Reform blog
Welcome to the new Reform blog. This section includes articles by the Reform team as well as by guest authors. Some of these pieces are written following our events, setting out the details of the discussion and the policy implications while respecting the Chatham House Rule when it applies. Many of these pieces are about our research reports, both published and forthcoming, and some provide comment on important national events, such as the Budget. We hope you find them interesting and informative.
Andrew Haldenby
Director
Reform
Adapting to austerity: How police forces are coping with the Spending Review
Reform roundtable seminar on "Adapting to austerity: How police forces are coping with the Spending Review", introduced by Sir Denis O'Connor, HM Chief Inspector of Constabulary, on Wednesday 18 July 2012.
Shaping up to slow growth
Reform roundtable seminar on "Shaping up to slow growth." Introduced by Vicky Pryce, Senior Managing Director, FTI Consulting
By Patrick Nolan
Funding long term care: Next steps for equity release
Reform panel debate on the role of housing equity, with Heather Wheeler MP, Member of Parliament for South Derbyshire
By Kimberley Trewhitt
Earlier 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 greater 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.
The future shape of the health and social care workforce - looking ahead to 2030
Reform roundtable seminar on "The future shape of the health and social care workforce". Introduced by Peter Sharp, Chief Executive, Centre for Workforce Intelligence.
The NHS is in the midst of a perfect storm of rising and changing demand, rising costs and reduced resources to pay for those costs. As the International Monetary Fund suggested, “rising spending on health care is the main risk to fiscal sustainability, with an impact on long-run debt ratios that, absent reforms, will dwarf that of the financial crisis”. All health systems now need to “bend the cost curve” and recent reforms aim to move to a model of care that is less reliant on hospitals with more care provided in the community and coordinated around the needs for patients. The workforce accounts for between 60 and 70 per cent of costs in health systems, which means that to deliver efficiency in the short term and become sustainable in the long term, reform of the workforce is essential. To explore these themes Reform convened a lunch with Peter Sharp, the Chief Executive of the Centre for Workforce Intelligence. The event was held under the Chatham House rule but these were the headline points:
Time for an honest debate. In past decades rising demand was met by increased resources and particularly more doctors and more nurses. This is no longer sustainable. Given the length of time needed to train healthcare professionals, particularly doctors, workforce planning needs to take place four to five Parliamentary terms ahead. Therefore decisions on what healthcare workers the NHS needs by 2030 need be taken now. Otherwise existing trends of recruitment and training will not enable the flexibility for different models of care to emerge. However there was a concern that despite the needs to think for the long term, short term cost pressures and objectives will shape the choices on the healthcare workforce.
Tactics to improve productivity. Over the last decade the NHS workforce grew by nearly 30 per cent, with the number of doctors rising by 45 per cent. Quality did not keep up with the pace. Improving the productivity of the workforce is therefore essential. Adopting the habits of high performing providers can increase productivity by 20 to 40 per cent. In particular, the best organisations often have a strategic focus on patient value, empowering clinical professionals through autonomy and responsibility, mandatory training in innovation and clinical redesign and active staff performance management. However many NHS employers have been slow to adopt the habits of leading organisations. Moreover there is often resistance on the part of the professions to more rigorous performance management such as performance based pay.
Role shift. A key tactic of innovative providers is reforming the skill mix to maximise the productivity of the highest trained professionals and using different kinds of workers to perform tasks that were traditionally reserved for doctors and nurses. Starting from the patient perspective to understand their actual care needs can demonstrate what skill mix is needed. While in the past doctors were the lead caregivers, care services need to be “demedicalised”. Changing healthcare needs mean that carers and healthcare assistants will need to fulfil expanded roles, with greater focus on multi-disciplinary care teams in place of doctors as solitary practitioners.
Flexibility. The long timescales involved in medical training (15 years from A-levels to consultant status) mean that greater flexibility is needed in training pathways. This is particularly important if the NHS wants to increase the number of generalists over specialists. Junior doctors in particular concerned that moving between specialities would require restarting their training. Flexibility in the training pathway would also need to consider more diverse steps in doctors’ careers rather than a single trajectory to consultant status.
Role of regulation and professional organisations. Reforming the workforce demands a new approach to regulation. Traditional approaches to the regulation of workforce have sought to define and control boundaries between professionals, and thereby limit role shifting and innovation in the delivery of care. For instance the Royal College of Nursing and Nursing and Midwifery Council campaign to extend regulation to healthcare assistants would maintain the roles of nurses and create additional costs. Other Royal Colleges have recognised that more flexible approaches to training and greater focus on team based care needed.
