This week marks the 75th anniversary of an event that changed our country for good. It is not often that a publication, still less an official governmental report, changes history or so stands the test of time. But the Beveridge Report shaped the British post-war settlement. It was the foundation on which the modern welfare state was built.
Even the uninspiring title of “Social Insurance and Allied Services” could not prevent William Beveridge’s highly technical, often turgid 300-page report from becoming an instant best-seller. It must be the only White Paper that people actually queued to buy. Politicians and newspapers pored over it. Parliament debated it. And government – mainly – implemented it. It was enormously popular. His introduction and 20-page summary sold an unprecedented 635,000 copies. It even made a profit for the government. Summaries were dropped into Nazi-occupied Europe. There has never been anything quite like it. By early 1943, according to Richard Weight, 86 per cent of Britons were in favour of its contents. Only 6 per cent were opposed.
So what was it that made the opinions of a retired civil servant with a somewhat chequered career in journalism, academia and public administration so resonant then and still resilient now? According to the brilliant Nick Timmins, whose The Five Giants is effectively the official biography of the British welfare state, it was in part down to the inspirational rhetoric of Beveridge’s report. His prose was epic in its phrasing: the road to reconstruction, a revolutionary moment in the world’s history and, of course, the slaying of the five giants of Want, Disease, Ignorance, Squalor and Idleness. Peter Hennessy concurs and believes “the genius of the Beveridge Report lay in its mixing of the profound and the populist.”
The Beveridge report was published in the middle of the second world war. Jose Harris, in her wonderful biography, makes the point that like all shapers of history, Beveridge enjoyed a large slice of good luck. As she puts it “the report was published a few days after the battle of El Alamein, which to many people seemed like a turning-point in the war; and Beveridge was fortunate in that his mingled tone of optimism, patriotism, high principle and pragmatism exactly fitted the prevailing popular mood.”
At its heart Beveridge promised a break not only from the hardships of war but of the pre-war period. He sought to design a new system of social security to defeat the social injustices that were such a defining feature of the 1930s. He had one target in mind. Poverty. The objective was to consign to history the mass unemployment and the loathed household means test that had so scarred British society. But his vision for the new system of social insurance he proposed did not stop there. In truth, he ranged well beyond his limited brief. Instead he called for “three assumptions” to be implemented – a new national health service to be made free at the point of use, a new set of children’s allowances to support families and a new determination to fully use the powers of the state to maintain employment and reduce unemployment.
His was no partial proposition. It was an holistic “cradle to grave” social security system involving a better health system, better education, better housing, better employment and better benefits. One that drew on decades of social reform in municipal government, housing and welfare – and then as Paul Addison puts it provided “the prince’s kiss”. What had been piecemeal before, Beveridge made whole. In Peter Hennessy’s phrase he “turned a patchwork of provision into a quilt.” It was, as Beveridge himself described it, a very British revolution.
In so doing he captured the spirit of the times. As Jose Harris puts it: “clothing the bear bones of these proposals was a highly emotive and eloquent account of Beveridge’s vision of the new society that was to emerge in Britain after the war.” Having made so many sacrifices in which so many had lost so much, there was emerging a shared determination in the country that if victory could be achieved the peace that followed should be won for the benefit of all. The national mood was fearful but expectant. Change was on the agenda. In due course it would result in unexpected electoral defeat for Winston Churchill and the Conservatives and a landslide for Clement Attlee’s Labour Party. That determination then found expression in the post-war Labour government’s towering achievements: full employment, universal education, a new welfare state. Together they brought new opportunities to millions in our country. My generation were the principal beneficiaries.
As if that was not enough, the Beveridge Report did something even more profound. It helped recalibrate the relationship between the role of the State and the role of markets in the post-war world. On both sides of the Atlantic a new consensus was taking shape: the social crises of the 1930s owed their origins, it was agreed, to a deadly combination of market excesses and weak governments. Policy-makers felt impelled to devise new means of avoiding a repeat of the deep economic and social injustices that had given birth to the unrestrained and evil populism of the Nazi era. In future to sustain both democratic political systems and capitalist economic ones there would have to be a greater sharing of prosperity and opportunity. The political leaders of the 1940s put in place new architecture designed to prevent any repeat of the 1930s. In the US, President Roosevelt had created his New Deal. In the UK Prime Minister Attlee created the welfare state – using the Beveridge Report as the catalyst for doing so.
And for all its deficiencies it has broadly stood the test of time. It has survived droughts of funding and – especially from the 1980s onwards – seemingly endless bouts of reform. The National Health Service may not be entirely free at the point of use in the way Beveridge envisaged but it is almost unique in the world in being a unitary and universal system, largely funded from general taxation and providing care on the basis of need not ability to pay. Its sister service – social care – has not rid itself of one of the core features that Beveridge targeted – means testing – but over the course of seven decades it has coped with ever increasing demands, though its ability to do so in future is now a very real question. The basic state pension survived Mrs Thatcher’s breaking of the link with earnings and is for millions of older people a foundation for their incomes in old age and a platform on which private sources of saving are constructed.
