/19. And don’t hold your fiscal breath on it happening even by then.
So what went wrong? Less income taxes have come in than expected in the last year, partly because of the increase in personal allowances, but mainly because of low pay. It’s a stunning fact that real earnings have fallen by over 8 per cent since 2008. Many jobs have been created, but they have generally poorly paid. Low wages, low taxes.
Harpo Marxist Economics
The fundamental problem is that growth has been pretty lousy under the Chancellor’s rule. Don’t be fooled by the 3 per cent headline GDP growth rate. The size of the economy is barely larger than it was on the eve of the crisis representing the worst recovery in over a century. Our faster growth this year is like a “Harpo Marx” effect. The story goes that when Harpo was asked why he was banging his head against a wall. He responded “because it feels so good when I stop.” Similarly, it is unsurprising to have strong growth when you’ve been pushed so far underwater. The real surprise is why it took so long.
A major cause of low growth was the Chancellor’s decision to launch a premature austerity programme in 2010 which choked off the nascent recovery. Austerity eased somewhat since 2012/13, but even the OBR estimates that this knocked off a percentage point off growth per year in 2010/11 and 2011/12. The Eurozone crisis also played a part, as EU leaders administer the same fiscal medicine as Dr. Osborne with similarly disappointing results. Southern European countries can at least say they have no choice if they wish to keep the Euro, but there is no excuse for Northern EU countries like Germany to insist in balancing their own budgets in the face of serious deflationary risks.
Attempting even more severe austerity to meet the 2010 targets – as some on the right have argued – would have been an even more serious error. Like the government’s policy to reduce net migration to under 100,000, it is better to fail at imposing a silly policy than to cause terrible harm in trying to meet it.
But what to do about the productivity elephant?
As analysed by the LSE Growth Commission, Britain has a chronic problem of low productivity rooted in the failure make long-term investments. We argued that we could address this though radical supply side changes in the way we support innovation, and educate, tax and finance our citizens.
A major way of reducing public spending after 2010 was to slash public investment. With low interest rates, under-utilised resources and falling private investment, this was the exact opposite of standard economic advice. The outcome was widely predicted – rather than building, we dug ourselves into a deeper economic hole.
Some of this infrastructure destruction has been reversed, but the Chancellor plans again to accelerate public spending cuts to pay for tax cuts after the election. Since public investment creates capital that can be used in the long-term, it should not be lumped in with current spending like civil service salaries. But for purposes of creating an absolute budget surplus it has been and so, once again, will be ripe for the chop. The Liberal Democrats and Labour rightly want to keep capital investment separate. Let’s hope, if re-elected, this will be one more target that the government misses.
About the Author
John van Reenen is Professor of Economics at the LSE and Director of the Centre for Economic Performance. He tweets from @JohnVanReenen