Educating Britain

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What are we worth?

The Government is right to raise tuition fees, but the row masks a bigger problem with education in Britain.

Amidst riotous scenes in central London on Thursday, MPs voted narrowly to endorse the Government’s plans to triple the cap on tuition fees paid by English university students from £3,290 per annum to £9,000 from 2012.

The move, which is a watered-down version of the recommendations proposed by Lord Browne, the ex-boss of BP tasked to review university funding by Labour in 2009, has been controversial. In the past month students have staged demonstrations, sit-ins and occupations in schools and universities across the country, with a few incidences of violence. All in all, though, the decision is a wise one, on several accounts.

The idea of shifting the burden of tuition from the taxpayer to the student is not new. Labour first introduced tuition fees in 1998, at a level of £1,000, and replaced universal grants with student loans. It then tripled fees to £3,250 in 2007. Like a tax, once tuition fees were introduced, the rate could only go up. The coalition’s plans are simply continuing that trend, albeit with a big jump in figures (but then, tripling tuition fees is what Labour did in 2007).

The introduction of tuition fees reflects a shifting consensus on the taxpayer’s responsibility for funding higher education. With the number of university graduates increasing significantly in the past decade, the cost of funding them has grown exponentially too. Not only is it increasingly expensive, it represents an ever-growing transfer of wealth from the poor to the rich. According to the BBC on average it costs £7,000 a year to provide someone with a university education, and £3,250 covers just about half of that. Most of the other half has to be coughed up by taxpayers, most of whom have not had the privilege of going to universities themselves. Is it fair to ask them to fund others to have that privilege? Graduates in general earn higher in their lifetimes than non-graduates, and it is quite perverse to ask the poor to pay for the richer-to-be.

But a more worrying problem about the value for money paid to fund university education is how devalued it has become. As said, the university population has expanded, but quantity does not mean quality. The Organisation for Economic Co-operation and Development, an international organisation made up of developed states, recently published its triennial report on the academic achievements of teenagers in its member states, including Britain. The report showed that improvements in Britain’s education standards have not kept up with improvements elsewhere, meaning that its position on the global league table has once again slipped, with difficulties especially in reading and numeracy. Below-average secondary school students do not suddenly become above-average university students—the increase in the university student population does not necessarily reflect a nation becoming smarter. Although a separate OECD study has stated that Britain spends less on higher education as a percentage of GDP compared with many other countries, it does not mean that simply splashing out more on students is the answer.

Critics of the Government’s plans fear that bright students from poorer backgrounds will be discouraged from applying to university because of the debt burden. It is a legitimate worry, although it is misplaced. First, tuition fees are not to be paid upfront. A graduate will only begin to repay fees when his or her income exceeds £21,000—a salary comfortable for most singletons (especially if outside London). Any outstanding debt will be erased in 30 years, meaning that there is a definite end to repayments. If a graduate from a low-income family continues to earn only a low income, he or she need not pay.

But I think the big obstacle stopping bright but poor students from going to university is culture rather than affordability. Going to university is a big investment in someone’s life, and what many poorer students seem to lack is proper guidance. A school with a traditionally low university-going rate is not likely to have in place a high-quality university counselling service, giving potential undergraduates good advice on applying. A historical lack of graduates in poorer neighbourhoods cannot make university sound like an attractive option. Therefore the Government’s schemes to actively promote the benefits of higher education, even though it is increasing fees, are welcome.

The problem of low university attendance from poorer communities is reflective of a bigger problem about the state of education in Britain. Although the Labour Government had thrown a lot of cash into education in the past 13 years, it has failed to yield results, as the disappointing OECD report shows. The issue is clearly not money, but attitudes and standards. Part of the fault lies with the currently disincentivising benefits system, which is already under a much needed overhaul. The Government’s belief that money is not everything, partly forced on it by the country’s large public deficit, is beginning to change the country’s view on education. The social status of teacher needs to be improved. Schools need to have more freedom to operate. The standards of education should be raised. Vocational training should once again occupy a greater place in lifelong learning, so that universities can be left to the truly academically gifted to enter, but without leaving non-graduates feeling marginalised.

