Blog following Reform's recent report, Seismic shifts in the welfare state.

Reform major policy conference on 5 March 2013, "Implementing a model for funding social care", with Norman Lamb MP, Lord Norman Warner and Heather Wheeler MP, kindly sponsored by the CII, Gen Re, Just Retirement and Partnership. 

Reform roundtable seminar on "The long term future of welfare", introduced by Andrew Harrop, General Secretary of the Fabian Society, on Wednesday 5 September 2012.

Reform panel debate on the role of housing equity, with Heather Wheeler MP, Member of Parliament for South Derbyshire

 By Kimberley Trewhitt 

Ea rlier this week Reform held a panel debate in partnership with Just Retirement to discuss “Next steps for equity release”.  The speakers at the event were Heather Wheeler MP, Nigel Waterson, Chair of the Equity Release Council, Michelle Mitchell, Charity Director at Age UK, David Budworth, Deputy Personal Finance Editor at The Times and Rodney Cook, Chief Executive of Just Retirement.

It often comes as a shock to people that if they have assets above a certain amount (£23,250 in England in 2011/12) the costs of entering a care home fall entirely onto them.  Many people feel that these costs should be met by the State because they have paid tax and National Insurance contributions their whole lives.  But there is a need to dispel the myth that care is free at the point of use.  Liam Byrne noted at the end of the last Parliament that “there is no money left”, and with population ageing the limits to what can be publicly funded are only going to grow.  As Lord Warner, a Member of the recent Dilnot Commission, commented at a Reform conference in 2011, “Any fantasy about 100 per cent universal state provision – forget it.”

The question then becomes how can people be encouraged to play a greater role in providing for their own care needs?  An obvious source for these contributions is the wealth people build up during their working lives, especially in property. Estimates show that homeowners aged 65 or over own nearly £750 billion worth of unmortgaged property. This can raise hard questions, especially as families have traditionally aspired to pass their housing wealth onto the next generation. But some politicians are facing up to these tough choices and considering housing wealth as a way to pay for care. The culture of passing wealth on to the next generation is also changing, with people becoming more inclined to spend their money on having a comfortable retirement.   

 For  this approach to succeed, more awareness, financial education, transparency and innovation will be essential.  Products such as care fees annuities and equity release already exist, but they make up a very small proportion of the market of self-funders.  Currently 8 per cent of people who take out equity release use it to pay for their care needs. In 2011 the Dilnot Commission identified that this may reflect problems on both the demand side – poor awareness leads to low demand from individuals – and on the supply side – the uncapped potential costs of long term care prevent the financial services sector from developing products. 

On improving awareness, honesty is needed about the scale of the challenge and the tough decisions that will have to be made.  The precise role of government raises debate.  While some argue that government may have a crucial role (along with the private sector) in raising awareness, others argue that government should not promote specific products. Mistrust of the financial services sector is also a challenge.  Scandals including the mis-selling of equity release and endowments in the 1980s, the recent mis-selling of PPI and the current LIBOR investigations have tarnished the industry’s reputation.  Rebuilding trust is essential.  Indeed, the Financial Secretary to the Treasury, Mark Hoban, recently announced the Government’s plans “to restore honesty, integrity and stability to the sector” so that “consumers are empowered… to participate in the sector on an equal footing, both through improved regulation and greater competition.” 

 To encourage greate r choice of products, more certainty over future funding from government is required. In this sense, the Care and Support White Paper and Progress Report released this week, which did not set a cap on an individual’s contribution to the costs of care as recommended by the Dilnot Commission, were a disappointment.  Setting a cap would have given the sector the ability to innovate and develop new products as there would be a clear maximum liability.  But the opportunity to build a stronger market was missed.

Reform roundtable seminar on childcare on Thursday 28 June 2012. Introduced by Christine Antorini, Danish Minister for Children and Education.

By Kimberley Trewhitt

Last week Reform held a discussion with Christine Antorini, the Danish Minister for Children and Education, to discuss potential lessons for the UK from the Danish childcare system.

Both the UK and Danish governments spend a lot on childcare. The OECD has measured public expenditure on childcare and pre-primary education at 1.1 per cent of GDP in the UK and 1.3 per cent of GDP in Denmark.  The OECD average is 0.6 per cent of GDP.  In the UK, private spending is high too, with UK families on average paying 27 per cent of their net income for childcare. In a recent survey by Mumsnet and the Daycare Trust, 37 per cent of respondents said they spent as much, or more, on childcare as on the costs of servicing their mortgage or paying their rent.  In Denmark, families spend on average 9 per cent of their net income on childcare. 

