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The 2020 Public Services Trust Blog

Friday, May 22, 2009

Conditionality 2020

By Henry Kippin

James Purnell spoke at the 2020 PST yesterday, giving his take on the future of welfare in Britain.  I thought he spoke well and had some sound ideas, even if the gathered press seemed more interested in his denial of alleged tax avoidance…


His vision was of a ‘proactive welfare state’:  “An active welfare system alone simply requires people to work.  A proactive Welfare State seeks to create those jobs and opportunities.  It is based on supportive conditionality and it requires up front investment.” 


This effectively means more active labour market policies, and an emphasis on lowering the barriers to work.  To this end, the Secretary of State argued that “universal childcare is the foundation of the Scandinavian welfare systems which progressives in the UK rightly aspire to.  In these countries support is both more generous and more conditional, where investment in people is the route to higher employment and lower child poverty.“


But as my colleague pointed out after the speech, the trade-off for this (in Scandinavia at least) is public acceptance of a higher level of personal taxation.  Whether the UK is ready to go down this road is certainly up for debate…


One other phrase that stuck in my mind during the speech was ‘supportive conditionality’.  The Secretary of State argued that welfare conditionality was necessary, but should be cushioned by a raft of supply and demand-side measures – matching “responsibilities to real power and opportunities.”  This is a re-balancing act that gets to the very heart of the relationship between citizen and state in all kinds of areas, not only welfare.     


Conditionality has always been a loaded phrase for those working in international and development politics.  So I was intrigued to see an article in World Politics Review (published the same day) on the new, relaxed ‘International Monetary Fund 2.0’. 


The article suggests that the IMF is “repositioning itself as a lender for crisis prevention more than crisis resolution. The fund (has) created a new lending instrument known as the Flexible Credit Line…aimed at reassuring international investors by injecting essentially condition-free equity into qualifying countries with strong records of macroeconomic performance.


A cynic would suggest the Fund is simply taking advantage of a captive new western market (or indeed serving the very countries that capitalise it), but, apparently, “conditionality reforms for lower-income countries are planned for release this summer.


Lessons from both Purnell and Strauss-Khan?  One is that conditionality can only work when responsibility and agency are shared.  There will generally be a sharp power imbalance between those who need welfare support, and those institutions who are delivering it – but the whole point is that this support should start to redress this imbalance, affording citizens (or even states) the means to demand more and better from themselves, or even leave the system altogether.

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Posted by Henry Kippin at 9:43 am
Wednesday, March 25, 2009

It’s all just a little bit of history repeating…

By Ben Lucas

Today’s papers lead on Governor of the Bank of England; Mervyn King’s warning yesterday that the economy cannot afford another substantial stimulus package because of the state of public finances. It has been reported that this has made public the tensions between the Bank of England and the Treasury on the one hand and No10 on the other. Apparently, the Bank of England and the Treasury are increasingly concerned about the deterioration in public finances, whilst the Prime Minister wants to keep open the option of further stimulus measures in the budget and fears the economic consequences of focusing primarily on debt reduction.

What is striking about this is how much it mirrors tensions which have existed at previous points in recent British history. Bernard Donoghue’s excellent “Downing Street Diary Vol 2. – 1976-79), launched at the RSA late last year, reveals similar battles between the Treasury, the Bank of England and the rest of government during the tense negotiations with the IMF in 1976. By 1976 the Treasury was increasingly taking a monetarist line, so its pre-occupation was with reducing debt, strengthening the pound and tightening money supply. This was strongly backed by the Bank of England. Jim Callaghan and the rest of the Government frequently felt that they were backed into a corner by the Treasury and the Bank and worried about the consequences on jobs, the wider economy and public services of Treasury orthodoxy.

There are of course some significant differences between now and 1976. We are in the middle of a global and not just British financial crisis this time round. Whereas Callaghan was infuriated by leaks from the Bank of England, now Gordon Brown has given the Bank independence and Mervyn King’s views were given on the record. In 1976 the Cabinet was locked in lengthy debates and negotiations about how to respond to the crisis, this time power is much more firmly located in No10, No11 and the Bank of England.

One other interesting and unexpected feature of the current situation is that the power balance between No10 and the Treasury appears more equal than had been expected; it had been assumed that Gordon Brown would be an all powerful PM, with the Treasury much weaker than at any point in recent memory. But the logic of economic events has strengthened the Treasury and Bank of England’s hand and they are much more significant in the balance of power than anyone would have guessed. This is why Mervyn King’s intervention was significant.

Out of all this we are beginning to see the contours of where future political debate will lie. Much of this will be about the role and efficacy of the state, and about what its scope and form should be. Some within the Government will want to push ahead with further counter cyclical stimulus measures in the budget, even at the risk of worsening the debt picture – in order to reduce the impact of the recession, and to maintain a political dividing line with the Conservatives. The Treasury and the Bank of England will oppose this, increasingly reverting to type as advocates of fiscal restraint. The Conservatives, albeit warily, are attaching more and more importance to fiscal rectitude and reducing debt.

A tougher attitude to debt across the main parties will necessitate cuts to public service spending on a much greater level than anticipated in the PBR. So the choice between the parties may not be one of cuts vs. investment, but over the scale of cuts. This will make the Government’s current battle-line difficult to maintain.

What neither party are yet talking openly about are the big choices which will have to be faced about public spending and public services. The question for progressives across the party divide is what would a progressive strategy for public spending retrenchment look like?


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