Healthcare is human capital intensive, which means that it is not possible to transform the model of care without reforming the workforce. Such changes will challenge the model of the professions and existing ways of working. The front line needs to lead the way.
Improving value for money in the courts and tribunals system
Reform roundtable seminar on "improving value for money in the courts and tribunals service". Introduced by Peter Handcock CBE, Chief Executive, HM Courts and Tribunals Service.
By Tara Majumdar
A Reform roundtable seminar, led by Peter Handcock CBE, Chief Executive of HM Courts and Tribunals Service, set out to discuss how the organisation could provide value for money and how it is meeting the challenge of working a lot better for less. The key theme emerging from the discussion was that since being established in April 2011 the Courts and Tribunals Service has gone back to basics: assessing what the core function of the agency should be and how this can be achieved in a way that is most effective and efficient for taxpayers.
It was very clear from the discussion that the combination of budget pressures and responding to the riots in August 2011 has forced the agency to challenge existing expectations of what services it should deliver. The central principle of the Courts and Tribunals Service should be providing access to justice, which is a combination of ensuring that due process is followed, outcomes are delivered swiftly and value for money achieved. The criminal justice system as it currently stands rarely achieves all three objectives and frequently fails to meet any sufficiently. Achieving a balance between these functions will ensure the legitimacy of the system in the eyes of the public.
The challenge is how best to deliver these multiple objectives and meet the needs of stakeholders. The assumption that it is necessary to have more properties such as court houses and police stations to effectively dispense justice is increasingly being challenged. In less than two years, 142 courts have closed in England and Wales with no notable impact on service levels. In fact despite a significant spike in service demand following last year’s riots, the Courts and Tribunals service was able to process cases in hours as opposed to weeks demonstrating the potential for greater efficiency. This has helped to reduce the dependency on existing structures that are outdated and expensive.
Tighter budgets have incentivised greater cooperation and influenced criminal justice agencies to identify where joint working and the co-location of services can improve services. The movement towards digitisation has assisted this process by highlighting how disjointed current ways of working can be. For instance, the management of case files currently takes place between three groups of people using multiple paper records that are liable to be misplaced or damaged. A coordinated system that tracks the process from start to finish would increase efficiency and effectiveness across the criminal justice system. Greater transparency of criminal justice outcomes and the introduction of Police and Crime Commissioners from November 2012 should promote greater collaboration and encourage reform by promoting accountability for budgets and service provision.
Ultimately a system that is focused on offering the best quality outcomes at best value needs to be flexible about who is doing the work, concentrating instead on whether it is being done well and at the right cost. The decision to implement regional pay structures in the Courts and Tribunals Service demonstrates that greater flexibility is being introduced into the workforce although it is unclear how much further this will extend.
The Courts and Tribunals Service has made progress in implementing reform and prioritising value for money. Key innovations have been developed in the use of technology, workforce reform and the contestability of services between the public, private and voluntary sectors. The challenge now is to build on existing developments and ensure that good practice becomes the norm rather than the exception, not constrained to local pilots and selective processes.
The costs of debt financing
Reform roundtable seminar on childcare on "the costs of debt financing" on Tuesday 3 July 2012. Introduced by Jonathan Portes, Director, National Institute of Economic and Social Research.
By Patrick Nolan
The record low cost of government borrowing in the UK has led to calls to use debt financing to fund capital spending. Jonathan Portes, Director of the National Institute of Economic and Social Research, has estimated that with an interest rate of 0.5 per cent increasing debt by £30 billion would cost £150 million a year. This estimate generated debate over how much debt financed public investment actually costs. What is the impact of inflation? Should the tactic be to simply refinance debt in the future? What would it take to trigger a flight from gilts and are there implications of this borrowing for future generations?
To explore these issues in greater detail Reform recently held a Reformer lunch with Jonathan Portes on the costs of borrowing and the implications for fiscal policy. This event was the second in a series of “austerity debates” and was held under the Chatham House rule.
The first area of discussion was the causes of low long term interest rates. This is significant as if long term interest rates are driven by weakness in the economy and not by deficits and debt then further borrowing could have little impact on rates in the future. It was argued that the risk from greater borrowing could be relatively low as there is significant spare capacity in the economy (implying less crowding out). But it was also noted that even if the Government can currently borrow at low rates this cannot continue indefinitely (there is no infinitely lived indexed linked gilt) and at some debt level market confidence would be lost.
