Opinion: Shifting the unequal state

21 April 2008

Liberal Democrat Voice, Elizabeth Truss and Lucy Parsons, 21 April 2008

Raising social mobility: an opportunity to empower individuals to improve their own capability

There is a cross-party consensus that the UK has a social mobility problem. Gordon Brown has called it “the great mission of the next decade”. Recent discussion has focused on the abolition of the 10p tax rate which is seen as a blow to those on low incomes. The Liberal Democrats have called it a “betrayal of the most needy in our society”. However, income taxes are just one piece of the vast tax and benefits jigsaw puzzle.

What is required to improve social mobility is a comprehensive review of the system and a new and co-ordinated policy approach across government. If Gordon Brown does not take the opportunity to do this, he will leave the way open for the Opposition parties, and the Liberal Democrats could capitalise on the demand for a new approach.

A new report published today by the independent think tank Reform argues that successive governments have sought to address the problems of poverty and low social mobility through higher spending on poverty relief and public services. These policies have largely failed to deliver the desired long-term effects. The unintended consequence has been a “why bother” economy in which a significant proportion of the adult population have neither the capability nor the motivation to succeed.

While European counterparts have seen significant improvements in social mobility in recent years, in the UK it has remained worryingly static - the moniker of Europe’s “divided society” is fitting. Globalisation and technological advance have meant that education and skills have become vital for workers to be able to share in the growing prosperity. But top-down programmes implemented by successive governments have focused on direct intervention in individuals’ lives, and have largely failed to take advantage of the increased return to skills.

Public services are biased towards the affluent who are better able to shape the nature of public spending to their own advantage. The complex system of benefits and high marginal tax rates is reducing incentives to increase work hours and earnings, and to come off benefits. Increases in the tax burden are disproportionately falling on incomes and the upper rate threshold is a key “mobility block” discouraging people from taking more responsibility at a managerial and professional level. And increased central direction of state education has perpetuated inequity in attainment and preserved the divide between elite and inner city education.

The result is not only a negative social impact but a large economic cost of wasted talent - up to £32 billion per year or £1,300 for each household. A new approach is needed, starting from the point of raising personal capability and radical education reform. The key determinants of future success will be motivation and attitude as much as hard skills. The high social mobility countries in Scandinavia provide a better model of decentralised education systems based on choice and diversity.

A serious review of the vastly complex tax and benefit system is needed to shift the focus to incentivising work rather than trapping people with high marginal tax rates. A move towards lower government intervention and taxes would enable the development of the “capability margin” – the resources available to individuals to invest in themselves.

Over recent years the Liberal Democrats have moved in this direction. In January, the Liberal Democrats established a Commission on Social Mobility to investigate the causes of low social mobility and recommend policy changes to address these. In his key speech on social mobility in the twenty-first century earlier this year, Nick Clegg said that the solution lay in a more decentralised and diverse education system which “harnessed the energy and enthusiasm of private individuals” to drive up standards and choice.

At a time of global change, when all parties are considering their approaches to tackling poverty and the skills shortage, a party who adopts these ideas will become the most credible advocate of removing the blocks on mobility.

* Elizabeth Truss is Reform’s Deputy Director and Lucy Parsons is Reform’s Economics Research Officer. Shifting the unequal state: From public apathy to personal capability is available at Reform’s website.