smf march 2011 newsletter

Social Market Foundation | Newsletter March 2011 |

www.smf.co.uk | www.twitter.com/_SMF_

Newsletter March 2011

Welcome to this edition of the SMF newsletter As public spending cuts start to bite and with unemployment on the rise, 2011 looks

set to be a uniquely challenging year for households up and down the country. This

year will be challenging too for the Coalition Government, with its bold programme of

reform and deficit reduction dominated by a shaky economy and growing concern

over interest rates.

Against this backdrop, the SMF last week launched its party conference themes

document, outlining many of the issues we’d like to debate at what promises to be an

exciting autumn party conference season. If you’d like to put your organisation at the

heart of the debate, why not get in touch? But hurry – the best venues go fast these

days. Rachel Baker, the SMF’s dedicated Conference Manager, outlines our key themes

and how to get involved on page 4.

Back in Westminster, our 2011 events programme got off to a flying start with a one-

day conference, Prison Break: putting the rehabilitation revolution into practice. An

audience of policymakers, experts, campaigners and practitioners were joined by the

Prisons Minister, Crispin Blunt, who outlined the Government’s plans for introducing

payment by results to cut re-offending.

This was quickly followed by a second conference in February, Welfare that works,

focusing on the Government’s planned reforms to the welfare system .The wide-

ranging debate looked specifically at the forthcoming Work Programme and plans for

Universal Credit, hearing from Employment Minister, Chris Grayling MP, along with his

Labour opposite number and a range of experts from across the welfare spectrum.

SMF Director Ian Mulheirn outlines some of the issues around Universal Credit reform

on page 8.

The SMF’s research programme also got off to a good start in 2011. As we await the

Chancellor’s growth budget on [March 23], our proposals for a revival in UK

manufacturing form our latest publication Manufacturing prosperity: Diversifying UK

economic growth. In it, we take a timely look at the factors needed to boost economic

growth by driving manufacturing up the value chain. The article on page 7 contains

more information on this.

In this edition

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Since the last SMF newsletter we have also launched a collection of essays from high-

flying new MPs from across the three parties, The Class of 2010. And, as we await this

week’s final report from Lord Hutton’s pension commission, why not take a look at our

expert essay collection on public sector pension reform? Full details are on page 9.

Looking to the future, work is already underway on an exciting project looking at

consumer trust and financial behaviour since the banking crisis. This report will be

launched at an event in central London during the spring.

As well as an exciting and broad range of work to kick off 2011, we’re delighted to

welcome a new face to the team. In February we welcomed Leonora Merry to the role

of Head of Media and External Affairs. Leonora comes to us with a background in

communications in the non-profit sector and will be working to increase and broaden

our public profile.

Finally, we’re currently looking for sponsors for the following highly topical proposals.

Please contact John Springford for further information or to register your interest.

• Childcare and the Universal Credit – With the Welfare Reform Bill published,

the future structure of childcare support still looks unclear. We plan to examine

the options for funding childcare under the Universal Credit system as well as

proposing new policy options for the Government to help parents with

childcare needs at a time of little public money.

• Audit after the Audit Commission - In 2010 the Government announced that

the Audit Commission will be disbanded and local authority audit will be

opened up to private providers. We plan to assemble a respected group of

authors to look at the possible policy implications of the new system, and how

it can be made to work.

• Mapping NEETs - The proportion of young people not in education,

employment or training between the ages of 16 and 24 has risen dramatically.

We will provide a mapping exercise, using the best available data on the labour

market behaviour of young people, to identify key drivers of being a NEET and

prime attributes of long-term NEETs to inform better policymaking.

• Payment by results in Sure Start - The Government intends to introduce

payment by results for Sure Start Children’s Centres but details are yet to be

known. We will explore the implications for introducing PBR for Sure Start and

suggest a preferred model to achieve fairness and cost-effectiveness.

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Director’s Note

Reforming public services: the principle is the easy bit

Ian Mulheirn, Director, SMF

Paving the way for the public service reform white paper, David Cameron is right to

argue that reform should put more power into the hands of the citizen. Making

competition the norm, and state monopoly the exception, is the best way to

guarantee high-quality and cost-effective public services. The Prime Minister is also

right that the burden of proof should rest with the state to justify why it should

operate a monopoly, rather than on the proponents of market forces. But this is the

easy part of putting reform into practice.

Whether the Government can succeed in getting more bang for its buck in public

services will come down to whether they can reduce central control while ensuring

accountability for public money. Contrary to popular perception, it has long been

recognised by Whitehall that Whitehall doesn’t always know best. The stumbling block

is – as it always has been - that Whitehall signs the cheques. Devolving control to ‘the

frontline’ therefore requires careful consideration of how financial accountability can

be maintained even as service design decisions are devolved.