Although not all of the Government’s plans for reforming the education sector are universally welcome, the courage it has shown to stand firm on its plans, especially in the face of irate protesters on its doorstep, may ultimately pave the way for a smarter, more prosperous Britain.

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Rethinking the welfare state

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Jobseekers outside a Jobcentre Plus

"Will work for food? As you should!"

In 1948, Clement Attlee’s acceptance of the Beveridge report paved the way for Britain’s transformation into a “welfare state”. Sixty years later, after piecemeal additions and amendments by successive Governments, Britain’s welfare system has grown into a complex and expensive behemoth, with nearly 50 types of payments available, administered by many different agencies, and the welfare budget gobbling up more than a quarter of Britain’s public expenditure, while costing more than what the Government receives in income tax.

It is blindingly obvious that the system needs a massive overhaul. Not only does it need simplification, but the gaping hole in the nation’s public finances means that welfare reform must reduce the burden on the public purse. Those aims were the two key motivators of the reform package formally announced this week by the Secretary of State for Work and Pensions, Iain Duncan Smith. His aim is to ensure that people are not given the illusion that a life on benefits pays better than a life in employment, and the flagship proposal is to condense dozens of work-related benefits into a single “Universal Credit”, topped up any extra circumstances such as disability. Meanwhile, other benefits will be reduced in value and eligibility, or scrapped altogether. At the heart of it, the current phase of welfare reform is not just about simplification or cost-cutting, but fundamentally changing the relationship between the British state and citizen forever.

There is no doubt that a good welfare system is essential for modern society. It is right that society rewards those who have contributed (e.g. with pensions), supports those who are in difficulty because of circumstances beyond their control (e.g. with unemployment and disability benefit), or invests in actions that will generate positive economic and/or social externalities (e.g. child benefit). But there are strong cases for root-and-branch review of the benefits provided under the system, particularly given changes in social circumstances, disincentives created by benefits, the poor direction of certain benefits, and the negative consequences of undue Government influence in the market.

An example of a benefit that needs reform because of changing social circumstances is the state pension. It is widely recognised that the age when people can begin to claim state pension should rise. Under the Government’s plans, such changes have only been sped up; the fundamental argument is not contested.

The case for disincentives created by benefits is also well-proven. The current system is rigged in a way so that people are discouraged from taking low-paid jobs. Slowing down the speed with which unemployment benefits are withdrawn when someone finds work is sensible, and although there must be penalties for abusing the system, the Government’s plans are, in some cases, overzealous, such as taking away job-hunting time by requiring certain categories of the unemployed to undertake menial tasks.

Thirdly, some existing benefits are so poorly directed that they might as well just be giveaways. Take, for example, the health in pregnancy grant, which is about to be abolished. All a woman has to do to receive a no-questions-asked £190 from the taxpayer is to be 25 weeks pregnant. Not only is this almost duplicated by the Sure Start maternity grant, which pays a mother £500 for having a baby, there is no control over how the money will be spent. Much more effective in terms of investing in our nation’s children is the Healthy Start scheme, which provides expectant mothers with vouchers to buy milk and other recognsied essentials to a healthy baby.

The final problem with some of today’s benefits is perhaps the most controversial—Government interference in the market. One of the most hotly debated benefits to be reformed is housing benefit. Currently, it means that the Government pays low-income households to live where they would normally be unable to afford. There are no criteria for recipients to be in employment. I find the principle of this benefit to extremely unsettling—bordering on bonkers.

Simply put, the benefit is gravely unfair to those who are taxed to pay for it. Why should a working person who cannot afford to live in a desirable area subsidise someone who does not work to live in that same area? Government subsidies to landlords are also inefficient. Not only are such transfers not directly economically productive, they have the effect of driving up rent in desirable areas, adding to the injustice suffered by tax-paying workers who are priced out from desirable areas even more.