Although the UK system is the more costly of the two, it is argued that the outcomes are not as good.  For example, the UK ranks 16 out of OECD countries when it comes to maternal employment, with 67.1 percent of mothers in work compared to 84 per cent in Denmark.  Quality of provision is seen to be better in Denmark, with highly qualified staff working in childcare. More than 60 per cent of workers in Danish daycare centres have a degree in pedagogical education. Danish daycare provision also has a 90 per cent satisfaction rate among parents.

It is important to note the factors that make comparison between the two countries difficult.  Denmark has a very different welfare state from the UK and tax burdens are relatively high.  There is also strong business support for childcare to enable female participation in the labour market.  Despite the fact that both countries have deficits, the UK’s public finances give less room for manoeuvre, especially as George Osborne announced recently that the Government intends to find a further £10 billion of savings in the welfare budget.

So what insights from the Danish system are useful for the UK? 

• The service provision approach to childcare rather than the use of cash transfers through tax credits in the UK. The Huffington Post’s report on the lunch quoted Liam Byrne, Shadow Secretary of State for Work and Pensions, who said: “The hypothesis is the Danes are squeezing more daycare out of the same money than we are - because they have a different mixture of services rather than cash injections. And that’s what we want to explore.
• The localist element.  Each municipality has the responsibility to deliver a daycare place for every child.  Municipalities are fined if they fail to meet this commitment. 
• The variety of providers in and across the municipalities.  Parents are able to request a place at a specific daycare centre and can choose between public, independent or private daycare (private sector provision has been allowed since 2004, is growing, and now makes up 5 per cent of the market).
• The cost structure.  An individual family contributes a maximum of 25 per cent of the costs of a daycare place, with the municipality paying a minimum of 75 per cent.  Importantly, the money follows the child.
•  The regulatory structure.  Since 2004 all daycare facilities have been obliged to prepare a written pedagogical curriculum, but there is no tradition of sending out central inspectors to the municipalities.  This contrasts with the use of Ofsted inspections in the UK.
• The choice element.  Parents are able to change daycare providers and can also select a daycare centre in another municipality.  This freedom to move is seen to prevent costs from being driven up. 

What was clear from the discussion is the more integrated approach to childcare in Denmark. It is viewed as a key part of the whole education system.  Furthermore, there is clarity and simplicity over departmental responsibility.  Compare this to the UK, where support for childcare comes from different funding streams in different departments. 

It is unlikely that any one model from abroad will provide the answer for the reform of childcare in the UK, but international examples offer a starting point.  Real reform not increased spending is needed. Without improving value for money and performance, costs may just be driven up further without benefitting families.

Reform roundtable seminar on family finances on Tuesday 15 May 2012. Introduced by Lord Wilf Stevenson, Chair, Consumer Credit Counselling Service.

By Patrick Nolan

Earlier this week Reform held a roundtable event on Putting family finances on a sustainable footing. Lord Wilf Stevenson, Chair, Consumer Credit Counselling Service (CCCS), introduced the event, which was held under the Chatham House rule.

Many UK households are on a financial knife edge. CCCS research shows that 8 per cent of households in Great Britain spend more than half their incomes on total debt repayments and the average household pays nearly £200 per month in interest payments. 30 per cent of households have no spare cash at the end of the month and more families are turning to high cost credit. These challenges are not confined to a relatively small group of low income families; CCCS research has shown that families on higher incomes are struggling with debt too.

The upshot is that many families would struggle to cope financially if they experienced a drop in income, increase in expenses, or other changes in circumstances. And they are likely to remain vulnerable for a while. The labour market outlook is weak and prospects for real wage growth are not great. Concern has been expressed over food, fuel and utility bills, HMRC debt recovery procedures, and increasing rent bills and mortgage rates. Already 10 and 6 per cent of CCCS clients are in mortgage and rent arrears, respectively.

Policy changes, such as the public sector wage freeze and reform of the welfare system, have increased pressure on some families. The Universal Credit will test families’ financial capability through paying benefits monthly and paying housing benefits to recipients not to landlords. Problems with debt can often be part of a downward spiral – with there being, for example, a link between problem debt and depression.

