Social Market Foundation | Newsletter March 2011 | Page 1
Newsletter March 2011 Welcome to this edition of the SMF newsletter In this edition
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As public spending cuts start to bite and with unemployment on the rise, 2011 looks set to be a uniquely challenging year for households up and down the country. This year will be challenging too for the Coalition Government, with its bold programme of reform and deficit reduction dominated by a shaky economy and growing concern over interest rates. Against this backdrop, the SMF last week launched its party conference themes document, outlining many of the issues we’d like to debate at what promises to be an exciting autumn party conference season. If you’d like to put your organisation at the heart of the debate, why not get in touch? But hurry – the best venues go fast these days. Rachel Baker, the SMF’s dedicated Conference Manager, outlines our key themes and how to get involved on page 4.
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Back in Westminster, our 2011 events programme got off to a flying start with a one-
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day conference, Prison Break: putting the rehabilitation revolution into practice. An audience of policymakers, experts, campaigners and practitioners were joined by the Prisons Minister, Crispin Blunt, who outlined the Government’s plans for introducing payment by results to cut re-offending.
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This was quickly followed by a second conference in February, Welfare that works, focusing on the Government’s planned reforms to the welfare system .The wideranging debate looked specifically at the forthcoming Work Programme and plans for Universal Credit, hearing from Employment Minister, Chris Grayling MP, along with his Labour opposite number and a range of experts from across the welfare spectrum. SMF Director Ian Mulheirn outlines some of the issues around Universal Credit reform on page 8. The SMF’s research programme also got off to a good start in 2011. As we await the Chancellor’s growth budget on [March 23], our proposals for a revival in UK manufacturing form our latest publication Manufacturing prosperity: Diversifying UK economic growth. In it, we take a timely look at the factors needed to boost economic growth by driving manufacturing up the value chain. The article on page 7 contains more information on this.
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Social Market Foundation | Newsletter March 2011 | Page 2
Since the last SMF newsletter we have also launched a collection of essays from highflying new MPs from across the three parties, The Class of 2010. And, as we await this week’s final report from Lord Hutton’s pension commission, why not take a look at our expert essay collection on public sector pension reform? Full details are on page 9. $
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Looking to the future, work is already underway on an exciting project looking at consumer trust and financial behaviour since the banking crisis. This report will be launched at an event in central London during the spring.
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As well as an exciting and broad range of work to kick off 2011, we’re delighted to welcome a new face to the team. In February we welcomed Leonora Merry to the role of Head of Media and External Affairs. Leonora comes to us with a background in communications in the non-profit sector and will be working to increase and broaden our public profile.
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Finally, we’re currently looking for sponsors for the following highly topical proposals. Please contact John Springford for further information or to register your interest.
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Childcare and the Universal Credit – With the Welfare Reform Bill published, the future structure of childcare support still looks unclear. We plan to examine the options for funding childcare under the Universal Credit system as well as proposing new policy options for the Government to help parents with childcare needs at a time of little public money.
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Audit after the Audit Commission - In 2010 the Government announced that the Audit Commission will be disbanded and local authority audit will be opened up to private providers. We plan to assemble a respected group of authors to look at the possible policy implications of the new system, and how it can be made to work.
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Mapping NEETs - The proportion of young people not in education, employment or training between the ages of 16 and 24 has risen dramatically. We will provide a mapping exercise, using the best available data on the labour market behaviour of young people, to identify key drivers of being a NEET and prime attributes of long-term NEETs to inform better policymaking.
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Payment by results in Sure Start - The Government intends to introduce payment by results for Sure Start Children’s Centres but details are yet to be known. We will explore the implications for introducing PBR for Sure Start and suggest a preferred model to achieve fairness and cost-effectiveness.
