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The UK Model: what's it all about?
Date2006/01/15 20:52 by: Gary Titlet MEPThe UK Model: what's it all about?
Critics of the British government sometimes speak lazily about the UK model as if it were an offshore version of the US model, and Tony Blair a latterday Margaret Thatcher.
This briefing note tries to dispel some of the misunderstandings and to identify the key distinguishing characteristics of the UK economic and social model as it has evolved since the election of a Labour Government in 1997.
Overview - the social model and the economic model
As the next few pages will show, what is striking about the record of the present UK government on key areas of social policy - anti-poverty measures, social inclusion, full employment, improvement of public services, employment rights, social protection - is how closely it corresponds to traditional social democratic pre-occupations, and how successful it has been in advancing key social objectives. The differences between the UK and continental models are often overstated:
• UK public spending is 44% of GDP, close to Germany's 47% and the Euro-zone average of 48%; far from the US figure of 29% - one of many indicators that there is no such thing as an "Anglo-Saxon model".
• The UK spends 22% of GDP on social welfare, lower than France or Germany (with social budgets pushed up by higher unemployment) and the Nordic countries; but higher than Spain, Ireland, the Netherlands or Luxembourg, and close to Finland or Italy.
• Labour signed Britain up to the EU Social Chapter, ending the opt-out negotiated by John Major at Maastricht.
In the key area of labour market policies, what has emerged in Britain looks very much like a mixture between elements of the Nordic approach and elements of the traditional UK approach.
It's the economy, stupid
Those who are looking for what makes the recent UK experience most distinctive may find that, in focussing on the social model, they are looking in the wrong place. Where the UK Government's approach is most distinctive among social democrats is more in the economic than the social arena.
The UK economic model is based very directly on the Government's analysis of the challenges of globalisation. In the UK view, the global economy of the 21st century is one of rapid change, where technologies arrive and rapidly become out of date; where companies rise and fall; where jobs and occupations become redundant more quickly than before. There is no option of hiding from globalisation - and therefore economic policy must be single-mindedly dedicated to equipping UK companies and UK workers to be winners in the global economy. They believe,
crucially, that success in global markets can only be achieved through greater flexibility in product markets, labour markets and capital markets. And that it is the responsibility of
government to bring about that greater flexibility; to equip citizens to adapt to the new environment; and to protect people form poverty and economic insecurity. The UK model also sees competition as essential to an efficient economy, a driver of productivity and a key to more flexible product markets.
These convictions about the need for flexible markets and for competition, rooted in the UK's analysis of the economic environment, are also reflected in the social model - for example, in the design of benefit systems to encourage more flexible labour markets, or in the partial introduction of competition, market forces and private-public partnerships in the delivery of public services, more of which later.
"The best measure against poverty is a job ..."
The UK model starts from the belief that employment is the best way to deliver social inclusion and fight poverty. The guiding principle of economic and social policy, as expressed by the UK Government itself, is to equip the economy to face new challenges without rolling back the social advances of the post-war period.
To understand what this means in practice, we need to look in more detail at both policies and outcomes in a number of areas close to the hearts of social democrats.
Employment, Growth & Productivity
We can begin by summarising what is already well known. The UK economy has grown more quickly since 1997 than any other big economy in the EU 15 - average annual GDP growth of 2.9%, compared to 2.5% in France, 1.5% in Germany and Italy. UK unemployment stands at 4.7% (almost 10% in Germany & France, 8% in Italy), the lowest level since 1975. Both long-term and short-term unemployment have been cut by 75% since 1997.
• The UK has already exceeded, five years early, the 3 Lisbon employment targets. The employment rate is 71.6% (actual EU average 60%), the highest in the world's seven leading economies.
• The UK economy has grown in every quarter with this Government, the longest period of growth in 200 years.
• Interest rates have averaged 5.3 per cent since 1997, the lowest for forty years. Inflation has been the lowest for thirty years.
• Since 1997, two million more people are in work - including 1 million extra public sector jobs - and the UK has its lowest unemployment for 30 years.
Social inclusion, redistribution, anti-poverty policy
What is far less widely understood is that the present Labour government has carried out the biggest redistribution of income in British history towards the poorest. In 1998, at a speech in the East End of London, Blair set the Government's most ambitious redistributive objective - to abolish child poverty within twenty years. To put this in context, in 1997 the UK's record was dismal - 4.4 million British children (one in three) lived in poverty. A third of all EU children in poverty were British. And during the Thatcher-Major years total numbers in poverty in Britain rose by 8 million.