While it is relatively easy to point to problems, developing workable solutions and identifying the role that government should play in these solutions is harder. Developing solutions will require facing up to some hard questions, which will be the subject of future Reform events. These questions include, for example:

• Is the supply of credit to some vulnerable communities too high? What would be the best way to influence the supply and level of credit in these communities? Or, indeed, should government set out to influence this?
• Should interest rates of, for example, 4,000 per cent per annum be allowed (bearing in mind that an annual rate can be misleading for a loan with a term shorter than a year)? Or should interest rates be capped? Would capping interest rates restrict the supply of credit (including to people who can afford to borrow) and risk other charges or fees going up to compensate?
• How should financial products, lenders and debt management companies be regulated? Are current regulations sufficient, and is the only problem one of enforcement? What role should financial services (e.g., self-regulation through voluntary codes and kite marks) and employers play in improving standards and helping people make the right choices? How can confidence in financial services as a whole be improved?
• What should happen when people get into problems? Should the attitude towards debt forgiveness change? How can consumers be directed to the right sorts of advice?

But perhaps the biggest question raised at the event was whether the broader attitude to debt in the UK needs to change. A model of growth driven by consumption funded by household borrowing requires ever increasing capital gains on housing assets or increasing real wages. A “borrow now, pay later” model will always face problems when growth stalls or when the economic environment changes (e.g., when the population ages and dependency ratios increase). The big question is how to ensure sustainable growth in household incomes in the long term – simply borrowing more cannot be the answer.

Reform roundtable seminar on the Universal Credit on Thursday 3 May 2012. Introduced by Andrew Selous MP.

By Patrick Nolan

It is hard to overstate the importance of the Universal Credit. The proposal will directly impact on the lives of millions of the UK’s most vulnerable households and, at a static cost of around £2 billion, have a real impact on the welfare budget. Up to this point much of the focus and debate on this programme has been on broader design issues, such as the impact on incentives to work and poverty, how to treat childcare and housing assistance, and transitional assistance and passported benefits.

Yet with the migration of families to the new system scheduled to begin in October 2013 issues of implementation must come into sharper focus. As Michael Lipsky argued public policies are not just developed in legislatures or the highest levels of the civil service but in crowded offices and daily encounters of “street level” workers. Often the practical challenges of implementation determine the success or otherwise of a programme.

With this in mind Reform held a roundtable event on possible lessons for introducing Universal Credit from similar reforms in the State of Texas. Andrew Selous MP helped set the scene by outlining the Government’s approach to implementing the Universal Credit and a member of the consortia that implemented the Texan project outlined their experiences. The event was held under the Chatham House rule.

Texas set out to create an “integrated eligibility” process for its social services programmes in 2005. The underlying philosophy was similar to the Universal Credit. By combining the application process for a number of programmes decisions could be made in a simpler and quicker way. Yet this ambitious project made a number of early mistakes and the pilot programme was suspended. The contract for the project was withdrawn and one of the members of the original consortia, MAXIMUS, was awarded a modified contract and required to turn the project around. They did this and integrated eligibility has now been implemented across the whole State.

Potential lessons from the Texan experience discussed at the event included:

• Perform a detailed process analysis before selecting the delivery model, training methods, technology and staffing levels. The technology must be designed to support the business process. Robust forecasts of customer volumes and testing of assumptions around the use of different channels are required.
• Have performance metrics and reporting information in place. The right monitoring systems and reports must be developed (this can be surprisingly difficult) and there needs to be strong managerial accountability and legislative oversight. Good governance and transparent processes are essential.
• Focus on operations as well as technology and make sure there is direct communication with operators. There needs to be a strong focus on people operating the system. Communication between front line staff and technology staff must not break down.
• Manage change efficiently within the delivery organisations. Training and onsite support is important and once people began to use the new system in Texas they were required to stick with it, rather than returning to the old.
• Do not promise savings or change until the proof of concept has delivered reliable metrics. Savings promised often depend on the programme being delivered successfully; if delivery is not successful then savings may not eventuate. As well as the benefits of automation, there may be costs associated with the loss of “face time.”

Addressing the issues above would be a challenge even in the best of times. Yet the current environment poses extra difficulty. The Universal Credit must be delivered in a period when public money is tight, other important welfare reforms are taking place and concern is being expressed over labour market outcomes. The timeframe for the implementation of the Universal Credit is very tight and the Public Accounts Committee has already expressed concern over the “oversight of the interaction of benefits that are based on means-testing.”

Yet the lunch also highlighted the broad support for the goals and objectives of the Universal Credit. The policy window is open. A simpler system that works better for recipients is a valuable prize. This makes a focus on delivery issues all the more important. The Universal Credit will not work unless the delivery is right, and this requires a constructive and honest debate on the challenges of implementation.

Reform-HP roundtable seminar introduced by Rt Hon Chris Grayling MP, Minister of State for Employment, on 24 January 2012.