Critics say that reducing housing benefit will drive poor people out of areas that they currently live in. This, they argue, will destroy social fabric and cause the ghettoisation of cities, where the poor are hemmed into undesirable parts of town where jobs may be lacking. Yet this argument is deeply flawed. First, community is fluid. People have always migrated in and out of different areas, changing the community with such movements. The argument for paying people to stay put in order to retain community bonds is, in the long run, a poor one.

Secondly, “ghettoisation”, if carefully managed, can have benefits. No longer are certain parts of town naturally geographically undesirable, as they used to be in the industrial revolution. Undesirable city districts are so because of a historical lack of investment. By allowing people to naturally move into parts of town that they can afford themselves, the Government will find it easier to concentrate on improving infrastructure and life chances for the whole area’s residents, rather than leave different authorities to deal with scattered pockets of poverty within their areas. The Government can also subsidise transport for poor people, so that they can still travel to where jobs are. The subsidy can be considered as an indirect investment in infrastructure, which is infinitely better than subsidising private landlords, who may not recycle the money back into the economy.

For the past sixty years Britain’s welfare system has served the country extremely well, but to continue to be fit for purpose it requires fundamental changes to how it functions. The Government’s plans are bold, and they are the right steps towards ensuring that society continues to reward those who work hard, and protect those who are vulnerable.

The Comprehensive Spending Review

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"It's easy! Cut your spending, dummy!"

So the axe finally has fallen. After a summer of multiple announcements of public expenditure cuts, the crescendo was reached this afternoon when Chancellor George Osborne delivered his statement on the comprehensive spending review to a packed House of Commons. Over the next four years, most government departments will be expected to reduce their budgets by an average of 19%. Health, which was ring-fenced, is only to receive a marginal increase in its budget. By the end of this Parliament, Britain’s structural deficit—the deficit that the government still runs even if the economy is operating at full capacity—should be eliminated. Together the spending review will fundamentally change how the British economy will be structured, possibly for many years to come.

Keynesian economists and the Labour party worry that contractionary fiscal policy at a time when private sector recovery has not been secured would dampen aggregate demand and trigger a double-dip recession. They have a point. This is especially since the normal engine to private sector-led recovery, the financial sector, is still not operating at full capacity yet. If the public sector is going to cut now, who will fund private sector recovery?

While the argument is valid, it misses a key point. Running public deficits may be important to stimulate economic recovery, but deficits do not finance themselves; money has to be borrowed from elsewhere. Partly to rescue the banks from failure, public sector borrowing has reached stratospheric heights, standing at more than 11% of Britain’s gross domestic product at the time of the Mr Osborne’s emergency Budget in June.

The Labour government was right to take decisive action to stabilise the banking sector, but it also created a problem by borrowing so much extra. Loans mean interest, and as Britain’s debt increased, so did its interest obligations. This year alone, £43 billion will be paid to financial institutions simply to service Britain’s debt. That amount is more than what the government spends on the police, housing and the environment, industry, or defence. Servicing debt represents a deadweight loss to the British economy, as the money is not spent to stimulate the economy. The more we borrow, the higher the debt interest, and the greater the deadweight loss to society. Therefore it makes much sense to rein in spending in order to reduce our borrowing.

The Keynesian argument isn’t completely dead yet, however. The government has pledged to protect many investment projects in infrastructure, research, sunrise industries, education and enterprise creation. Public sector job losses, projected to amount to half a million over the next four years, will be achieved mainly through natural wastage and unfilled vacancies. When money is tight, one should spend on what will be most likely to guarantee greater revenue in the future. 

Almost fortunately, the cuts are being implemented by a coalition government whose dominant party is ideologically inclined to have a smaller state*. The spending cuts match the natural ideology of the Conservatives: shrinking the state and encouraging the private sector, local government and civil society to take more of the burden of running the country. That will make implementing the whole package of reforms a smoother and more logical process. Reform in schools and the benefits systems and updating Britain’s defence capabilities to reflect the post-Cold War world should all eventually contribute to long-term reductions in public spending and more effective governance.