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Social Market Foundation | Newsletter March 2011 | Page 3
Director’s Note Reforming public services: the principle is the easy bit Ian Mulheirn, Director, SMF Paving the way for the public service reform white paper, David Cameron is right to argue that reform should put more power into the hands of the citizen. Making competition the norm, and state monopoly the exception, is the best way to guarantee high-quality and cost-effective public services. The Prime Minister is also right that the burden of proof should rest with the state to justify why it should operate a monopoly, rather than on the proponents of market forces. But this is the easy part of putting reform into practice. Whether the Government can succeed in getting more bang for its buck in public services will come down to whether they can reduce central control while ensuring accountability for public money. Contrary to popular perception, it has long been recognised by Whitehall that Whitehall doesn’t always know best. The stumbling block is – as it always has been - that Whitehall signs the cheques. Devolving control to ‘the
“Allowing people to choose is only one part of a real market, and the nice part at that.”
frontline’ therefore requires careful consideration of how financial accountability can be maintained even as service design decisions are devolved. Markets provide a neat solution to this problem: they give citizens the power to choose providers, hence citizens can hold poor providers to account. This is, after all, the basis for the success of the market economy. The problem is that allowing people to choose is only one part of a real market, and the nice part at that. Choice will only improve services if two further conditions are fulfilled. First citizens must have real options over which school to use and which hospital to go to. For that to be the case the Government must be prepared to fund more schools and hospitals than are strictly necessary in order to provide the spare capacity that allows people to choose. My school choice as a parent is meaningless if all but my local school are full. But funding spare spaces during the ferocious spending squeeze ahead is challenging to say the least. Second those institutions shunned by users must be allowed to fail and close if overall standards of service and efficiency are to rise. Allowing the poor performers to leave the market, rather than helping them to limp along with the aid of more public money, is an unavoidable part of a functioning market. Whether ministers can really wash their hands of the unpopular effects of competition, however, is a very big ‘if’. So advocating choice and competition is the easy part of reform. The financial and political consequences are much harder to manage. And the real test will come when the Prime Minister has to defend the closure of failing hospitals, as he must if this agenda is to succeed.
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Social Market Foundation | Newsletter March 2011 | Page 4
Party Conferences 2011 Get involved with our dynamic party conference programme Rachel Baker, Conference Manager, SMF The SMF’s Party Conference Themes document is now out! This document, available to download here outlines some of the key policy debates for the 2011 season and describes how you can get involved. At the SMF, we have been running successful and highly respected fringe events at the major political party conferences for many years. Strong links with each of the three main parties enable us to involve top politicians and expert speakers in our debates, making SMF events some of the best-attended and well-regarded conference events in the think-tank world.
“Building on a highly successful programme in 2010, we are currently seeking partners to work with us at the Conservative, Labour and Liberal Democrat conferences this year.�
SMF events are known for their professionalism, high profile speakers and innovative debates. This, coupled with our independent, non-partisan approach, makes us an ideal choice for any organisation wishing to engage intelligently and constructively in the issues facing policymakers, politicians and the public at this crucial time. Building on a highly successful programme in 2010, we are currently seeking partners to work with us at the Conservative, Labour and Liberal Democrat conferences this year. Our 2011 fringe programme will tackle the main policy issues and will cover themes such as: The new economy, growth and employment; Public services and public spending; Health and social care; Energy and climate change; Transport and the Olympics; Banking, home-ownership and trust in financial services; Families, schools and education; Communities and the regions and Technology and media. The 2011 party conference will be a prime opportunity to join the debate and help to shape the policies and ideas that will determine what the UK looks like in the years ahead. Partnering with us offers an excellent opportunity put your organisation at the heart of the debate. For further information on sponsorship opportunities, please email RBaker@smf.co.uk or call 020 7227 4404.
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Social Market Foundation | Newsletter March 2011 | Page 5
Why students should be angry with universities Ryan Shorthouse, Researcher, SMF Ministers have asked the Office for Fair Access (OFFA) to determine whether universities will be able to charge tuition fees above £6,000 a year. Universities, ministers say, will need to prove they are doing enough to recruit students from poorer backgrounds. Cambridge was first to say they will charge the maximum fee of £9,000. Then Oxford. This week it was Exeter. Who next? Behind the scenes, other universities are lobbying hard to follow suit, especially as central funding from government has been cut so vehemently.
“Even if some students were put off by higher prices, universities are probably judging there is sufficient demand to get away with inflated prices”.