Labour set out to tackle child poverty (and poverty in general) through a mixture of labour market policies (see later), more generous benefits and policies to tackle the causes of poverty. Between 1997 and 2005 tax credits targeted on children rose by 72% in real terms. Labour also poured money into a range of longer-term anti-poverty measures, such as much more generous childcare provision, the Sure Start programme (targeting the most deprived parents with intensive social, educational and financial support), Child Trust Funds and a series of neighbourhood-based initiatives (employment, health & education action zones).
• The number of children in poverty has been cut by 1.1 million, cutting child poverty to levels below those in Italy, Spain & Portugal
• By spring 2001 all pensioner households had been lifted above the poverty threshold - they are now on average £1,500 a year better off, rising to £2,000 for the poorest third; state retirement pensions are more generous, and have risen faster, than under any previous government.
• In 1997 Labour introduced the UK’s first minimum wage, raising significantly the wages of 1.5 million people, mainly women.
It has to be recognised that Labour's record shows that anti-poverty measures are an important part of the UK social model, even if - from a very grim starting point - still more must be done to bring UK performance on anti-poverty indicators to the EU average, and it is the Government's ambition to do so - indeed, on child poverty, to surpass even the Scandinavian achievements. What remains to be seen is how far this objective can be achieved through reliance chiefly on labour market and benefits measures, and without increases in taxation - particularly on higher earners - which until now have been excluded from the New Labour agenda.
Public services: "saving the welfare state"
A second element in the UK model has been massive expenditure on public services - particularly health and education - which had been steadily undermined during the previous 18 years of Tory government. At the same time, Labour has pursued an agenda of health service and educational reform which differed both from the previous Conservative agenda and from older Labour traditions.
• Between 1997 and 2005 spending on the National Health Service doubled, with further increases of 7% a year, in real terms, scheduled until 2008. The UK health service is entirely funded by taxation, rather than insurance.
• In 2000, Tony Blair pledged to raise health spending from the bottom of the EU league (as a % of GDP) to the EU average by 2006. By the end of 2005 the target will be met, resulting in unprecedented increases in hospital building, staff increases, cuts in waiting lists and other tangible signs of a leap in the quality of health care in Britain.
• A steadily bigger share of the health budget was redirected to the poorest areas, with funding allocated according to deprivation indices and separate targets for cutting heart & cancer deaths in poor areas.
• Education spending will double, in real terms, between 1997 to 2008.
• Capital spending on schools has risen (in real terms) from £1 billion in 1997 to a record £6 billion this year, and will hit £8 billion in 2008. Class sizes have been cut, teacher numbers increased, salaries raised, training improved. Educational standards have risen. And the percentage of 18-21 year olds attending university will rise, by 2010, from 41% to 50%.
• To widen educational opportunity, Labour has introduced an "educational maintenance allowance" - paying teenagers from poorer families to stay on at school.
• It has been a Labour aim, backed up by measures at all levels of the education and pre-school systems, to narrow the UK's wide class-based gap in educational attainment. The consensus of analysts is that this is steadily happening - but with a long way still to go.
• Public investment in transport is at record levels, while investment in social housing has been tripled.
• By 2005, Labour had raised public spending from 37% to 44% of GDP, at a time when GDP itself was rising strongly.
Reform of Public Services
Any description of the UK model must also say something about the approach taken to reform of public services, particularly the use of market mechanisms. This is an area in which it is hard to define the contours of a UK model, because it is an issue on which opinions are divided in all the main political parties. On a succession of issues, the record is one of governmental and Parliamentary battles and shifting compromises. It is certainly the case that the Government has encouraged the use of public-private partnerships, and the use of private service providers within services which remain publicly funded and controlled.
The health service offers an interesting illustration of the government's approach. The previous Conservative Government had introduced an "internal market" into the NHS, with hospitals competing to offer services to non-hospital doctors ("GPs"), who notionally bought them on behalf of their patients. Labour revamped the system - not abolishing the competitive element, but outlawing price competition and insisting that hospitals compete on quality of service. This example highlights something important about the Labour approach: like the Conservatives, Labour used the market mechanism, but the purpose, instead of budget-cutting, was now better public services. In terms which some would argue are outdated, the approach might be crudely characterised as a traditionally right-wing mechanism used for a left-wing purpose.