What is more the benefits system has been extended over those successive decades to include support for cohorts that fell well outside of Beveridge’s consideration. People with disabilities have been one such group. Another is children. In the last 20 years early years and childcare services have become a new arm of the welfare state. A third – and a far bigger cohort of beneficiaries – has been those who are in work but who need State support to make ends meet. The growth of housing benefits and, particularly, in-work benefits has massively extended the scope of the modern welfare state. Over seven decades the emphasis in the benefits system has shifted from supporting people on condition they did not work to supporting them to be in work. The downside – from a pure Beveridgite point of view – is that means-testing – through tax credits, housing benefit, and now universal credit – now extends way up the income scale. More significantly perhaps has been the erosion of the contributory principle that sat at the heart of the Beveridge plan. “Benefit in return for contributions, rather than free allowances from the State, is what the people of Britain desire,” Beveridge declared. Today, the contributory principle has all but disappeared.
That has been the subject of regret in some parts of the political spectrum: a matter of necessity in others. The debates over the shape and direction of the welfare state began before it was born and have raged on ever since. Universality versus targeting. The need to keep the middle class on board versus the concern that sharp elbows have made the middle class unfair beneficiaries. The fear, often from the Right, that the welfare state had gone too far, the worry from the Left that it had not gone far enough. It has been the subject of almost continuous rancour. It is a miracle it has survived. But survive it has. Today the welfare state in its various forms accounts for around two-thirds of all public spending. The £500 billion or so of taxpayers resources it uses may not always be well spent and the services that it provides may not always be as good as they could be but in large part the Beveridge plan delivered the goods.
Harold Macmillan may have gone too far in claiming that Britain had never had it so good but the decades following the second world war saw sustained economic growth and near full employment. Poverty fell. Slums were cleared. Schools were built. Health improved. Incomes rose. Inequality fell. What is more the new Welfare State created the platform for the upsurge in social mobility that changed Britain for the better.
I am one of its beneficiaries. I was lucky enough to make my way from a North East council estate to a seat in the Cabinet. I was very fortunate. I was born at the right time. The 1950s and 1960s saw Britain finally emerging from the aftershocks of the war years. It was not in any sense a golden age but the national mood was one of optimism. The economy was growing. The role of women in society was changing. Social mobility was in full swing. By 1958 when I was born the prospect of a more classless society seemed within reach. For Michael Young, it seemed so imminent that he published his totemic book, The Rise of the Meritocracy, in that year precisely to warn about the downsides of a genuinely meritocratic society. It has become commonplace to deride the Butskellite political consensus of the post-war years but it was a period of unprecedented social success. Counter to today’s prevailing anti-politics mood, the fact that Britain made such progress on the most intractable social problems of the age, is testament to the ability of our political system to deliver. To do so of course it has to keep pace with the times. The world does not stand still.
The Welfare State today is facing new pressures and is struggling to cope. Fiscal austerity has exacted a social price. 75 years after the Beveridge plan to abolish Want, we have seen the return of food banks, the modernised equivalent of the old soup kitchens. Homelessness has risen by 10 per cent in just five years. It has taken the tragedy of Grenfell Tower – and the glaring inequities between wealth and poverty that it exposed in one of the richest parts of our country – to put social housing back on the public policy agenda after decades of neglect. Meanwhile at the top, incomes continue ever upwards. The top 1 per cent’s share of total personal wealth grew from 17 per cent in 1988 to 23 per cent in 2002. Between 2010 and 2014 alone, over half of the increase in personal wealth went to the top 10 per cent of households. At the bottom real earnings have been stagnant for ten years and as the Budget confirmed last week they will remain so for years to come. The Institute for Fiscal Studies (IFS) predicts absolute child poverty will rise from 15.1 per cent in 2015-16 to 18.3 per cent in 2020-21 – mainly thanks to benefit changes that will reduce the incomes of the poorest families in the land.
Austerity is taking its toll too on our core public services. The NHS, for example, is stuttering. Two in three NHS Trusts are in deficit and waiting times targets have not been hit for almost two years. In good part this is simply due to a failure to invest sufficiently to keep pace with demand. Since the NHS was formed it has received an average annual increase in funding of 3.7 per cent but for the last 8 years that increase has been just 1.5 per cent. Worse still is the situation in social services where deep cuts in finances have been accompanied by serious reductions in services and in care home beds.
In short, 75 years on from its conception, the ageing Welfare State is not in good health. It would be all easy to put all the blame for these problems on austerity. But it has been destabilised by more fundamental longer-term factors too.