OFFA, apparently, could block them if they fail to meet the terms of new Access Agreements. But the Government refuses to give minimum requirements - it’s up to OFFA and individual universities to reach an agreement. OFFA only has three staff– and has failed to sanction any university for palpable failure to reach targets on admitting poorer students since it was formed in 2004. Is it really able to endure bitter battles with institutions that have their request for higher fees rejected? So it is likely there will be a clustering of fees around the maximum £9,000 and it seems unlikely that price competition, which the Government is hoping for, will really work in driving down fees. Event if some students were put off by higher prices, universities are probably judging there is sufficient demand to get away with inflated prices. Indeed, there may be more risk of deterring students if universities charge less – perhaps indicating lower quality – than charging more. There is little risk for universities in charging these high fees because government pays loans off if low earners don’t make enough money in their lifetime to do so themselves. What could happen, therefore, is that students don’t get value for money, paying a lot more for a degree that was not really worth the price tag, forced to pay off a loan for a lot longer over their lifetime than they ought to. The generous subsidies attached to student loans means the government incurs a cost for every loan distributed. To control this expenditure, government has to cap student numbers. Officials are now very nervous that universities will get away with charging extraordinarily high prices, putting even greater pressure on controlling numbers. More qualified, ambitious young people will be left disappointed, denied a place at university. It is universities, setting these high prices, that students really should take issue with. So far, however, they’ve escaped the wrath of students. Instead, students target the politicians, protesting outside parliament and Tory party headquarters, arguing the reforms are making it harder for young people to get on in life. They even turned against the current NUS president Aaron Porter, who is now standing down, for not
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Social Market Foundation | Newsletter March 2011 | Page 6
being radical enough against the government. But in this triad relationship between government, universities and students, government is being rather helpful to students. Government has ensured a degree remains affordable for everyone, providing a loan for the full cost of tuition so it’s free at the point of use.
“Time for students to put universities under the spotlight. They should be more critical and demanding of these institutions charging high prices.”
Government has raised the income threshold for paying back loans, so young people will pay less each month, meaning they will have more disposable income to spend and save. What the higher tuition fees does is extend the number of years you continue to pay your loan back: so it’s not putting an extra burden on young people, but those in their thirties and forties. And if graduates have not earned enough over 30 years, the government pays off their student loan for them. Government have not saddled students with real debt – it will never become unaffordable or unmanageable. Where students do have grounds for anger with government is in designing a system where universities will be able to get away with charging excessively high fees for degrees that are not really worth the money. When they do, it will eventually become too costly for government to issue higher loans. Reforms will be needed: a reduction in student numbers, a higher interest rate on loans or an extension of the time before the debt is written off for low lifetime earners. The best kept secret by universities is that for many government will in fact, over time, increase the amount of funding they receive from the state. Yes, funding through the HEFCE grant will be cut by £2.9 billion, which Universities UK believes can only be rectified by charging on average just over £7,000 a year in tuition fees. Well, it is very likely that these universities will now charge up to £9,000. And these upfront fees, let us not forget, are paid by loans using government money. It just the source of the bulk of this money is future graduates rather than general taxpayers. Time for students, led by a new NUS president, to put universities under the spotlight. They should be more critical and demanding of these institutions charging high prices. The NUS, to its credit, is thinking creatively and working with government to push for “student charters” that will bolster the consumer rights of students: they want students to get a rebate on fees if universities fail to deliver what was in the prospectus and a right to switch institutions if they are unhappy with the service provided. Such ideas may pressure universities to improve the student experience: boosting the quality of teaching, and employment advice and opportunities. More young people may then start getting better value for money.
This is an edited version of an article that appeared in the Yorkshire Post
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Social Market Foundation | Newsletter March 2011 | Page 7
Latest publication: Manufacturing prosperity With the UK economy struggling to gain traction in the wake of recession, the Government needs a strategy for growth. 'Rebalancing' the composition of UK economic output – away from reliance on finance and toward manufacturing – has long been discussed, but concrete policy ideas have been thin on the ground. In this timely paper, Steve Coulter argues that the Government’s growth strategy needs to take an institutional approach to driving UK manufacturing up the value chain. The paper finds UK manufacturing as ‘a tale of two sectors’ – a cluster of highly successful firms in high-technology, innovative market segments at one end, and a long tail of low value-added manufacturing firms that largely compete on price at the other.
'Rebalancing' the composition of UK economic output has long been discussed, but concrete policy ideas have been thin on the ground.