The Labour Market
The motivating force behind Labour’s approach to the labour market has been that the best form of welfare is a job, and that the government's role is to equip people for new, high-quality jobs, not to try to protect jobs which have no future. The figures tell a story of extra-ordinary success. The Government itself attributes this partly to successful policies for economic growth – notably a supportive macro-economic policy. And partly to a determined shift in labour market policies, designed to get the unemployed into jobs, in which the three central elements are:
• active labour market policies
• measures to make work pay
• reducing barriers to work
The main vehicles for the new active labour market policies have been a series of “New Deals” targeted on different groups of unemployed people, starting with a New Deal for 18-25-year-olds, funded by a £5 billion windfall tax on bank profits. The money paid for more intensive counselling, training, job placement, 12-month wage subsidies to employers. New Deals for over-25s, single mothers, disabled people and over-55s followed.
In total, the New Deals are estimated to have got 1.4 million unemployed people back to work, and to have been successful in creating a new ethos – symbolised by the renaming of unemployment benefit as “jobseeker’s allowance”. Anyone on unemployment benefit was expected to be trying to find a job, training or education, there was to be “no fourth option”. For some groups, such as 18-25-year-olds, this was backed by compulsion – eventual loss of benefits for those who did not take up any of the offers. But for all, there has been a philosophy of sticks and carrots. The most important stick has been the level of benefits. Instead of unemployment benefits related to the last wage received, as in several countries of the Union, unemployed people in the UK get a low flat-rate benefit of €80 per week, a crucial difference between the UK and Nordic approaches to unemployment, which in some other respects are converging.
The Job Centre Plus programme, still in its early stages, also illustrates the current UK approach to the unemployed. From the earliest days of the British welfare state, the employment service, more than most public services, has been scarred by an ethos of “private affluence, public squalor”. Jobcentres were shabby, rundown and unwelcoming places which sent a powerful signal to the unemployed that they were at the bottom of the social pile. Jobcentre Plus, launched in 2001, brought together in one service the payment of benefits with active labour market interventions. An investment programme was launched to modernise jobcentres; install carpets and soft furnishings; remove the re-inforced glass which had separated and protected jobcentre employees from their customers; jobcentre managers were given budgets to fund more imaginative ways of helping people into a job – specialised training for the local labour market, a rail season ticket to get to work, a loan to buy a car. Where it has been introduced, Jobcentre Plus has had a transformative, civilising impact on what had been squalid and aggressive places. In 2006 the programme goes nationwide, to complete the transformation of every jobcentre in the country.
• £3.6 billion invested in New Deal programmes since 1997
• Long-term unemployment cut by three-quarters
• Youth unemployment virtually eliminated
One of the UK's most important programmes to overcome barriers to work concerns investment in education, skills and lifelong learning to equip people to adapt to change and to new areas of comparative advantage. The government has sought to tackle the UK's historically poor skills mix through policies to promote education and skills attainment and setting a target to ensure that more young people participate in higher education. The UK model emphasises government's responsibility for wider measures needed to increase employability and help those without work find new jobs; childcare to help parents overcome the specific barriers to work they can face; and reform of tax and benefits to make work pay and increase the income of those earning least.
The Pathways to Work initiative - designed to bring some of the 2.63 million people claiming Incapacity Benefit into work - illustrates this approach. Social research suggests that as many as 1.5 million would like to work but are excluded by lack of proper support or incentives. Pathways to Work combines specialist employment advice, medical and financial support. In December new and stronger anti-discrimination legislation will take effect, designed to remove barriers both to work and to social integration.
To extend working lives, the Government is using both stick and carrot. By 2010, the earliest age at which occupational pensions can be taken will be raised from 50 to 55. By 2020, the State Pension Age for women will be raised from 60 to 65, equal to men. From April 2005, the Government has provided more generous pension incentives for those who defer their state pension; and from April 2006 it will be possible to draw an occupational pension while staying with the same employer. All this is backed up by actions against age discrimination - including implementation of the EU Directive in October 2006.
