The post war welfare state: stages and disputes, Lecture notes of Social policy

Download The post war welfare state: stages and disputes and more Lecture notes Social policy in PDF only on Docsity! 1 The post war welfare state: stages and disputes Howard Glennerster SPDO research note 3 12th August 2020 2 In brief To help colleagues who are including times series in their accounts I set out what I thought were possible ‘periods’ which might be distinguished in part because of the economic climate and demography of their times and the dominant political disputes or ‘climate of ideas’. This is, of course, open to all kinds of objections. I would welcome criticism – approach wrong in principle, periods wrong, dominant ideas wrong… Most observers agree that the Second World War was a critical juncture in the evolution of welfare policy even if its precise significance is debated. Both Nic Timmins (1995, 2001, 2017), Rodney Lowe (1993, 1999, 2005) and I took this as the natural starting point for our histories - seeing the Beveridge Report (1942) and the war time attempt to think through ‘post war reconstruction’ as a political and intellectual turning point. Periods 1945 to 1976. ‘The Post War-Settlement’. The immediate post war period was of fundamental importance. The great swathe of legislation passed between 1944 and 1948 has shaped all that has gone after. Many services founded on that legislation remain remarkably recognisable to the present day. 1976 to 1997. Constraint and change. The economic crisis of 1976 produced a sharp slowdown in the growth of welfare spending and a shift in the balance of dominant ideas. A body of neo-liberal thought began to exert a new and major influence on the way public sector organisations worked. It accepted and indeed encouraged a striking reversal in the post war trend to a more equal distribution of incomes and wealth. 1997-2010 An expanded welfare role. The New Labour administration drove forward a programme of social spending in the core universal services, notably health and education. It extended the state’s ‘welfare’ role to more extensive child care and intervened in the labour market to supplement low incomes, put a floor on low hourly wages and encourage moves off welfare. In these last respects it was following in an international trend to reshape welfare state priorities. But it also continued measures associated with the neo-liberal period - greater consumer choice in public service delivery, using outcome measures to try to improve public services’ ‘efficiency and accountability’. 2010-2019. Austerity. The banking crisis had resulted in a sharp rise in government borrowing. The Coalition and later Conservative Governments struggled to reduce that level of borrowing and debt and to do so primarily by reducing spending not raising taxation. It saw the first major and sustained reduction in real social welfare spending since the Second World War. The level of the safety net for the non-retired population was significantly reduced. This was unprecedented in the post war period. But the labour market interventions from the previous period were extended. 5 for the next thirty years. Shortly after the welfare state in its modern form had been legislated in 1950 it absorbed about 10 per cent of the National Income. By the mid-1970s it was absorbing over 20 per cent of a larger cake. But this phase was to pass. Several factors were at work. The transition to a new phase 1. The ‘benign’ shadow of the war gradually receded. Equalising, or risk sharing institutions, that arise in times of crisis tend to gradually lose their appeal. They are costly for the rich and powerful whose power reasserts itself. You do not have to buy into the full logic of Walter Scheidel’s (2017) account of inequality ‘inevitably’ reasserting itself after war and major disruption to accept that the spirit of the 1940s did gradually fade. 2. Peacock and Wiseman’s (1961) parallel insight was that wars get people used to paying high taxes and that enables governments to use that higher ‘taxable capacity’ to sustain taxes and use the revenue for non-war purposes. But that effect too begins to fade. As the scale of the costs implicit in the post war settlement grew that ‘bonus’ too faded. 3. However, what brought such trends to a head was an economic shock - the oil price crisis of the mid-1970s came after a period of accelerating inflation. For the first time since the Second World War average take home pay fell in the UK. Public opinion polls suggested that public opinion turned. It had had enough of rising taxation. The IMF insisted on ‘fiscal discipline’ as the price for its support. The new Conservative Government’s Public Spending White Paper (Cmnd 7746 1979) claimed that the UK’s economic plight was essentially caused by its high level of public spending. Governments should be prepared to purge the economy of inflation even at the cost of high unemployment. All of this is well known territory. Its importance today is to realise how a combination of economic change can facilitate a major shift in what become the dominant ideas of the time. 4. A body of ideas that came to be labelled ‘neo-liberalism’ gained growing acceptance on the right of politics and, indeed, in a modified way on the centre left too (Plant 2012; Steadman-Jones 2012 for an account of the gradual process.) Inequality of income was not something to ashamed of but was necessary to a thriving economy. Merit and success needed to be rewarded. The state might have a role to play in some fields such as education and health care but that role should be confined to financially supporting individuals and families not providing services. Fund parents with vouchers, do not provide state schools. These ideas had been around for two decades or more but began to make headway within the Conservative Party. 