Steve Coulter argues that Britain cannot hope to compete in the global marketplace on low price, low quality exports. Instead, a successful UK manufacturing revival depends upon moving into higher value markets. Coulter says that the Government's growth strategy must contain real detail about how this can be supported through measures that drive up productivity, ensure proper investment in the British workforce, and encourage a move away from short-termism in industry In particular, Coulter suggests that the Government should substantially raise the National Minimum Wage over the medium term as a way to reduce the state's effective subsidy of low-skilled manufacturing. Alongside this, he recommends that Local Enterprise Partnerships should be led by business, freed from their lingering association with local government and strengthened. They should foster technology transfer between manufacturers, facilitate access to 'patient' rather than short-term finance, and coordinate industry training needs Finally, Coulter argues that the stringent competition regime should be reformed to discourage short-termism and encourage collaboration on innovation and standardsetting.
Manufacturing prosperity is available to download from the SMF’s website at www.smf.co.uk/manufacturing-prosperity
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Social Market Foundation | Newsletter March 2011 | Page 8
Universal Credit: punishing low income savers? Ian Mulheirn, Director, SMF The Universal Credit represents a bold attempt by the Government to overhaul the Byzantine UK benefits system. But, as has been argued before on these pages, it seems unlikely that the reforms will achieve their simplification goal. Complexities are creeping in: how should DWP integrate the local Council Tax Benefit, announced at the Budget; where will childcare support fit in to the new system; and what should UC do about free school meals in the absence of a clear hours-based definition of being in work?
“SMF analysis shows that about 400,000 families with children will lose their entire eligibility for financial support under the Universal Credit”
But even if the system isn’t simpler it’ll provide better incentives, right? Well unfortunately, the picture here is decidedly mixed. UC will greatly increase incentives for people to move into work for a few hours each week. That’s important, but it’s no free lunch: improving incentives to work will come at the expense of raising the benefit withdrawal rates of hundreds of thousands of families. Raising the effective tax rate on low- and moderateincome working families to 76% will hammer incentives to progress in work. But this isn’t the only group who will face perverse incentives as result of the reforms. As benefits and tax credits are rolled into one, UC will extend the rules on claimants’ savings to current tax credit recipients. This means that families with £16,000 or more in the bank will no longer be able to claim any financial help at all, where currently they are entitled to substantial amounts of tax credits support. Families with over £6,000 in savings will see significant reductions in their entitlement. SMF analysis shows that about 400,000 families with children – who currently get tax credits money – will lose their entire eligibility for financial support under UC because of the £16,000 limit. At least a further 200,000 families with savings of between £6,000 and £16,000 will lose some of their money under the new scheme. Worryingly, it’s not yet clear whether working parents who save will get any help with their childcare bill after the changes take effect. The cost of this ‘savings penalty’ for some families will be huge. A family with two children and a combined income of £25,000 per year could end up around £50 per week worse off. The same family on an income of £20,000 per year could lose over £90 per week. And while details are hazy, many thousands more working families relying on tax credits support for childcare costs could end up being disqualified from claiming. While the Government has pointed out that families’ entitlements will be protected ‘at the point of transition’, we know from past experience that the rate at which families’ circumstances change is high. It won’t be long before the saving penalty kicks in for most families. These plans will certainly save the Government a lot of cash at a time when money is tight. But they are hugely unfair and send all the wrong signals to those families trying to set money aside for a rainy day or save for the deposit on a house. The Government should rethink the savings penalty and support working families trying to save for the future.
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Social Market Foundation | Newsletter March 2011 | Page 9
Publication highlights Manufacturing prosperity: Diversifying UK economic growth Steve Coulter
With the UK economy struggling to gain traction in the wake of recession, the Government needs a strategy for growth. This timely paper argues that the Government must take an institutional approach to driving UK manufacturing up the value chain.
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The Class of 2010
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Edited by Ryan Shorthouse
In 2010 a new generation of politicians entered the House of Commons, representing a third of all parliamentarians. In this pamphlet, six high-flying MPs from the three main parties share their thoughts on the key policy challenges in the years to come and offer their solutions.
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Public Sector Pensions: Planning the Future Edited by James Lloyd
As the UK government contemplates root and branch reform of public sector pensions, this edited collection brings together a range of expert contributions to explore the arguments behind the debate and the options facing ministers. â&#x20AC;˘
Download Public Sector Pensions
More with Less: rethinking public service delivery Ian Mulheirn and Barney Gough
Public service reform has been on the agenda for years. But in the times of plenty, it has lacked the urgency or coherence that today's fiscal situation demands. This paper argues that a market-based approach to public service delivery is the basis for public service effectiveness and efficiency over the coming decade. â&#x20AC;˘
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