Markets provide a neat solution to this problem: they give citizens the power to

choose providers, hence citizens can hold poor providers to account. This is, after all,

the basis for the success of the market economy. The problem is that allowing people

to choose is only one part of a real market, and the nice part at that.

Choice will only improve services if two further conditions are fulfilled. First citizens

must have real options over which school to use and which hospital to go to. For that

to be the case the Government must be prepared to fund more schools and hospitals

than are strictly necessary in order to provide the spare capacity that allows people to

choose. My school choice as a parent is meaningless if all but my local school are full.

But funding spare spaces during the ferocious spending squeeze ahead is challenging

to say the least.

Second those institutions shunned by users must be allowed to fail and close if overall

standards of service and efficiency are to rise. Allowing the poor performers to leave

the market, rather than helping them to limp along with the aid of more public

money, is an unavoidable part of a functioning market. Whether ministers can really

wash their hands of the unpopular effects of competition, however, is a very big ‘if’.

So advocating choice and competition is the easy part of reform. The financial and

political consequences are much harder to manage. And the real test will come when

the Prime Minister has to defend the closure of failing hospitals, as he must if this

agenda is to succeed.

“Allowing people to

choose is only one

part of a real market,

and the nice part at

that.”

http://www.telegraph.co.uk/comment/8337239/How-we-will-release-the-grip-of-state-control.html



Party Conferences 2011

Get involved with our dynamic party conference programme

Rachel Baker, Conference Manager, SMF

The SMF’s Party Conference Themes document is now out! This document, available

to download here outlines some of the key policy debates for the 2011 season and

describes how you can get involved.

At the SMF, we have been running successful and highly respected fringe events at

the major political party conferences for many years. Strong links with each of the

three main parties enable us to involve top politicians and expert speakers in our

debates, making SMF events some of the best-attended and well-regarded

conference events in the think-tank world.

SMF events are known for their professionalism, high profile speakers and innovative

debates. This, coupled with our independent, non-partisan approach, makes us an

ideal choice for any organisation wishing to engage intelligently and constructively in

the issues facing policymakers, politicians and the public at this crucial time.

Building on a highly successful programme in 2010, we are currently seeking partners

to work with us at the Conservative, Labour and Liberal Democrat conferences this

year.

Our 2011 fringe programme will tackle the main policy issues and will cover themes

such as: The new economy, growth and employment; Public services and public

spending; Health and social care; Energy and climate change; Transport and the

Olympics; Banking, home-ownership and trust in financial services; Families, schools

and education; Communities and the regions and Technology and media.

The 2011 party conference will be a prime opportunity to join the debate and help to

shape the policies and ideas that will determine what the UK looks like in the years

ahead.

Partnering with us offers an excellent opportunity put your organisation at the heart of

the debate.

For further information on sponsorship opportunities, please email [email protected]

or call 020 7227 4404.

“Building on a highly

successful

programme in 2010,

we are currently

seeking partners to

work with us at the

Conservative, Labour

and Liberal Democrat

conferences this year.”

http://www.smf.co.uk/assets/files/Conference%20themes%202011%20FINAL.pdf

http://www.smf.co.uk/assets/files/Conference%20themes%202011%20FINAL.pdf



Why students should be angry with universities

Ryan Shorthouse, Researcher, SMF

Ministers have asked the Office for Fair Access (OFFA) to determine whether

universities will be able to charge tuition fees above £6,000 a year. Universities,

ministers say, will need to prove they are doing enough to recruit students from

poorer backgrounds.

Cambridge was first to say they will charge the maximum fee of £9,000. Then Oxford.

This week it was Exeter. Who next? Behind the scenes, other universities are lobbying

hard to follow suit, especially as central funding from government has been cut so

vehemently.

OFFA, apparently, could block them if they fail to meet the terms of new Access

Agreements. But the Government refuses to give minimum requirements - it’s up to

OFFA and individual universities to reach an agreement. OFFA only has three staff–

and has failed to sanction any university for palpable failure to reach targets on

admitting poorer students since it was formed in 2004. Is it really able to endure bitter

battles with institutions that have their request for higher fees rejected?

So it is likely there will be a clustering of fees around the maximum £9,000 and it

seems unlikely that price competition, which the Government is hoping for, will really

work in driving down fees. Event if some students were put off by higher prices,

universities are probably judging there is sufficient demand to get away with inflated

prices. Indeed, there may be more risk of deterring students if universities charge less –

perhaps indicating lower quality – than charging more.