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Let’s start with politics. All too often – because of the sheer scale of what Beveridge created – he is thought of as a statist. It pays to remember that he was in fact a Liberal. The philosophy that sat at the heart of his report was this: “The State should offer security for service and contribution. The State in organising security should not stifle incentive, opportunity, responsibility: in establishing a national minimum it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family.” Unlike in continental Europe where new social security benefits were earnings-related the Beveridge system was built on the notion of a minimum income guaranteeing subsistence for all while acting as a platform for individual contributions. The deal was simple – the State would discharge its responsibilities so long as the citizen discharged theirs.
But his Plan was a product of its time. Big national problems were solved with big national institutions. The railways were nationalised and so were the coalmines. The NHS was formed with a capital N, not, as some proposed and Nye Bevan in part later regretted, as a municipally-run service. The State was king. From the nation’s shipyards to its telephone-lines it came to pervade many walks of life. New towns were built. New universities too. New benefits were introduced. New subsidies for all forms of housing were created. State spending on housing, education, health and social security rose by almost 140% in the 1960s alone. With each passing decade the State grew and the role of the citizen shrank. The deal between them to share responsibility began to unravel. As the State extended its reach the role of the citizen – whether in cash or kind – receded. The citizen’s responsibility – as parents to ensure good behaviour on the part of their kids, as patients to look after their own health, as benefit recipients to seek work – increasingly played second fiddle to the State’s. That made the Welfare State easy pickings for the new politics that emerged on the back of the economic crises of the 1970s and the neoliberal ascendancy in the 1980s.
Beveridge’s plan was predicated on keeping unemployment under control and for much of the post-war period both Labour and Conservative governments worked to keep it remarkably low. Mainly it varied between 100,000 and 300,000 – under 4 per cent of the working age population. Indeed when it rose above 600,000 in 1967 it was deemed a disaster. By the 1980s it had hit 3 million. Years of under-investment in the British economy and the impact of globalisation had combined to destroy the full employment ethos of the 50s and 60s. Billions of pounds were poured into new schemes by successive governments to try to reduce unemployment – so extending the reach of the welfare state still further. Some worked, many failed. But as the economics changed so did the politics.
By the late 1970s the State was coming to be seen as the enemy of the free market not its friend. As Ronald Reagan so graphically put it, “the nine most terrifying words in the English language are ‘I’m from the government, and I’m here to help.’” His ideological soulmate Mrs Thatcher made it her mission to roll back the State. Privatisation, not nationalisation, became the order of the day. 2.5 million council houses were sold to tenants as part of her great vision of a home and share owning democracy. The Thatcherite revolution rewarded the aspiration of millions of ordinary working families. Business was freed from excessive costs and controls. The labour market was liberalised and the trades unions tamed. Pioneering reforms were made in services like education and health to devolve power and create new forms of governance. But this tsunami of radicalism exacted a high social price. Unemployment soared as deindustrialisation bit. The burgeoning welfare state was now viewed as a burden not a blessing. Benefits were frozen. Entitlements were restricted. Conditionality was extended. The notion that “there is no such thing as society” had calamitous consequences for Beveridge’s principal target. Child poverty doubled. Inequality rose faster than anywhere else in the developed world.
By the middle of the 1990s it was obvious that the public had had enough. The Blair revolution brought the State back into play but this was not the State as we had known it, nor what many in the Labour Party expected. Big rises in public spending allowed the power of the State to be directed on traditional Labour ends. Absolute child poverty fell by 1.7 million, relative child poverty by 0.7 million. Pensioner poverty fell dramatically. Extreme levels of poverty pay were eradicated by the introduction of a statutory minimum wage. Unemployment fell sharply as employment rose. But the means by which this social progress was made, although often couched in the language of modern moderate centrism, were actually deeply radical. Access to benefits was tightened and conditionality was strengthened. Business taxes were cut and the market was embraced. Reforms in the NHS introduced competition and choice to give ordinary people rights that hitherto only the wealthy could access. In education schools were freed from local authority control to raise attainment of the poorest children. Fees were introduced for higher education to get the middle class contributing to the benefits that a university place conferred on their children. Each of these changes, in the words of New Labour’s new constitution, were aimed at redistributing power, wealth and opportunity in society. The means of creating a fairer society had been modernised even while the ends remained the same.
A new attitudinal landscape has accompanied these political changes. Beveridge did not coin the term “the welfare state’. Indeed he disliked it. His was a “social security” system. It is term today that is little used. Welfare has become a pejorative – even abusive – part of the modern lexicon for many politicians and newspapers. The collectivism of the 1940s seems to have given way to the divisive distinction some contemporary politicians have made between so-called “strivers” and “shirkers”. Public support for benefits for the poor fell from 61% in 1989 to 27% in 2009. Support for more taxation & public spending also fell from a record 63 per cent in the late 90s to 32 per cent during the recession.