6 Mrs Thatcher’s first targets were not the traditional social services but the nationalised industries and the trade unions. She left the heartland of the welfare state – the NHS- to tackle late in her term. But key ideas from this neo liberal agenda do find their way into social policy from 1979 to 1997 and some continued into the Labour period that followed it. 1976 -1997: Welfare with the lid on – or ‘changed welfare’? Background forces at work Despite this evident conversion of key politicians in this period to such ideas there is a dispute among historians or commentators on how far they actually affected policy. Many have followed Paul Pierson (1994 and 1996) in arguing that the economic crisis of 1976 did bring an end to the ‘Golden Age’ of welfare states but did not usher in a period of collapse or retreat. His thesis was that the post war welfare institutions had generated their own set of powerful interests so that even politicians like Thatcher and Regan had not been able, and would not be able, to break them. Such institutions would be preserved but there would be growing tension about priorities within them. The first part of this prediction proved correct. The NHS continued to exist, if in a restructured form, in the UK. Old and generous pension schemes continued on the Continent. But as Anton Hemerijck (2013) has argued ‘welfare’ and the state’s interpretation of its social policy role was to change profoundly in this period in most countries. Background economic factors were to change significantly. The international supply of labour grew on a vast scale. That affected not just the rewards for labour but where it was employed. It had many benefits, cheap goods for ordinary families, but it also destroyed communities. Yet this took place at precisely the same time that the willingness of governments to intervene in markets declined. That was certainly the case in the United Kingdom. Industrial manufacturing, mining, shipbuilding, textile and ship building centres and communities began to decline. The internationalisation of labour markets was not the ‘fault’ of neo liberal ideas but it did make government reluctant to intervene in major ways to ‘compensate the losers’. We are perhaps only now realising just how profound these changes were and the impact they have had on communities’ view of themselves and of the country in which they live. As Tony Atkinson argued the post war values climate, as well as trade union power, had restrained large firms from being prepared to reward senior staff at levels that were many multiples of their workers’ incomes. Some kind of implicit ‘moral ceiling’ had been placed on the rewards structure of firms in the post war period. Mrs Thatcher’s robust rejection of such ‘restraint’ and the decline of trade union power helped remove such constraints. This was matched by the growth of 7 the finance and banking sectors where previously unheard of rewards were accepted. This period saw a striking rise in the inequality of incomes and wealth – out of line with what had been experienced in the post 1945 period (Atkinson 2015 and much more). And this has largely become a new normal. Opinion also began to turn against the very notion of a safety net. It had over time led people to lapse into bad ‘endogenous habits and norms’ (Lindbeck 1995). The climate of ideas was moving against some of the key components of the post war settlement. But other more positive changes were underway too - not least for women. From the mid-1960s the baby boomers, born after the Second World, and over the next two decades, began to enter the labour market in large and increasing numbers. More went to university. Women of this generation expected to be employed. Hence a growing demand for child care. In some ways this was a favoured generation as David Willetts (2010, 2019) has argued. But it was also one that experienced the collapse of local economies, the loss of the relative security they provided - familiar jobs in familiar communities. People lost the expectation that you would get a job like your father or marry a man with a secure a job. This was the first post war generation to experience such a loss of security. A fortunate generation for some but a broken one for others. Social policy’s share of the nation’s budget began to grow despite the neo liberal ideal. It grew from 22.6 per cent of GDP in 1986 to nearly 25 per cent in 1996. Thus, far from this being a period of constrained stability welfare states internationally began to change. As Hemerijck (2013) put it: ‘It is my contention that there is now overwhelming evidence that fundamental rethinking, re-examination and reappraisal of the European welfare state far better captures the reform momentum of the past two decades than the change–resistant welfare states of the Pierson model.’ New policies in this phase. Radical neo-liberal change. But there were policies that conformed to a neo-liberal pattern. 1. Withdrawing as a provider of new housing. Post war Labour and Conservative Governments had both given high priority to council house building. In the early 1980s councils were providing a third of the nation’s dwellings. The move to offer council houses for sale to tenants at a discount and the decision to cut council house building, and other social housing too, was a historic break. The Labour Government in 1964 had set out on a massive council housing drive and came to power planning to ‘municipalise’ most privately rented housing. From this point on, until very recently, the state largely withdrew from providing new housing. 