There is little risk for universities in charging these high fees because government pays

loans off if low earners don’t make enough money in their lifetime to do so

themselves. What could happen, therefore, is that students don’t get value for money,

paying a lot more for a degree that was not really worth the price tag, forced to pay off

a loan for a lot longer over their lifetime than they ought to.

The generous subsidies attached to student loans means the government incurs a

cost for every loan distributed. To control this expenditure, government has to cap

student numbers. Officials are now very nervous that universities will get away with

charging extraordinarily high prices, putting even greater pressure on controlling

numbers. More qualified, ambitious young people will be left disappointed, denied a

place at university.

It is universities, setting these high prices, that students really should take issue with.

So far, however, they’ve escaped the wrath of students. Instead, students target the

politicians, protesting outside parliament and Tory party headquarters, arguing the

reforms are making it harder for young people to get on in life. They even turned

against the current NUS president Aaron Porter, who is now standing down, for not

“Even if some

students were put off

by higher prices,

universities are

probably judging

there is sufficient

demand to get away

with inflated prices”.



being radical enough against the government. But in this triad relationship between

government, universities and students, government is being rather helpful to

students.

Government has ensured a degree remains affordable for everyone, providing a loan

for the full cost of tuition so it’s free at the point of use.

Government has raised the income threshold for paying back loans, so young people

will pay less each month, meaning they will have more disposable income to spend

and save. What the higher tuition fees does is extend the number of years you

continue to pay your loan back: so it’s not putting an extra burden on young people,

but those in their thirties and forties.

And if graduates have not earned enough over 30 years, the government pays off their

student loan for them. Government have not saddled students with real debt – it will

never become unaffordable or unmanageable.

Where students do have grounds for anger with government is in designing a system

where universities will be able to get away with charging excessively high fees for

degrees that are not really worth the money. When they do, it will eventually become

too costly for government to issue higher loans. Reforms will be needed: a reduction

in student numbers, a higher interest rate on loans or an extension of the time before

the debt is written off for low lifetime earners.

The best kept secret by universities is that for many government will in fact, over time,

increase the amount of funding they receive from the state. Yes, funding through the

HEFCE grant will be cut by £2.9 billion, which Universities UK believes can only be

rectified by charging on average just over £7,000 a year in tuition fees. Well, it is very

likely that these universities will now charge up to £9,000. And these upfront fees, let

us not forget, are paid by loans using government money. It just the source of the bulk

of this money is future graduates rather than general taxpayers.

Time for students, led by a new NUS president, to put universities under the spotlight.

They should be more critical and demanding of these institutions charging high

prices.

The NUS, to its credit, is thinking creatively and working with government to push for

“student charters” that will bolster the consumer rights of students: they want students

to get a rebate on fees if universities fail to deliver what was in the prospectus and a

right to switch institutions if they are unhappy with the service provided. Such ideas

may pressure universities to improve the student experience: boosting the quality of

teaching, and employment advice and opportunities. More young people may then

start getting better value for money.

This is an edited version of an article that appeared in the Yorkshire Post

“Time for students to

put universities

under the spotlight.

They should be more

critical and

demanding of these

institutions charging

high prices.”



Latest publication: Manufacturing prosperity

With the UK economy struggling to gain traction in the wake of recession, the

Government needs a strategy for growth. 'Rebalancing' the composition of UK

economic output – away from reliance on finance and toward manufacturing – has

long been discussed, but concrete policy ideas have been thin on the ground.

In this timely paper, Steve Coulter argues that the Government’s growth strategy

needs to take an institutional approach to driving UK manufacturing up the value

chain.

The paper finds UK manufacturing as ‘a tale of two sectors’ – a cluster of highly

successful firms in high-technology, innovative market segments at one end, and a

long tail of low value-added manufacturing firms that largely compete on price at the

other.

Steve Coulter argues that Britain cannot hope to compete in the global marketplace

on low price, low quality exports. Instead, a successful UK manufacturing revival

depends upon moving into higher value markets. Coulter says that the Government's

growth strategy must contain real detail about how this can be supported through

measures that drive up productivity, ensure proper investment in the British workforce,

and encourage a move away from short-termism in industry

In particular, Coulter suggests that the Government should substantially raise the

National Minimum Wage over the medium term as a way to reduce the state's

effective subsidy of low-skilled manufacturing.

