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Keeping on top of welfare reform - tutor2u

Scandinavia provides evidence for Osborne’s war on welfare

Paul Ormerod

15th July 2015

George Osborne’s budget has been met with predictable outrage from the poverty lobby. The cuts to the welfare budget will allegedly create shocking levels of deprivation. Young people in particular, it is stated, have been singled out for punitive measures. On the face of it, the arguments do seem plausible. Many people on benefits will get less money. 

But slashing these payments is a policy which is very popular with the electorate as a whole. The welfare state, created with the best of intentions, is increasingly seen not as a provider of services to the population as whole, but as a means of transferring money to those on benefits.

A fascinating new monograph by Nima Sanandaji looks in detail at the welfare systems of the Scandinavian countries over the past century.

Its main title, ‘Scandinavian unexceptionalism’, could mean anything. But the sub-title rams the message home: ‘Culture, markets and the failure of third-way socialism’. Greece shows the failure of socialism when other countries are expected to pick up the bill. Sanandaji writes about the failure of socialism when the tab for a large welfare state is handed to people inside the country itself.

Although they seem harsh, Osborne’s policies will eventually prove to be in everyone’s interests, including those of the poor.

The economic success of the Scandinavian economies long predates their large welfare states. Between 1870 and the Second World War, for example, Sweden was the fastest growing developed country in the world. Their success was not a miracle, but was based on standard ingredients such as an open economy, competition in domestic markets, the rule of law, and reasonable levels of taxation.

Even in 1955, the share of taxation in GDP was lower in Sweden, Denmark, Finland and Norway that it was in the UK. In the case of the former two, the tax take was low by the standards of the rich nations at the time, being in the low 20 per cent range, very similar to the United States.

The Scandinavian experiment of high taxation and a generous welfare state only began in the 1970s. By 1985, whilst the tax take in the US had remained at 25 per cent, almost the same as in 1955, it was 46 per cent in Sweden and 48 per cent in Denmark.

From the 1970s, the previously dynamic Swedish economy virtually stalled. Between 1970 and 2000, net job creation in the private sector was zero. Sweden fell from 4th position in the OECD table on living standards to 11th. 

Taking into account sick leave, which grew enormously, and early retirement, the Nobel Prize winner Thomas Sargent calculates that the true rate of unemployment in Sweden since the mid-1990s has varied between 14 and 18 per cent.

The Scandinavian countries, with the partial exception of oil-rich Norway, began to scale back both taxation and welfare provisions in the 21st century and their economic performance have improved. Correlation does not prove causation, but the Scandinavian experiences suggest that apparently generous welfare states eventually damage everyone’s prosperity.

For A2 students, but good for the Y12s too

Andrew Clark Deputy Business Editor

Last updated at 12:01AM, July 15 2015

The head of one of Britain’s biggest retail chains hit out yesterday at a proposed £2 billion apprenticeship levy, accusing the government of feeding an army of consultants by creating red tape in subsidies for on-the-job training.

Sebastian James, chief executive of Dixons Carphone and a close friend of the prime minister, delivered a scathing critique of one of the government’s core business policies, highlighting inconsistency, bureaucracy and the cost in public subsidies.

At The Times CEO summit, Mr James confronted Sajid Javid, the business secretary, about proposals in last week’s budget to impose a levy on companies that would then be ring-fenced to pay for on-the-job training.

“The apprenticeships scheme seems very bureaucratic,” said Mr James, whose company has employed 550 apprentices in the last five years.

“I’m concerned that you charge people on the one hand, then give the money back using some kind of voucher scheme that will no doubt spawn an industry of consultants and add a lot of friction and cost.

“I’m worried that this isn’t the most efficient way to drive either productivity or apprenticeships.”

Mr James’s remarks echo frustration in business circles over the way that ministers are handling apprenticeships.

George Osborne has set a goal of creating three million apprenticeships in England this parliament. Experts have predicted that the new levy may need to raise £2 billion annually, on top of the £1.5 billion already spent out of general taxation.

The Federation of Small Businesses said that ministers have become obsessed with creating vast numbers of apprentices, rather than concentrating on the quality of schemes.

“The increasing focus on vocational on-the-job training is the right approach but we must not let the drive for greater numbers come at the expense of quality,” John Allan, the federation’s chairman, said.

“While we welcome the exclusion of small firms from the proposed apprenticeship levy, we urge government to talk further with businesses about the wider implications and implementation of the levy.”

The method of support for apprentices has been through several iterations since a review in 2012 by Doug Richard, the former Dragon’s Den panellist, found that there had been a “drift towards calling many things apprenticeships which, in fact, are not”. Matthew Hancock, the former business minister, offered two proposals in a consultation last year — a scheme whereby apprenticeships would be funded through employers’ tax refunds or through credit accounts with joint contributions from the public and private sector.

The proposals were rejected and replaced by a plan championed by Nick Boles, the minister for skills and equalities, whereby businesses would be given a voucher to spend on training at higher education colleges.

Adam Marshall, director of policy at the British Chambers of Commerce, said that employers were split over the way they wanted apprenticeships run. Some, particularly large companies, wanted full control over training while others preferred to let government organise and pay for such support.

“Businesses are not monolithic. Some are incredibly frustrated with the way the apprenticeship and vocational education system works. Others depend on it,” Mr Marshall said.

Dixons Carphone trains apprentices in repairs of household electrical items, delivery roles and customer services and at any one time has about 160 apprentices on its payroll.

Mr James was at Eton and Oxford with David Cameron and the two men’s families have spent holidays together.

In an interview with The Sunday Times last month, Mr James said that Mr Cameron was doing a brilliant job and that they never talked about business. “I think we have to be incredibly careful not to stray over the line. It just wouldn’t occur to me,” he said.