From the SMF Archive: Economist on Economist Violence

As I’m still relatively new to the Social Market Foundation, I’m doing a new blog series which delves into our archive of publications. There may be nothing new under the sun but there’s plenty that is new, or at least novel, in our dark library at the SMF. I’ll write about a different publication every Friday.

Today’s choice is Hutton vs Skidelsky on the future of the welfare state. This looks good. Will Hutton says we can afford higher welfare. Just raise taxes. Robert Skidelsky punches back that we need to let the people free. Hutton suggests UK taxation and public spending isn’t high by international standards. Skidelsky says this should be a matter of pride, not regret.

If none of that gives away the date of the pamphlet, then Hutton’s opener ought to give a better idea. “The case for capitalism is not at issue in this discussion,” he says for the sake of clarity. Skidelsky quotes the Czech Prime Minister within his first page and congratulates Peter Lilley for bringing welfare spending under control. That’s right, it’s 1995.

What’s intriguing is that alongside the to and fro on the level of state welfare spending there are the beginnings of a discussion about private welfare, or in other words savings. Hutton mentions this in passing, while recognising that there should be a connection – subject to a well-functioning financial system – between higher savings and higher investment. However, he does not go on to explore the ways in which individuals might be incentivised to save more.

Skidelsky’s account of the future is underdeveloped in the same way. He doesn’t seem to put much trust in the potential of higher savings or indeed of Government-stimulated investment. He puts the onus instead on private contributions towards the cost of services, suggesting that private payment will provide individuals with more control than payment via taxes.

While in the end the debate peters out (to be fair, the essays originated as remarks made at the party conferences), its continued relevance might be in this final remark from Skidelsky. The idea of co-payment for services is rising again, most recently in a report from Reform on future funding for the NHS. There are years of austerity ahead. If services are to be protected, then the choice of how to pay for them comes down to higher taxes or user charges and that is exactly the choice that Hutton and Skidelsky posed in 1995 as well.

After the then election, a Labour government – after a prudent pause – opted for higher spending funded by taxation. This time in opposition at least it is ruling out the same choice. And yet it isn’t ruling in Skidelsky’s alternative either. There might be some magic to be found in the relational state, which can deliver the same services for radically less money, or it might be that Hutton vs Skidelsky will be worth another read. What Skidelsky misses in his argument though is another way through, the adoption of policies to boost savings and indeed insurance rather than resort to user charges. This is where the debate about funding social care has headed in recent years. There is yet to be the same change in the debate when it comes to welfare. And perhaps Hutton is right, higher savings can propel higher investment too, which in turn might – in Hutton’s view – support a higher rate of growth. There are lots of ways in which this transmission mechanism might break down and it’s worth saying that Thomas Piketty – in his book, Capital – doesn’t accept that there has to be a link between higher savings and higher growth, they can be disconnected from each other and often enough have been, in his account.

But there is something intriguing here, and more hopeful than either several more years of cuts in public services or widespread user charging.


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