After years of austerity there are signs of change – most people now want more taxation, more public spending, and more wealth redistribution. But ours is an informed and inquiring world. Universal education and the internet have redistributed knowledge in society. In a consumer society people expect services – public as well as private – to be attuned to their needs and capable of offering personal choice. That is a long way from the one-size-fits-all, take-it-or-leave-it model of the 1940s. In the era of the ration book, expectations were lower, deference was greater. Now it is the other way round. It is not that the public today expect surgeries or hospitals to behave like salesrooms or supermarkets. The relationship people desire is not necessarily merely a transactional one. They want a personal one. The State is struggling to reform the twentieth century public sector edifice so that it treats each citizen as an individual rather than just another number.
There is a new demographic landscape to contend with too. When Beveridge reported, the worry was not about an ageing population, but a declining one, and in his view it fell to “housewives as mothers” to put this right through their “vital work… in ensuring the adequate continuance of the British race.” A woman’s place was in the home even though in the war years it had been in the forces, the factories and the land. By 1960 women’s participation in the labour force had fallen to 38 per cent. Today it is 71 per cent.
Successive waves of immigration – from the Windrush 1950s through the Asian 1970s and more recently migration from Eastern European – have reshaped Britain, in my view for the better. Modern Britain is a far more diverse society than Beveridge could have ever envisaged. It is also a far older one. When Beveridge reported there were less than a quarter of million people aged over 85. Today there are 1.5 million. In the last 5 years the number of over-75s has risen by 500,000. In the next ten years there will be 2 million more. A child born today stands a 1 in 3 chance of living to be 100. This is a blessing. But it is also a cost. Indeed it costs three times as much to look after a 75-year-old than a 30-year-old. The care system is struggling to cope with a new form of old age: more very old people living with more co-morbidities than we have ever seen before. The pensions system is struggling too. The proportion of over-65s compared to people of working age was 22 per cent in the 1960s but is around 31 per cent today – and it is rising. Faced with these demographic challenges the State-provided old-age pension has long ceased to be the major source of income for the elderly. The baby-boomer generation – at least those who were able to work – benefited from final salary employer pensions. But these have been disappearing. For the last two decades successive government have grappled with how to fill the gap and how to encourage the young to save for old age. Auto-enrolment is the most recent – and welcome – answer. Whether it will be enough, only time will tell but the point is that care and income in old age have become a jointly owned responsibility between the individual and the State. There is no going back.
In good part that is because a new social landscape has emerged with a new core challenge to address. From the 1940s onwards arguably the greatest social policy concern was about the elderly poor. The focus on poverty in old age especially during the 1990s and the early 2000s has changed all that. Of course there are still poor pensioners but today the elderly are the social group least likely to be at the bottom of the income distribution. It is a remarkable story of progress. In fact, pensioners today on average enjoy higher levels of income than working age adults. They are asset wealthy too. Unfortunately, there is a reverse side to this coin. There is a new injustice to address: inter-generational unfairness between the old and the young. Those born in the 1980s are the first post-war cohort not to start their working years with higher incomes than their immediate predecessors. Home ownership, the aspiration of successive generations of ordinary people, is in sharp decline, among the young especially. Most shocking of all, today only one in eight children from low income backgrounds is likely to become a high income earner as an adult. The twentieth century expectation that each generation would be better off than the preceding one is no longer being met.
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Over recent years it has become increasingly obvious that ours is a country where all too often demography still defines destiny. In the UK, the association between incomes of fathers and sons, a key measure of social mobility, is twice as strong as in countries such as Finland, Australia and Canada. Being born poor all too often condemns a child to a lifetime of poverty. Poor schools ease people into poor jobs. Disadvantage and advantage cascade down the generations. Over decades we have become a wealthier society but we have struggled to become a fairer one. Britain’s deep social mobility problem, for this generation of young people in particular, is getting worse not better. The barriers to progress are becoming bigger not smaller. The impact is no longer only felt by the poorest in our society but instead is holding back a whole tranche of low and middle income families. The problem they are experiencing is not just social division but a widening geographical divide between our country’s great cities, London especially, and those towns and counties that are being left behind economically and hollowed out socially. Whole tracts of Britain feel left behind. Whole communities feel the benefits of globalisation have passed them by. Whole sections of society feel they are not getting a fair chance to succeed.
The global financial crisis was a watershed moment. The market excesses of the 1930s found a disturbing echo in the late 1990s. When the crash came it was not the wealthiest but those on low and average incomes who paid the price. While the wealthy in society have got far wealthier, average earnings have stagnated. In America that has been the case for almost 30 years. That is not sustainable and the chickens are now coming home to roost. Anger is the new currency in society. Populism is its consequence in politics.
The history of our continent tells us that when the majority feel they are losing unfairly while a minority gain unfairly things can turn ugly. Public attitudes to wealth and to immigration have changed. The public mood is sour and decision-makers have been far too slow to recognise that untrammelled wealth for a few at the top, growing insecurity for many in the middle, and stalled life chances for those at the bottom is no longer a viable social proposition for Britain. The growing sense that we have become an us and them society is deeply corrosive of our cohesion as a nation. The EU referendum last year exposed deep divides that go well beyond the box that people crossed. Public concern, even anger, about issues of identity, immigration and inequality found a voice and a target to aim at. Of the 65 parts of the country my Commission identified yesterday as having the worst education and employment prospects in Britain only five areas voted to remain in the European Union.
