The bigger picture

by May 7, 2015BLOG0 comments

By: Ben Franklin | Helen Creighton | George Holley-Moore | Cesira Urzì Brancati

During an election campaign it is easy to get bogged down in rhetoric, gaffs and differences in individual policies. With polling day now upon us we look ahead to the concerns of the new Parliament.

The election is really only the beginning. Whoever makes it in to number 10 will face a number of challenges, regardless of any potential coalition’s political colours. All the major parties have committed to reducing the deficit but none have properly addressed the practicalities of how this might actually happen. This was highlighted in a scathing review of party manifestos by The Institute for Fiscal Studies:

‘There is apparently a huge amount of money to be extracted through a clampdown on tax avoidance (mysteriously missed by all previous clampdowns)…

There is also a shared lack of any attempt to paint a coherent strategy for tax reform, a shared desire to impose further, often absurd, complications to the tax system, and a shared lack of willingness to set out specific benefit measures…

…the Conservatives have spent the last two years promising substantial additional benefits cuts of £12 billion a year whilst failing to come up with more than 10% of that figure in actual cuts; on the other hand, Labour’s promised ‘toughness’ involves reducing spending by almost nothing by taking winter fuel payments from the small number of pensioners subject to the higher rates of income tax…’

The ambiguity around parties’ plans is concerning given that the public finances of the next Parliament will face pressure from two fronts. Economic stagnation, with a “productivity puzzle” meaning we have a record number of people in work but output per worker no higher than it was before the financial crisis, could continue drag tax revenues down. Simulataneously demographic change, which will place increasing demands on the NHS, the pensions system and on adult social care, will push some areas of spending up. As a result the next five years will entail a reassessment of the role of the State in the 21st century.

There will be some who argue that we are no longer able to afford the core promises that are captured within the UK’s implicit social contract – free healthcare for all, a basic state pension and social security for the unemployed and disabled. Some will propose that the challenges of the next Parliament require a significant shift in responsibility away from the State and towards the individual. In an extreme version of the future, individuals will be required to fund the vast majority of retirement through private pensions, take out unemployment insurance in case they are made redundant, and buy health care plans to guarantee treatment at the point of need. Those who have the means to provide for themselves will thrive but those who don’t will lose out.

But it doesn’t have to be this way. 70 years ago The Beveridge Report set out a new and arguably more just social contract. While we may need to adapt the welfare state which followed this, we don’t have to throw it away.

What might an updated social contract look like in the 21st century? First, it must propose strong mitigating actions to reduce the impact of an ageing population on employment and support innovations to drive up productivity. In practice this means robust policy initiatives to support longer working lives, actively encouraging immigration where there are skills shortages and making bold investments in new technologies and education.

Second, the UK cannot act alone. It must work with other key nations to support innovation across borders and to identify how best to deliver public services in this new age.

Third, it must make explicit to UK citizens that the responsibility for the three pillars of the welfare state, securing a basic retirement income, help during periods of unemployment, and support for health and social care will lie with boththe individual and the State. The State should always be there to provide a base level of support for those in need, but it may not be practical to promise anything more than this over an extended time horizon. To be clear, private-led solutions should not replace the basic social safety net provided by the state, but be allied to it to ensure that people have adequate support at times of need.

With the right mix of vision, including a reimagining of the social contract itself, future generations will not have to call themselves the “have nots” as many currently fear. We are at a cross roads and the time for a proper debate about the long-term role of the State cannot come soon enough.

Five key aims for the next five years

1. Raising the productivity of the UK’s workforce
Work must become more productive in order to prevent economic stagnation and to offset slower growth in the UK’s “working age” population.

2. Extending working lives
Only around 1 in 10 people aged over 65 are working. Meaningful employment for the over 60s will help to drive-up growth and prosperity.

3. Delivering smarter public services
Building a sustainable and tailored health and social care system to meet the preferences of a diverse population requires innovative thinking, careful planning and thorough consultation.

4. Being honest about the future responsibilities of the State versus the individual
It must be made explicit that the responsibility for a basic retirement income, help during periods of unemployment, and support for health and social care will lie both with the individual as well as with the State.

5. Delivering viable individualised solutions
Given that the state cannot guarantee anything other than a base level of support over the long term, there must be viable alternative solutions that individuals can opt into to fill the gap. This means effective private savings and investment vehicles, accessible income protection insurance for the unemployed and insurance to cover some health and social care needs.

For more on the challenges of the next Parliament see the ILC-UK briefing on the main party manifesto commitments.

 

Ben Franklin, Helen Creighton, George Holley-Moore and Cesira Urzì Brancati

ILC-UK