Further, just because borrowing is cheap it should not be assumed that more borrowing will automatically increase growth. Borrowing should not be seen in isolation from what it is spent on. Areas for possible spending include infrastructure and house building and borrowing to fund tax reductions. Yet there was concern that extra spending by government would fail to be growth enhancing and that increased borrowing could reduce the efficiency of spending by reducing pressure on budgets. There was a view that with government spending 46 per cent of GDP there is scope to increase growth through improving the efficiency of existing spending rather than borrowing to spend more.
The role of the business and household sectors was also noted. The Government is not the only actor that can borrow at low interest rates and yet many businesses and households are reducing their debts. This may reflect liquidity issues but could also reflect a desire of businesses and households to build up balance sheets in the face of uncertainty. Problems in the Eurozone are a major cause of uncertainty. (As an aside it is important to note the difference between the UK’s position and that of other European countries as the UK can continue to borrow in its own currency.)
Uncertainty can also reflect doubts over a government’s medium term plan for the public finances. Borrowing will have to be paid back and so more borrowing now means taxes would have to be higher or consumption lower in the future (depending on the growth effects of more debt and what the borrowing is spent on). This, in turn, reduces incentives for investment (although there is debate over whether these conditions (Ricardian equivalence) hold when there is spare capacity in the economy).
Government borrowing also has implications for intergenerational equity. But, again, this reflects, among other things, what borrowed money is spent on. If it is used to create an asset which is passed onto future generations then this may be equitable, but there is much less of a case for borrowing to maintain current consumption. Borrowing can also create a “dead” area of public spending (spending that is “lost” on servicing debt). In this context it was discussed how the Government now is spending more on debt servicing than education, although this is not, by historical standards, unusual.
The difficulty in sticking to a medium term plan to reduce borrowing should not be underestimated. Not only is there the challenge of identifying when the “short term stimulus” should end and be replaced by fiscal prudence, in the face of an ageing population fiscal prudence will involve increasingly difficult policy choices. The UK public has a revealed preference for, for instance, keeping taxes below 38 per cent of GDP, providing public services free point of use, projecting military power onto the world and maintaining free social care to protect children’s ability to inherit houses. Yet it is not possible to have it all. It is inevitable that at some point the bill will have to be paid and the political process will have to answer some hard questions. With the speed at which the UK population is ageing this need to face up to hard decisions will come much sooner than expected.
Why is UK growth so slow?
Reform roundtable seminar on "why is UK growth so slow?" on Monday 2 July2012. Introduced by Richard Jeffrey, Chief Investment Officer, Cazenove Capital Management.
By Lauren Thorpe
Earlier this week Richard Jeffrey, Chief Investment Officer at Cazenove Capital Management, introduced the first of three austerity debates hosted by Reform. This debate was on the topic of “why is UK growth so slow” and was held under the Chatham House Rule.
The answer to the question was straightforward but politically tough – over recent “boom years” the economy had accumulated debt at a rate faster than could be matched by income growth. The wealth that was being consumed had not yet been earned, and after the party the UK found itself burdened with onerous amounts of public and private debt. This increase in debt reflects failures in fiscal and monetary policy. Interest rates were too low for too long and spending increased too quickly.
Looking forward as well as back the messages are just as hard. The UK needs to reduce its historically high levels of debt. Domestic demand needs to grow at a lower rate than GDP and fiscal policy must rebalance. Importantly, expectations for growth will need to be more realistic. The economy will be doing well to have a real rate of growth of two per cent, prolonging a recessionary feel. In short, austerity will be the new normal.
So what does this imply for government policy? A key implication is that the task of delivering growth is not just for the Government. Indeed, the best thing the Government could do for growth is to create the conditions for the private sector to expand. This should come from supply side reform. Efforts to prop up demand would either be too small to have a material impact or would need to be so large as to damage overall fiscal credibility. Curbing the overreach of the Government will also help reduce the degree to which it crowds out private activity (evidence of this crowding out can be seen through lower capital investment).
There are a number of supply side reforms that the Government could look to. The four main pillars that affect investment and growth in the private sector are: access to skills, the tax environment, regulatory burdens, and the quality of infrastructure. On skills, standards in schools must be raised so that employers do not have their productivity stifled. On tax the emphasis must be on creating an environment that is stable and consistent. Rather than increasing regulatory burdens, the Government should try to reduce them, particularly for small businesses. And finally, it is necessary to find a way to encourage private sector investment in infrastructure projects in the UK.
The picture for growth in the UK has changed. The UK is likely to experience shorter economic cycles where inflation plays an important role in shaping the real rate of growth. The next few years will require a prolonged and severe period of deleveraging. In simple terms, people need to spend less than they are earning. This may sound straightforward but following a decade of overspending, it will feel tough.
Childcare: potential insights for the UK from Denmark
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.