1 The social investment state: Lessons from the UK 1997- 2020Prof Nick Pearce Director IPR
2 What are social investment policies?“Social investment policies are capacitating social policies, like childcare, education, active labour market policies, and maternal and parental leave… Social investment policies aim to maximize the returns to social expenditures in the form of active employment and social participation, especially in the labour market, and social cohesion and stability. In the social investment strategy, social policy is seen as a productive factor, expecting to help non-working people (back) into employment, to complement work income for the working poor, to enable parents to reconcile career and family life, to promote gender equality, to support child development and to provide social services for an ageing society… Kees van Kersbergen, Barbara Vis and Anton Hemerijck The Great Recession and Welfare State Reform: Is Retrenchment Really the Only Game Left in Town? SOCIAL POLICY & ADMINISTRATION VOL. 48, NO. 7, DECEMBER 2014, PP. 883–904
3 Origins of the social investment state in the UKSharp increases in poverty and inequality in 1980s, with large increases in social security claimants on unemployment and inactivity benefits; relative decline of value of state benefits. No significant social investment reform, but 1980s see the beginnings of an activation regime for working age unemployed. Small steps towards in-work family benefits and increased childcare provision before 1997. Pre-1997 New Labour revisionism: policy transfer from the USA, Australia & Nordic countries; IPPR Commission on Social Justice; Giddens’ Third Way. 1997 Labour manifesto promised a “welfare to work” programme funded by a Windfall Tax on privatised utilities, and increased investment in education and skills training. Rejected tax funded increases in state benefits on which it had fought the 1992 general election.
4 Key social investment policies 1997-2010Expansion of nursery education for 3 and 4 year olds, introduction of childcare tax credits and vouchers, and creation of pre-school Children’s Centres. Major investment and reform in schooling and further & higher education Expansion (and subsequent reform) of tax credit system (WFTC, CTC) Labour market activation programmes for long-term youth unemployed, lone parents, over 50s and long term adult unemployed (New Deals) Skills (ILAs, Train to Gain, union learning reps), and R& D, science investment Suite of work-family policies: paid maternity/paternity leave, R2R flexibility Labour market reforms, including intro of National Minimum Wage
5 Significant increases in public spending: health
6 And education…
7 Incl. big increases in spending on early years and skills
8 Net effect of the tax-benefit reforms was progressiveSource: Chote, Emmerson & Sibieta,Tax & Benefit Reforms Under Labour, London: IFS (2010)
9 Effect of direct tax-ben reforms on relative poverty ratesSource: Joyce & Sabieta, An assessment of Labour’s record on income inequality and poverty, Oxford Review of Economic Policy, Volume 29, Number 1, 2013, pp. 178–202
10 Income inequality: no overall change
11 But income inequality rose at the top
12 The new National Minimum Wage raised the wage floor
13 Substantial productivity growth pre-crisisSource: Van Reenan, Productivity under the Labour Government, Oxford Review of Economic Policy, Vol 29, Issue 1, Spring 2013
14 And in the employment rate, pre-crisis
15 Net effects: household incomes pre and post crisisSource: Resolution Foundation
16 The social investment state under LabourSubstantial investment in education and skills, childcare, labour market activation, science and R & D, work-life labour market reforms = classic social investment state strategy At the same time, substantial income transfers to families with children and pensioners AND big increases in health spending Before the GFC, UK saw significant improvements in employment, education participation, productivity, and poverty reduction for children and the elderly But no reduction in overall inequality or poverty amongst working age adults without children And a rise in top income inequality
17 An “Anglo-Social” model?Social investment state strategies under Labour modified the liberal welfare state model in key regards: “Nordic turn” in early years education and childcare, labour market activation, in-work income transfers (tax credits) But limited reform of political economic institutions: largely restricted to NMW, social market work-family legislation, regional policy UK remains within the family of liberal-market economies Social investment state strategies were therefore highly reliant on public spending rather than “pre-distribution” (Hacker) of initial market incomes And there was limited institutional embodiment of social investment – making it highly reliant on shifts in public opinion, not structured interests or deeper social relationships (transactional rather than “relational egalitarianism” – Elizabeth Anderson)
18 Public support for the status quo on tax and spendSource: British Social Attitudes 32, National Centre for Social Research (2015)
19 Priorities for extra spending on social security: pensions highest, unemployed benefits lowestSource: British Social Attitudes 32, National Centre for Social Research (2015)
20 Decline in support for increased “welfare” spendingSource: British Social Attitudes 32, National Centre for Social Research (2015)
21 Coalition & Conservative Government 2010 – 2020Significant cuts to working age welfare since 2010 (welfare cap, means-testing of Child Benefit, freezing of benefit rates, cuts to Housing Benefit and disability benefits, “bedroom tax”), with more cuts to come in the Universal Credit – but new state pensions “triple lock” (uprating) Relative protection to both services (NHS) and benefits for over 65s, albeit that demographic change means that social care and health have been significantly underfunded, relative to rising need Child poverty target abandoned in favour of “life chances” approach Significant increase in benefit sanctions – tightening of active labour market policy, leading to sharp rise in destitution (JRF) Big increase in employment rate, but very weak productivity performance Child poverty, working age poverty and inequality rates will rise between
22 Post 2010 austerity: sparing pensioners the axeSource: Resolution Foundation
23 2015-2020: a higher NMW, but regressive tax-ben cutsSource: Resolution Foundation
24 Differential impacts of austerityIncreased political inequality (voter turnout rates) between young and old ensures relative protection of pensioners’ services and benefits Ageing crowds out space for social investment strategy during austerity period Yet childcare spending increasing, suggesting underlying socio-economic driver of social investment in gender equality, work-family policies (Esping-Anderson) Relative protection for science, education and new financing models for HE And major increases in NMW for over 25s planned (“National Living Wage”) Major public resistance to tax credit and disability benefit cuts since 2015 Austerity: regressive retrenchment, but some persistence of social investment strategies
25 Conclusions: Lessons for social investment strategiesLabour followed the grain of public opinion (support for pensioners, working families). Lack of popular support for working age welfare or child poverty strategy. Suggests need for new institutions to embody fairness and reciprocity for these groups, and to support investment (akin to NHS) Social investment strategy very successful in reducing relative poverty and increasing employment and productivity. But highly reliant on increases in public spending: vulnerable to austerity, and harder to fund in 2020s, as ageing adds pressures to public finances. Tax resilience/wider tax base needed, greater efficiency, and measures funded by direct institutional spending, rather than demand side subsidies (Nordic children’s centres, not childcare tax reliefs)
26 Conclusions: Lessons for social investment strategiesSocial investment anchored in the state, not market: policies have to carry excessive burden of reducing poverty and inequality. Suggests social investment strategies have to be combined with pre-distributive political economic reforms. Strengthen workers’ bargaining position, develop new labour market institutions for skills investment and utilisation,,corporate governance reform Era of “great moderation” disguised rising inequality at the very top, uncoupling of wages and productivity, reliance on household debt to maintain living standards. But democratic welfare capitalism (contra Streeck) still sustainable with combination of social investment, tax increases and political economic reform Major challenge is to secure new coalition of cross-class and cross-generational interests when trade unions are weak and electorates are weighted towards conservative older voters.