10 declining GDP. Welfare spending rose from 27.7 per cent of GDP in 2008/9 to virtually 30 per cent in 2009/10. Social policy themes of the period Some traditional welfare goals are mixed with less traditional ones. 1. Traditional welfare priorities Part of the New Labour programme shows strong support for the tradition heartlands of welfare policy – above all the NHS and schools. The former saw its annual spending grow from a post war average of about 4 per cent per annum to about 7 per cent. Blair was frustrated early in his term by waiting lists remaining persistently high despite the key part the NHS had played in his 1997 Election campaign. He asked Adair Turner to find out why. The NHS is persistently under-funded compared to its European neighbours Turner replied. Hence Blair’s pledge to raise NHS funding to the ‘European average’ - ill specified but a much higher figure however you did the sums. Having suffered a fall in its share of the GDP in Mrs Thatcher’s period education’s share was restored and schools saw their spending per pupil rise sharply after 1998. Spending per primary school child rose from just over £3,000 in 1998 to about £6,000 in 2010 in constant 2016/16 prices, for example (Glennerster 2017). 2. An expanded role for the state in ‘welfare policy’ In several important ways the New Labour Government also expanded the state’s traditional post war ‘welfare’ role. The first extension was in promoting state provided pre-school services – Sure Start – services that went well beyond mere pre schooling to include a combined range of health, advice and wider help especially for at risk families. This began in poorer neighbourhoods and, perhaps prematurely, became ‘universal’ and less well targeted. But Sure Start was to be one of its most effective and popular social programmes. It also marked a striking change from the immediate post war welfare model. The post war Labour Government had closed the extensive system of day nurseries that had operated during the War. Working mothers should not pose a threat to returning service men’s jobs. Men’s wages should be high enough to support ‘a family’ was the traditional ‘Labour’ view. The second major extension of ‘welfare policy’ was for the state to intervene in the labour market. Beverage saw social security’s role as taking over when the labour market failed. When individuals were unable to work for reasons beyond their control. Wage setting was none of the state’s business. That was the responsibility of trade union and employer bargaining. The state did have a role in supporting the incomes of families with children and that applied to all families. 11 The idea that there should be a means tested addition for low income families had been accepted by a Conservative Government in the early 1970s but the idea that low incomes per se should be supplemented by the exchequer - ‘working tax credits’ - was I think a major intellectual step. It had its roots in the notion of a ‘negative income tax’, the brain child of Milton Friedman on the right and a more traditional Democrat, Robert Lampman on the left, at roughly the same time. But it had another innovative consequence – a statutory minimum wage. Without it employers would merely use this wage subsidy as a means to pay low wages. So here was a major new extension of the state’s role. Another related innovation was something that came to be labelled ‘welfare reform’ reflecting its American origins. It involved using a mix of sticks and carrots to encourage people off benefits and back into the labour market. The sticks took the form of sanctions applied by the benefit system to those who were not ‘actively seeking work’. The carrots involved training and support for those seeking re- entry into the labour market. A beginning had been made by the previous administration down this road, but it was taken further by New Labour. 3. A compromise on pension policy One central feature of welfare provision where there had been no full ‘compromise’ between the political parties had been pension policy. Ever since Labour had turned to Titmuss’ ‘skiffle group’ at the LSE for advice in the mid-1950s it had favoured some kind of state organised, wage related pension scheme similar to that which had been adopted in Sweden and Western Germany. As we saw earlier the Conservative Party finally took the view that ‘consumption smoothing’ in retirement was a matter for the private market to deliver. What no one fully appreciated at the time was that the typical defined benefit pension schemes of the time put a huge potential risk onto the employer. They were promising to pay a given percentage of an ex employee’s income in perpetuity. If longevity rose sharply, as it did, and if returns on pension fund investments fell, as they did, the firm was in deep trouble. It was this failure of the private pensions market that prompted the Turner Pensions Commission 2005 review of pension policy. Its report was to produce cross party support. That was the first time this had been achieved in half a century. It had three central features.  The heavy and growing reliance on means testing should be ended. A low basic pension plus growing means testing was fundamentally inconsistent with encouraging individuals to save for their retirement. This meant returning to the old Beveridge model of a pension set at or, a little above, the level of the safety net.  