Alongside this, he recommends that Local Enterprise Partnerships should be led by

business, freed from their lingering association with local government and

strengthened. They should foster technology transfer between manufacturers,

facilitate access to 'patient' rather than short-term finance, and coordinate industry

training needs

Finally, Coulter argues that the stringent competition regime should be reformed to

discourage short-termism and encourage collaboration on innovation and standard-

setting.

Manufacturing prosperity is available to download from the SMF’s website at

www.smf.co.uk/manufacturing-prosperity

'Rebalancing' the

composition of UK

economic output

has long been

discussed, but

concrete policy ideas

have been thin on

the ground.

http://www.smf.co.uk/manufacturing-prosperity.html



Universal Credit: punishing low income savers?

Ian Mulheirn, Director, SMF

The Universal Credit represents a bold attempt by the Government to overhaul the

Byzantine UK benefits system. But, as has been argued before on these pages, it seems

unlikely that the reforms will achieve their simplification goal. Complexities are creeping in:

how should DWP integrate the local Council Tax Benefit, announced at the Budget; where

will childcare support fit in to the new system; and what should UC do about free school

meals in the absence of a clear hours-based definition of being in work?

But even if the system isn’t simpler it’ll provide better incentives, right? Well unfortunately,

the picture here is decidedly mixed. UC will greatly increase incentives for people to move

into work for a few hours each week. That’s important, but it’s no free lunch: improving

incentives to work will come at the expense of raising the benefit withdrawal rates of

hundreds of thousands of families. Raising the effective tax rate on low- and moderate-

income working families to 76% will hammer incentives to progress in work.

But this isn’t the only group who will face perverse incentives as result of the reforms. As

benefits and tax credits are rolled into one, UC will extend the rules on claimants’ savings

to current tax credit recipients. This means that families with £16,000 or more in the bank

will no longer be able to claim any financial help at all, where currently they are entitled to

substantial amounts of tax credits support. Families with over £6,000 in savings will see

significant reductions in their entitlement.

SMF analysis shows that about 400,000 families with children – who currently get tax

credits money – will lose their entire eligibility for financial support under UC because of

the £16,000 limit. At least a further 200,000 families with savings of between £6,000 and

£16,000 will lose some of their money under the new scheme. Worryingly, it’s not yet clear

whether working parents who save will get any help with their childcare bill after the

changes take effect.

The cost of this ‘savings penalty’ for some families will be huge. A family with two children

and a combined income of £25,000 per year could end up around £50 per week worse off.

The same family on an income of £20,000 per year could lose over £90 per week. And

while details are hazy, many thousands more working families relying on tax credits

support for childcare costs could end up being disqualified from claiming.

While the Government has pointed out that families’ entitlements will be protected ‘at the

point of transition’, we know from past experience that the rate at which families’

circumstances change is high. It won’t be long before the saving penalty kicks in for most

families.

These plans will certainly save the Government a lot of cash at a time when money is tight.

But they are hugely unfair and send all the wrong signals to those families trying to set

money aside for a rainy day or save for the deposit on a house. The Government should re-

think the savings penalty and support working families trying to save for the future.

“SMF analysis shows

that about 400,000

families with

children will lose

their entire eligibility

for financial support

under the Universal

Credit”



Publication highlights

Manufacturing prosperity: Diversifying UK economic growth

Steve Coulter

With the UK economy struggling to gain traction in the wake

of recession, the Government needs a strategy for growth.

This timely paper argues that the Government must take an

institutional approach to driving UK manufacturing up the

value chain.

• Download Manufacturing prosperity

The Class of 2010

Edited by Ryan Shorthouse

In 2010 a new generation of politicians entered the House of

Commons, representing a third of all parliamentarians. In

this pamphlet, six high-flying MPs from the three main

parties share their thoughts on the key policy challenges in

the years to come and offer their solutions.

• Download The Class of 2010

Public Sector Pensions: Planning the Future

Edited by James Lloyd

As the UK government contemplates root and branch

reform of public sector pensions, this edited collection

brings together a range of expert contributions to explore

the arguments behind the debate and the options facing

ministers.

• Download Public Sector Pensions

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More with Less: rethinking public service delivery

Ian Mulheirn and Barney Gough

Public service reform has been on the agenda for years. But

in the times of plenty, it has lacked the urgency or coherence

that today's fiscal situation demands. This paper argues that

a market-based approach to public service delivery is the

basis for public service effectiveness and efficiency over the

coming decade.

• Download More with Less


http://www.smf.co.uk/assets/files/CLASSOF2010FINAL2.pdf

http://www.smf.co.uk/assets/files/SMF%20Pensions_web.pdf

http://www.smf.co.uk/assets/files/20101206%20Public%20service%20delivery.pdf

smf march 2011 newsletter

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