It won’t be a surprise to readers when I say that I feel that the broad direction of the government’s plan is right: debt over-accumulation is generally bad, and I am all for a smaller state in exchange for a larger private sector-led economy and volunteer-led society. In any case, I haven’t got much choice; credible or not, the coalition’s plans are the only ones on the table at the moment. For all its predictable protestations, the Labour party has yet to come up with any kind of updated proposal to sort out the economy and the public finances (the 19% spending cuts announced today are on par with Labour’s initial proposals of 20% anyway). Perhaps Alan Johnson is waiting for his copy of “Economics for Dummies” to arrive from Amazon. Britain now badly needs the opposition to get its act together. Let’s hope it gets it sooner rather than later.

* I don’t know why British politicians, including the Prime Minister, use “ideology” as if it’s a dirty word; it’s just a synonym for a set of principles, and nobody complains about government by principle. In fact, the years of state expansion under Labour have, I suspect, been in part driven by the socialist instinct of “Father knows best”. Under Labour, government grew by piecemeal, building up huge complexities and inefficiencies. It makes sense now to wield the shears to trim away the overgrown branches. After all, if a crisis doesn’t force us to take drastic action, what will?

Welfare reform: good news for Britain

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Iain Duncan Smith

Iain Duncan Smith: welfare revolutionary

Plans to radically overhaul Britain’s benefits system have been unveiled this week, ahead of the government’s spending review later this month. They were the result of a long-running struggle between the Chancellor George Osborne and the Secretary of State for Work and Pensions, Iain Duncan Smith, with the latter emerging victorious.

According to the government’s budget in June, welfare will cost the taxpayer £194 billion this year, a whopping 27.8% of government spending, and £44 billion more than the government’s income tax receipts. The welfare system is not only expensive, but complicated too. Not only are there multiple payments for the same individual or household, but the rules regarding when the money is withdrawn discourage the unemployed from taking on jobs.

The welfare reform announced this week by Mr Duncan Smith at the Conservative party conference aim to tackle complexity first, cost second. Most of the current benefits will be collated into one super-benefit, with exceptions such as disability living allowance. The money will be withdrawn gradually as people’s incomes rise, encouraging them to work. People who have been unemployed for more than 6 months will also get a government grant to start a business.

The welfare reform package hints at significant start-up costs, which are the grounds of objection by the Treasury, whose aim is to make Britain’s ends meet. After all, any increase in the welfare budget to finance the reform must be met by savings somewhere else. No concrete details have yet emerged on how the reform will be funded, and the Treasury is still insisting on saving some £11 billion from the welfare budget this year.

It is entirely normal for new projects such as the welfare reform package to incur a start-up cost, and completely understandable for the Treasury to be jittery about funding them at a time when the public funding gap is so wide. But welfare reform is essential to placing Britain on a path of better recovery. For many years now the press have been circulating stories of dishonest benefit scroungers who manipulate the system to live off the backs of hardworking taxpayers. Of course, many people who stay trapped on the system may have found it simply uneconomical to take up paid work, and they cannot be blamed. Most people at least agree with welfare reform in principle. Ensuring that the welfare system does not hold people back from taking employment not only helps to repair the nation’s finances in the long run, but it can work magic in many areas in Britain that need reform, because employment provides not only a financial boost to individuals, but a psychological one.

The dispute between the Treasury and the Department for Work and Pensions reveals an important dilemma facing the government as the cuts to public expenditure start to bite: how to transform Britain for the better with less money. The government has so far been careful to ensure that at least outwardly, the poorest are shielded from the worst of the cuts (read: the worst of the cuts, not the cuts itself). Announcing the withdrawal of child benefits from higher-rate taxpayers is a positive move, even though it breaks an election promise by the Conservative party. So is the capping of benefits to average household income and plans to recognise marital commitment in the tax system.

As the cuts to public expenditure begin to bite, there will no doubt be pain to every sector of society. Rants from the Left about the pain being unfair are essentially pointless: nobody in the right mind thinks that pain to themselves is fair. However, such pain is essential for the whole of the country to plug the massive funding gap that Labour party had left with Britain. The country as a whole did not deserve all the benefits it was showered with by Labour during the boom years, since there was no sustainable way of funding them. If it takes big cuts and a revolution to drag the benefits system back into reality, so be it.

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