At a time when more and more people feel like they are losing out, social mobility can be a rallying point to prove that modern capitalist economies like our own are capable of creating better, fairer and more inclusive societies. It is the best antidote to the growth of political populism, both of Right and Left, that we are witnessing across the world. In my view it is the defining issue of our age.
In the 1940s the Beveridge Plan was the response to the inequities of the time. A similar scale of response is desperately needed today. Of course the problems we face in Britain today are different from those the Beveridge system was designed to address. Injustice has not disappeared but it has taken new forms. So must the solutions. New thinking and a new approach is necessary. Beveridge was right about the need for big radical change. Tinkering won’t do the job. In my view five giant reforms are needed.
First, in labour market policy. Rightly, for decades the focus in Britain has been on moving people from welfare into work. A job remains the best safeguard against being poor. But it is not a cure for poverty. It is no coincidence that whereas two decades ago child poverty was concentrated in workless households, today two in three children who are officially classified as poor by the government live in a household where at least one parent is in work. Poverty has become the preserve of working people rather than simply the workless or the workshy. The assumptions underpinning much of labour market policy for the last few decades have proved wrong. The theory has been that if the State could help enough people could be got off welfare and into work, the labour market would then do the heavy lifting. But this assumption has ignored the new reality of millions of low-paid workers having jobs, but not having careers. Today, more people are in poverty in work, than those out of work. Over 5 million people in Britain earn less than the voluntary Living Wage of £8.75 per hour. These are people who try to do the right thing. They stand on their own two feet. They strive. They don’t shirk. But they are victims of Britain’s endemic low pay trap. Just one in six people who were on low pay in 2006 had escaped by 2016. It should come as no surprise that the overwhelming majority are women, often young, mainly working part-time and trying to juggle work with child-caring responsibilities.
In my view we have reached an inflection point. Britain’s flexible workforce gives us global economic advantage but a two-tier labour market is now exacting too high a social price. The British economy is performing very well in terms of employment with a record 75 per cent of the working-age population in work. Beveridge would have been pleased with that. But he would have been dismayed at the fact that one in five people are on low pay, giving Britain a higher level of low-paid employment than other comparable nations.
In our lifetimes something profound has happened in the labour market. There has been a decoupling of economic growth from wage growth, at the bottom end of the labour market especially. Since the 1970s technological change has been skills-biased. People with higher skills have seen large increases in productivity and pay while those with lower level skills have experienced reduced demand for labour and lower average earnings. In most developed countries there has been a declining share of economic growth going to labour and a higher share to capital. Wage inequality has got ever wider. In the UK the share of national income going to wages in the bottom half of the earnings distribution fell by a quarter between 1970 and 2009. Over recent decades the State has increasingly stepped in to subsidise stagnating earnings and prop up living standards. Tax credits now cost close to £30 billion a year. Even at the height of the mid 2000s economic boom government-funded tax credits were the only substantial source of real income growth of low to middle income households in our country.
Austerity removes that prop. The taxpayer is now struggling to shoulder the burden of bridging the gap between earnings and prices. In any case across the political spectrum more and more questions are rightly being asked about a system in which half of all families with children have their incomes supplemented by the State even though they are in work to compensate for employers simply not paying their staff enough to live on. So with new demands – an ageing population especially – creating pressures on Welfare State spending the burden for bridging the gap between earnings and prices will in future have to be more evenly shared between government and business. The welcome introduction of a Living Wage is a good first step but it cannot stop there. Of course simply increasing pay cannot be done without improvements in productivity. That will require a much more active labour market approach and a closer partnership between government and employers than we have seen over recent years. A transparent concordant between the State and business is long overdue where government is clear with employers what their social obligations will be and how it will help – for example through better tax incentives to increase take-up of new technology or innovative forms of investment in infrastructure. Such a concordant could nudge all large businesses to create better internal career ladders so more workers get the chance of more progression and higher pay. Getting people off welfare into work must continue but there should be a new and equal priority given to moving people from low pay to living pay. And it should be a jointly owned responsibility between the State and the market.
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That brings me to the second change – in education and employability policy. Britain’s low pay problem is largely a low skills problem. The fact that skills shortages have risen by over 130 percent since 2011 is the best evidence that the current system is not working. A radical overhaul is needed. This starts with what happens in schools and the early years to ensure that every child is equipped with both the academic and personal skills needed for success in the future labour market. As technological change picks up speed it could deskill ever higher numbers of today’s jobs. Within decades The Bank of England has suggested that up to 15 million current jobs risk automation. If current trends continue, the Local Government Association suggests that by 2022 there could be 9.2 million low skilled people chasing 3.7 million jobs with a shortage of 3 million high skilled workers to fill the estimated 14.8 million high skilled jobs.