To make work pay Labour has brought in the UK's first national minimum wage; created a system of Working Tax Credit (a kind of negative income tax) which provides financial support on top of earnings for low-earning households; and provided direct support in particular for childcare. The Women and Work Commission, created in 2004, is examining ways of closing the gender pay gap.
Employment Conditions
To many in Brussels, the UK’s position on employment conditions is symbolised by insistence on an opt-out from the Working Time Directive and opposition to the Directive on information and consultation in the workplace. Yet at home, the current UK government has introduced 56 new employment and trade union rights, greatly expanding the rights of employees at work and the opportunities for trade unions to represent their members.
Since 1997, protection against unfair dismissal has been strengthened and compensation increased, maternity leave extended and paternity leave introduced, a statutory right to trade union recognition created, all workers given four weeks paid holiday a year, discrimination against trade unionists outlawed, new rights created to help balance work and family life. And of course, European legislation has been implemented giving part-time and fixed term workers the same rights and same hourly pay as full-timers, and giving employment rights to those temporarily posted to work in other EU countries. As already mentioned, the Government introduced the UK's first-ever national minimum wage, backed by a Low Pay Commission to enforce it and review its level; and the government has followed the Commission’s recommendations in regularly uprating the minimum wage.
In 2004, the Government reached agreement with trade union leaders on a further comprehensive package of workplace measures, including:
• A women at work commission to investigate unequal pay.
• Eradication of two-tier workforces in the public sector.
• Changes to the “private finance initiative” to guarantee greater equality when choosing between public spending and public-private partnership.
• Protection for pensions of workers moving from one employer to another.
• Improved employee representation in managing pension schemes.
• Support for an Agency Workers Directive.
• Improved employment protection for strikers.
• A commitment to address the problems faced by workers at the bottom end of the labour market.
• A stronger skills agenda, including free training for unskilled workers and a threefold increase in the number of union learning representatives to 20,000. A training levy on employers that failed to meet minimum training requirements.
Part of the UK model is certainly a strong concern to be business-friendly, which –as in the case of the Working Time Directive – can lead it to oppose some aspects of employment rights. But the broader record shows that the UK model is about better employment rights.
Better Regulation
The UK’s strong attachment to better regulation has, inevitably, been a source of suspicion for some on the left. The calls to get rid of red tape and ease the burdens on business often come from politically dubious quarters. And the left tradition includes a strong belief in the need for regulation, as part of the recipe for a civilised society – and even, simply to make markets work.
Without regulation, there would be no minimum wage; without it, how much would employers consult, train or treat their workforces fairly? How would consumers know that their food was safe? Better regulation, for the right, too often means deregulation. The UK government, in contrast to Commissioners such as Barroso, McCreevy and even sometimes Verheugen, has been totally consistent in its rhetoric, that better regulation must not mean deregulation.
This is a story that has still to be fully played out at European level, and the proof of the pudding is in the eating. But every briefing from the UK insists that the agenda they want to follow emphasises more transparent legislation, codification, reducing administrative costs and finding less onerous ways of achieving public policy goals, but without compromising the goals. Domestically, the UK government established a Better Regulation Task Force, whose report can be found on the UK Cabinet Office website and whose recommendations the government is pledged to follow. On the Labour Party’s own website is a boast which illustrates what the drive for better regulation is about: in Britain, it now takes on average one day, and costs £85, to set up a business.
Conclusion
It is important to bear in mind that the UK model set out in this paper has only been constructed since 1997. During eighteen years of Conservative government the social model had been dismantled - public services were run down, social rights removed and the poor were increasingly left to fend for themselves. This paper sets out the considerable progress that has been made since 1997, but the UK social model is very much work in progress. More still needs to be done particularly in the field of exploitation of migrant labour, raising standards in public services and continuing the battle to eliminate poverty. Further progress though is dependent on the UK maintaining a strong economy which is why that is the principle priority of the Labour Government. -
Re:The UK Model: what's it all about?
Date2007/05/06 22:04 by: Marcel"Between 1997 and 2005 spending on the National Health Service doubled, with further increases of 7% a year"
it's not how much you spend, it's what you do with it. If it's simply robbing the productive to pay the lazy then it isn't right.
You seem to be of the simplistic type which thinks: if you just spend more, things get better, when often the case is opposite