The age at which state pensions should be drawn should rise with life expectancy. The share of adult life spent in retirement should be stabilised not let to gradually increase as had been happening for decades.  Employers should be required to provide an employee with a pension scheme and employees incentivised, nudged, into joining one. 12 Though in the next period political disagreements broke out on the speed and timing of these moves the importance of this political compromise underpinning pension policy was considerable, especially in a period of a rapidly growing ageing population. 4. Continuation of some neo-liberal themes Many who were not enthusiasts for privatisation or neo-liberalism saw that some of the neo-liberal critiques of state monopolies had validity. I count myself in that category along with Julian Le Grand who summed up the argument in 1991 with his article entitled ‘The theory of government failure’ and in his inaugural and book on nights and Knaves in 2003. Perhaps though the key work for many of us was Hirschman’s ‘Exit, voice and loyalty’ (1970). With weak consumer democratic voice, the incapacity to show disapproval or by moving custom and with too much public loyalty to a local public service provider quality could steadily decline. There was evidence of this happening in hospitals, schools and council housing estates. If it continued public services could lose public favour. This was at bottom a pro public service argument, not the reverse. However right or wrong we may have been this strand of thought did convince Blair and many of those around him. Thus, widening choice of school, of GPs and hospitals and a reluctance to return to local authority monopoly in the care services continued as a theme in this period. The period comes to an end with the banking crash. Public investment schemes are brought forward. Spending on current service provision is maintained. Benefits are available to those who lose their jobs. The role the post war welfare state was meant to play as a stabiliser is played. And it works. 2010 -19: Austerity I leave this to those of you who have been doing all the work on the period. But if we contrast the story with these previous periods what stand out for me are the following. Background forces Demography While the natural focus for the period tends to be on recovering from the banking crisis and how that was done two or three other fundamental changes were underway. The most obvious is demography. Live births in the 1930s in the UK had averaged about 710,000 a year. That rose to a million in 1947 falling back to about 800,000 in the mid-1980s. But rose to over 900,000 in 1960 and to a million in the mid-1960s when Andrew and Rachel were born! Figures that fell to 675,000 by the mid-1970s. This are very big numbers and David Willetts is right to examine the consequences they have had on the political and resource claims they produced through their life-times. But this is the decade that sees this age group 15 References Atkinson A.B. (2015) Inequality: What can be done? Harvard University Press. Beveridge Report (1942) Social Insurance and Allied Services Cmd 6404 Evans, M. and Glennerster H. (1993) Squaring the Circle? The inconsistencies and constraints of Beveridge’s Plan Welfare State paper WSP/86. Glennerster, H. (1995, 2000, 2007) British Social Policy 1945 to the Present. Blackwells. Glennerster, H. (2017) Understanding the Cost of Welfare Policy Press Hemerijck A. (2013) Changing Welfare States Oxford: Oxford University Press. Hennessy, P. (2019) Winds of Change Hills J. (1995) Joseph Rowntree Inquiry into Income and Wealth Vol 2: a summary of the evidence Hirschman , A. O. (1970) Exit Voice and Loyalty; Responses to decline in firms, organisations and states Cambridge Mass Harvard University Press. Le Grand, J. (1991) ‘The Theory of Government Failure’ British Journal of Political Science Vol 21 p423-42 Le Grand, J. (2003) Motivation, agency and public policy: Of knights and knaves, pawns and queens Oxford: Oxford University Press. Lewis J. and Glennerster. H. (1990) Implementing the New Community Care Open University Lindbeck, A. (1995) ‘Welfare state disincentives with endogenous habits and norms’ Scandinavian Journal of Economics Vol 97 no 4 pp 477-94. Lowe, R. (1989) ‘Resignation at the Treasury: the Social Services Committee and the failure to reform the Welfare State 1955-57’ Journal of Social Policy 18(4) p505-26 Lowe, R. (1993, 1999, 2005) The Welfare State in Britain Since 1945 London: Macmillan Macleod, I. and Powell, E. (1952) The Social Services: Needs and Means London: Conservative Political Centre Peacock A. and Wiseman J. (1961) The Growth of Public Expenditure in the United Kingdom Unwin Pensions Commission (2005) A new pensions settlement for the twenty first century London Stationery Office. 16 Pierson, P. (1996) ‘The new politics of the welfare state’ World Politics vol 48 pp 143-79. And his 1994 book Dismantling the Welfare State? Cambridge Plant, R. (2012) The neo-liberal state Oxford: Oxford University Press Schafer, A. and Streek, W. (2013) Politics in the Age of Austerity Cambridge: Polity Press Scheidel, W. (2017) The Great Leveler: Violence and the History of Inequality Princeton University Press Steadman Jones D. Masters of the Universe: Hayek Friedman and the birth of neo-liberal politics Princeton University Press Timmins N. (1995, 2001, 2017) The Five Giants: A Biography of the Welfare State London: Collins Willetts D. (2010 and 2019) The Pinch London: Atlantic Books