As our economy becomes ever more reliant on higher levels of skill, education will become ever more the key that unlocks social mobility in future. Study after study has come to the same conclusion. Time spent in education – including the vital early years – is the most important determinant of future social status and success in schools is the most important factor determining mobility. Over decades standards have risen in our schools but there is a long tail of underachievement that is failing to realise the innate potential of huge numbers of youngsters. Around 1 in 3 children on free school meals – the poorest sixth in society – get good exam results aged 16 compared to 2 in 3 of other children. This is not innate. Low ability children from wealthy families overtake high ability children from poor families during primary school. Despite some recent successes – most notably in London state schools – in narrowing the gap in educational attainment between poorer children and their better-off classmates, the deep-seated social gradient in how well children do in school has not been flattened. In the last decade almost 600,000 low income 5-year-old children started school without the basic levels of development needed to do so. In the last five years, 1.2 million children – disproportionately from that same background – have left school without 5 good GCSEs.
From the early years through schools and on to universities, there is an entrenched and unbroken correlation between social class and educational success. The income gap is larger than either the ethnicity gap or the gender gap in schools. It is time to put the ending of that profound unfairness at the heart of our country’s education policy. The Government should set clear objectives for doing so and it should commit to a redistribution of education resources to those areas that need them most. A child living in one of England’s most disadvantaged areas today is 27 times more likely to go to an inadequate school than a child in the wealthiest. Since the global evidence points to the quality of teaching being the key factor in helping close attainment gaps, the government should find new ways of giving the best teachers better incentives, including higher pay, to teach in the worst schools. Nor is this a job for the State alone. In the end the biggest influences on children’s life chances are not schools or universities, even childcare centres, still less governments. They are parents. Two in five of children from the poorest homes are read to every day compared to nearly four in five of those from the richest families with consequences that are felt throughout their later lives. More support is needed to bridge that parenting gap because it is so crucial to closing the life chances gap.
More is also needed to address the twin problems we have in post-school education – unfair access to higher education and a low priority accorded to vocational. Over recent decades widening access to university has been a British success story. There are more working class youngsters at university today than ever before. But when across the country four private schools and one college send more students to Oxbridge each year than 2,000 state schools it is clear that universities – and not just schools – need to redouble their efforts to ensure they are genuinely open to all those with talent and potential. They now have a chance to do so. Over the next few years there will be tens of thousands more university places in the UK. This expansion provides the basis for a social mobility dividend if universities do more to diversify their intakes and build long-term relationships with schools in less wealthy areas so as to attract more disadvantaged students.
Of course, most low income students choose vocational over higher education and for decades the latter has taken more of the resources and more of the focus of public policy than the former. That needs to change. Just 18 per cent of Britain’s working population has a post-secondary non-degree qualification, compared to 59 per cent in Germany. In today’s skill-based global economy Britain is fighting with one hand tied behind our backs. Too many courses simply lead to low-paid work in low skilled sectors of the economy. Apprenticeship numbers are falling especially among young people, they are often of dubious quality, and most are in low skill sectors with little chance for progression. My Commission believes that apprenticeships need to be refocussed on careers with good prospects for progression and we should address the fact that unlike other developed countries, Britain has no comprehensive vocational education and training programme offer for low-paid workers with low or no qualifications who want a second chance later in life.The rhetoric of lifelong learning in a fast changing world needs to be made reality.
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Third, a fundamental rethink is needed in spatial and regional policy. It has long been assumed that Britain can get by with unbalanced economic growth. In London, the number of top end professional jobs has increased by 700,000 in the last ten years, but only by 140,000 in the West Midlands and in the North East by under 60,000. At the other end of the labour market there are 40 local authority areas where one in three jobs are paid below the living wage. Over decades a quiet new assumption has come to underpin public policy thinking: that people from weaker economic areas who want to get on would have to move out. Limited education and employment opportunities in many urban and rural communities have forced aspirational youngsters to get on their bikes in order to get ahead.
As our Annual Report published yesterday highlights, there is a new geography of disadvantage in Britain that transcends a simple North:South divide. Towns like Great Yarmouth and Minehead have as poor prospects as Blackpool or Mansfield. Our analysis reveals a growing gulf between our country’s great cities – London especially – and towns and counties elsewhere in the country that are being left behind economically and hollowed out socially. Modern Britain has at its core a stark social mobility postcode lottery where the chances of someone from a disadvantaged background getting on in life is closely linked to where they grow up and where they live.
The consequences are felt too in the increasingly unaffordable London housing market. A less divided Britain will require a more redistributive approach to spreading education and employment prospects across our country. That will mean rebalancing public spending so that more of the transport and education budgets are targeted at the towns and counties of left-behind Britain. It will also will entail the Government working with large employers and devolving more power to local councils to bring new high quality job opportunities – backed by financial incentives – to the country’s social mobility coldspots. The Government should set clear objectives for doing so and report annually to demonstrate its progress.
