Priorities for welfare

August 7, 1998

In the first of a five-part series looking at strengths, weaknesses, opportunities and threats for higher education, Howard Glennerster sets the scene

In the first week of July the 50th anniversary of the National Health Service was celebrated with great pomp and self-congratulation - garden parties and speeches and receptions and seminars. Yet that first week of July 50 years ago had been the "vesting day" for not just the NHS but the whole raft of legislation that constituted the postwar welfare state. It is significant that this was ignored. There were no garden parties for National Insurance, or speeches about the great legacy of National Assistance or services for children, no receptions to celebrate the success of public housing.

Even then the NHS anniversary coincided with the appalling story of professional closing of ranks and management failure at the Bristol Royal Infirmary - no backwater cottage hospital this but a supposed flagship trust.

July also saw the announcement of the most important public spending review for years. It will set the resource framework for the rest of this Parliament. Labour came to power with high expectations of its capacity to improve health and education, which, all the polls suggested, ranked foremost on the electorate's list of priorities. The sums promised are, indeed, large. Will they meet the high expectations raised? I think not. The cash figures may look big but not if you take account of the extent to which staff quality has been so badly eroded over the years by the failure of salaries to keep pace with those in the private sector. Merely to catch up on quality would eat up the whole of the increment. More than ever is being asked of these services. We are trying to educate most of the population from three to 22 - not five to 16 as once we were. In 1975 we donated 6.5 per cent of our GDP to state-funded education. Even after Brown's largesse the figure will be just over 5 per cent.

Nor can social policy be taken out of its social context. For the first 30 of those 50 years the economy was working with the grain of social policy. Jobs gave security to most people. Incomes in the market place converged slightly. Overall, all sections of the population did share in the new growth and indeed the poorest gained most in various periods. Then came a reversal of profound importance. Not only did full employment cease but the earnings of those in work began to steadily diverge. Real earnings at the bottom remained almost static for 20 years while earnings at the top continued to climb. This reversed trends evident for a century. They were indeed part of the received wisdom of my undergraduate training in labour markets and development. This deep structural change has affected nearly all advanced economies. It is partly the result of the fact that we are now part of a world labour market and partly because of technological changes that are affecting every part of the economy.

This widening inequality directly impacted on social policy budgets. It is not that less of the GDP is being devoted to social policy today compared with 20 years ago. It is not. The percentage has remained the same over two decades. But the bulk of the additional tax resources going to social policy in this period was spent on rescuing the growing group of poor people through cash benefits. The state education budget was allowed to fall from 6.5 per cent of GDP to 4.5 per cent in the 1980s. People were spending as much of their incomes on social policy as ever before but were not seeing it showing up in the improved education and health services they cared about.

Given these severe constraints over thepast 20 years these services have actually done rather well in objective terms. The productivity of the NHS has meant that increasing numbers of patients are being treated with shorter waiting times than in the 1980s. Qualifications gained by school children have been improving steadily. Most encouraging, not only have girls' qualifications caught up and surpassed boys' but the performance of ethnic minority children has in most instances caught up with or surpassed the average. Housing standards have improved steadily. The safety net has caught many who, in the United States, were left to despair and drugs. All the detailed trends are reviewed in State of Welfare (OUP, 1998), a report by the Economic and Social Research Council Centre for the Analysis of Social Exclusion at the London School of Economics.

Yet the evidence suggests a continued decline in the support the public is giving our social institutions. In 1983 the British Social Attitudes Survey reported over half its respondents being satisfied with the NHS. The latest results suggest that has fallen to a third. Attitudes to education standards have also worsened. So there has been genuine improvement in what these services have been providing in objective terms but growing criticism too.

If we look not at words but at deeds the same story holds. In the early 1970s, up to 1975-76 to be precise, the share of the GDP spent by private households on education out of their own pockets was 0.3 per cent. By 1995-96 this had grown to nearly a full percentage point, equivalent to a fifth of all state spending. As public spending grew more slowly private spending grew to take its place. Exactly the same story can be told in health care. In 1970 roughly two million people were covered by private medical insurance of some kind. By 1996 the figure had risen to over six million. Housing long ago became a private matter for most. What this suggests is that demands for high standards in these services, especially by those with the resources to opt out, are just not being satisfied by the state. A glance at spending on higher education in the US and the UK illustrates my point another way. In the 1980s the amount of money parents were prepared to spend on their children's higher education rose phenomenally in the US. Even taking into account scholarships and other devices the cost of attending a private US college rose by 75 per cent in real terms, that is above inflation, between 1978 and 1992. That was an even higher rate of increase than the much commented on rise in health spending in the US. Middle-class parents were prepared to pay big money to get their children into the top schools and even the state universities saw spending per student rise by 3 per cent per annum in real terms. Compare that to the near 50 per cent cut in real spending per post-school child we have seen in the UK since 1973 (State of Welfare, 1998). No wonder there is a crisis of expectations here. No wonder when American students turn up at the LSE, a place they rightly recognise as a world-class institution, they say "Is this it?" or "what kind of a lavatory is this place anyway?" What they would have said if they had turned up at some even less well endowed of our universities would not be printable in the columns of The THES. It will not be long before British students say the same thing.

During the past 20 years spending on cars has doubled in the UK in real terms. Spending on recreational and cultural services quadrupled. Moreover, service quality rose too. No wonder a 1 per cent rise in the productivity of the NHS in the 1980s caused frustration. All the other services we see about us are glittering and consumer responsive. Perhaps that is going too far! But the contrast between the facilities for kids in a modern supermarket or department store do not bear comparison with the crowded waiting rooms for mothers and toddlers in some of our supposedly good paediatric departments.

So what is the government's response to this crisis of expectations?

The strategic starting point seems to me to have been absolutely correct. It has sought to tackle the high levels of long-term exclusion from the labour market and the problems of low incomes for those in work. As William Julius Wilson said with so much passion at the LSE this July, work is the essence of social security and dignity in our kind of society. The steps taken in the March budget have been too little recognised for their scale and boldness and the impact they will have on poor families in work. Such families may be Pounds 100 a week better off and the measures to help people into work are significant too. The government has been clever in labelling much of this help a tax credit, not public spending.

But there is a limit to what mirrors can do. To significantly reduce the tax burden on the poor is fine. If revenue from the poor is down and the revenue from the rich is capped there will not be much available to increase spending on health and education when times get tough again.

If expectations are to be met some difficult choices remain. For me the core concerns of social policies are the poor and the two key areas of social provision that affect everyone - health care and schools. The government seem to agree. To this we must add long-term care of the elderly in the next century. That Royal Commission report is expected about Christmas. In all these cases we know markets work very poorly and the consequences of market failure are considerable. If we care about community we must care about them.

Concentrating on the core becomes the only viable option unless politicians are prepared to go out and convince voters of the need for much higher taxes, and I see no signs of that. If we are not to lose the inclusive features of schooling and pre-schooling we have to enable their standards to keep pace with parents' expectations. But we cannot do that for the whole of what used to be social policy. Universal generous state pensions for all do not form part of my core concerns but a minimum income in retirement does. So does requiring individuals to save for their retirement and helping those who cannot. This could be done through making available inflation-proofed investment instruments and helping those outside the labour market to join pension schemes. Much the same applies to higher education. It can never keep pace with rising expectations if it relies on competing with the core demands of social policy. Almost no extra public funds are going to higher education in the new settlements.

Higher education can only be rescued from a dismal lavatorial future, in my view, by harnessing private demand and capacity to pay. The government has started gingerly down this road but there is a long winding way ahead.

Howard Glennerster is professor of social policy, London School of Economics

Perspective, pages 16-17

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