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Fourth, a new approach in the housing market is also needed to close the gap between the housing haves and have-nots. There is a housing crisis in Britain today which spans social housing, the private rented sector and owner-occupation. An holistic housing plan is needed to address it.
Let’s start with the private rented sector. It has overtaken social housing to become the second biggest tenure in England. Across England, the proportion of private renters nearly doubled between 2003 and 2015. Renting used to be a transitional sector, mainly used by single people or couples without children. Today families with children are the most common type of household in private rented accommodation. They often find themselves in poor quality housing with low security of tenure. The most common contract is the six to 12-month assured shorthold tenancy. Tenants can end up moving frequently so destabilising schooling and family life. Ironically it also costs more to rent than to buy. Private tenants pay a higher percentage of their income on housing than those in any other tenure and this proportion has been steadily increasing over time. This free market approach has also sent the housing benefits bill through the roof. It rose from around £3 billion in the late 1970s to nearly £24 billion in 2016. Government has slowly started to intervene in the market but much more is needed. My Commission has proposed that it should use tax incentives and regulatory powers to ensure that over a ten-year period more affordable longer tenancies become the norm.
The shape of social housing has also changed fundamentally in the last few decades. Housing associations are now the biggest providers, not local authorities. But the number of homes being built is not keeping pace with demand. Currently over a million people are on local authority waiting lists. but only 50,000 social homes were built last year. So it is welcome that the housing associations are being incentivised to build more homes and that the government has committed to get local councils building again. But words need to be matched with deeds. And at a time when the cost of capital is low the Government must now rethink their fiscal plans and make it a priority to borrow to invest in the nation’s social housing infrastructure.
People who own their homes, of course, have average non-pension wealth of over £300,000, compared to less than £20,000 for social and private tenants. Closing that gap requires more people to get onto the home ownership ladder. Unfortunately, the reverse is happening. The long-held assumption that a free-market approach would match supply with demand is not working. Owner occupation – one of the foundations for higher levels of social mobility – has fallen by 17 per cent in the last decade among the under-44s as their household incomes have grown at only half the rate of their housing costs. Today’s young generation is more reliant than ever on their parents for help to buy their first home: three times as many buyers are using inherited funds to do so than they were a decade ago.
Changing this will require more radical action on housing supply and planning policy. The house-building market is dominated by a small number of firms who have incentives to limit supply and inflate prices. That market failure must be addressed if home ownership is once again to be within reach of today’s generation of young families. If the Government’s ambition to have 300,000 homes built a year it will have to intervene more actively in the house-building market, allow selective buying on greenbelt land and enable councils to build for sale not just rent.
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Fifth, our care and welfare systems will need to be transformed to cope with changes both in disease and demography. In health, if the biggest challenge of the last century was to beat infectious disease the battle for this century is about tackling chronic disease. It already absorbs 75 per cent of NHS spending but as rates of diabetes, arthritis and dementia grow it too will increase. What differentiates chronic disease from other forms of illness is that it becomes a permanent fixture of people’s lives. It is with them 24/7. So what patients do to manage their own condition – their lifestyle, and diet and exercise – is as important as what clinicians do.
The challenge is to find ways of treating patients less as passive recipients of care in a system that denies them both power and responsibility and instead empowers them to take greater charge and more responsibility for their own health. Fortunately technology is giving people the tools to do so. The world is on the verge of a huge leap forward in how healthcare is delivered. Mobile phones will routinely be used to monitor the health of patients with chronic disease. People will have virtual consultations with their doctors and nurses. This is not a fantasy future. It is already happening. What is more if the benefits of pharmocogenetics can be realised the next few decades could see our whole model of health care moving from one that has been about detecting and then treating illness to one that instead predicts and prevents ill-health. That means redesigning the care system away from its twentieth century focus on episodic treatment – largely in hospitals – towards earlier preventative action and continuity in treatment – first in the community then, as telecare and telemedicine technology evolves, into the home.
In turn, that will require new financial incentives that operate across the whole care system to help keep patients healthy and out of hospital. It will mean new accountable care organisations integrating health and social care around the needs of individual patients. And above all it will mean changing the balance of power in the care system so that patients have more choice and control over their own care. The challenge for the NHS today – faced with a rising tide of lifestyle-related disease – is not just to provide collective care but to change individual behaviour. The State will need to find new ways of securing the active participation of citizens if the care system is to be sustainable. One means of doing so is for people with chronic disease to be offered their own State-funded budgets so they can buy the care that is right for them and personalised to their needs. Evidence from the UK – as well as the US and Germany – is that personal budgets increase levels of user satisfaction and decrease levels of spending. Over the next decade they should become the norm for millions of citizens.
Older people should be the principal beneficiaries. Over decades the notion of the State providing care from cradle to grave has been eroded. Older people nowadays are means-tested if they require domiciliary or residential care. Local authorities, faced with cuts to social service budgets, have had no option other than to make eligibility criteria for public funding ever tighter. The balance between what the State contributes and what the individual – or their family – contributes has swung heavily to the latter and away from the former. These changes have been covert rather than overt and have given rise to widespread confusion and concern. Nonetheless two things are now clear – the State cannot afford to pay for all the care costs of old age and the current system is not sustainable.
As the Conservative Party found during this years’s election campaign, however, reforms here are fraught with political risk. Equally, muddling through is not a sustainable solution. A fresh start is needed. Ideally the political parties would align around some core elements of a new system. That the State has an obligation to ensure that no pensioner should live in poverty. That some of the current spending on old age benefits for better-off pensioners is switched to old age care for poorer ones. That the State should invest more in elderly care but so too must the individual. That new mechanisms to release the equity tied up in people’s houses are key to making individual contributions more affordable. These are the foundations for reform. They will take time to build and courage to implement. But they are the means of making Beveridge’s contributory principle relevant to the modern age.
Similar principles will need to be applied to making the pensions system sustainable. By 2030 one-fifth of the UK population will be elderly. The State cannot afford to pay for all of their financial support in old age. The existing old age pension of course will continue but individuals will have do more saving themselves to foot their costs when they retire. For decades successive governments have tried to find ways of encouraging saving. Some policies – like the ISA – have been successful but we are still in the foothills of the journey to making saving a mass market, mainly through the workplace. The contributions workers are making are currently low but will have to rise if their retirements are to be financially comfortable. That is no easy task, not least because the young never really believe they are going to grow old. It seems inevitable to me that the current voluntary system of savings will have to give way to a compulsory one. When that happens and how is open to debate but the costs of old age will in future have to be a partnership between the State and civil society.
These five giant reforms have a common core purpose: to provide security in a world which feels increasingly insecure. People need to know in a globalised economy that if you work it always pays and does not condemn you to poverty. That in a world of rapid technological change the education and skill system will lift you up not keep you down. That even as Britain glories in London’s status as a global capital, opportunities to progress are available in all parts of our nation. That whatever your form of housing tenure you should be able to choose a secure good quality home. That in an ageing society the care and welfare system will help look after you and help you to look after yourself.
This last point is key. The State can enable security – but it cannot provide it alone. That is why the five giant reforms I believe are needed have at their heart a partnership between the State, the citizen and the market. Reforms to the labour market need to ensure both employers and governments are focussed on addressing working poverty. Reforms to our education system need to ensure that parents and employers, not just educators, are focused on improving skills and closing attainment gaps. Reforms to regional policy need to ensure that both local councils and national resources are focussed on spreading opportunity across the nation. Reforms to housing policy need to ensure that landlords, housing providers and house-builders are all providing more options for tenants and homeowners. Reforms to care and pensions need to ensure that health, social and welfare systems alike are focussed on giving citizens – the elderly in particular – greater power and a fairer slice of responsibility.
This is a long way from the nationalised industry model that the welfare state became. Meeting today’s challenges confronting the modern Welfare State – in its myriad guises – calls for a rekindling of Beveridge’s vision of a partnership between the State and the citizen. Whether it is improving health or tackling crime, regenerating communities or beating poverty active citizens are needed alongside active states. Of course State action to create jobs and end poverty pay is essential. Governments determined to close the attainment gap in schools and building more homes can help address Britain’s social mobility problem. But in the end social mobility cannot be given to people It has to be earned though their endeavour, commitment and hard work.
Meeting these challenges will require more than a new determination to redistribute income. It will need the redistribution of opportunity. And it will need the redistribution of power. I believe that is an idea whose time has come. In the 1940s the new idea that ushered in the era of full employment and the welfare state was for power to be vested in strong nation states. Its policy expression was nationalisation. In the 1980s the new idea that ushered in the Thatcher/Reagan revolution was for power to be vested in free markets. Its policy expression was privatisation. In the 1990s the new idea that ushered in the Clinton/Blair years was for power to be vested in reformed state institutions. Its policy expression was modernisation. Now the new idea is to use the power of the State to vest power in citizens and communities. Its policy expression is empowerment.
I hope that Beveridge would approve of that. Even if some of the individual propositions I have made tonight would not gain his approval the notion that grasping the nettle of change is the test that public policy has to pass would I am sure feel familiar to him. In a world today where the challenges feel big but modern politics all too often acts small the time has come for politicians to rediscover a sense of purpose and of possibility. Jose says in the final words of her book that Beveridge’s favourite quotation from Sophocles’ Antigone was this “When I have ceased to hanker after the impossible I shall have ceased to breathe.” Our country has good reason to thank him for believing that big change was possible. For all its faults his Welfare State made our country more kind and more fair. The job of this generation of policy-makers is to reinvent it for the new century in which we live. That can only be done by rekindling the spirit of radicalism that the Beveridge Plan so epitomised.
This is an edited version of a lecture delivered to the Royal Statistical Society on 29 November. Alan Milburn is the chair of the Social Mobility Commission.
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