S OCIAL J USTICE STRATEGIES FOR NATIONAL RENEWAL With conservative policy in disarray, and the opposition parties striving to offer credible alternatives, Social Jus- tice will be the most important and influential book of the year. Radically confronting the bankrupt dogmas of the free-market economy, Social Justice presents a forward- thinking programme for social and economic reform, showing how intelligent welfare and new economic opportunities can be the driving force for national renewal. The Commission on Social Justice is an inde- pendent body set up by the late Rt Hon John Smith MP under the auspices of the Institute for Public Policy Research (IPPR). Chaired by Sir Gordon Borrie, former Director-General of Fair Trading, its mission is to S OCIAL J USTICE Strategies for National Renewal THE REPORT OF THE COMMISSION ON SOCIAL JUSTICE Published by Vintage 1994 2468 109753 1 Copyright © 1994 The Commission on Social Justice/ Institute for Public Policy Research The right of The Commission on Social Justice/Institute for Public Policy Research to be identified as the authors of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act, 1988 This book is sold subject to the condition that it shall not by way of trade or otherwise, be lent, resold, hired out, or otherwise circulated without the publisher’s prior con- sent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser Vintage Random House, 20 Vauxhall Bridge Road London SW1V 2SA Random House Australia (Pty) Limited 20 Alfred Street, Milsons Point, Sydney New South Wales 2061, Australia Random House New Zealand Limited 18 Poland Road, Glenfield, Auckland 10 New Zealand Random House South Africa (Pty) Limited PO Box 337, Bergvlei, South Africa Random House UK Limited Reg. No. 954009 A VINTAGE ORIGINAL ‘The scourges of poverty, unemployment and low skills are barriers, not only to opportunities for people, but to the creation of a dynamic and prosperous so- ciety. It is simply unacceptable to continue to waste our most precious resource - the extraordinary skills Rt Hon John Smith QC, MP 1938-1994 C ONTENTS Preface ix Abbreviations xii List of Figures and Tables XV Acknowledgements xvii Executive Summary 1 Introduction 15 Part I: The UK Today 1. The State of the Nation 27 Part II: What’s Wrong? What Can Be Done? 2. Diagnosis: The UK in a Changing World 61 3. Prescription: A Tale of Three Futures 94 Part III: Strategies for the Future 4. Investment: Adding Value Through Lifelong Learning 119 5. Opportunity: Working for a Living 151 6. Security: Building an Intelligent Welfare State 221 7. Responsibility: Making a Good Society 306 8. Taxation: Investing in Ourselves 374 Conclusion: The Need for Change 397 SOCIAL JUSTICE Written and Oral Evidence 400 Commission Terms of Reference 412 Commission Publications 413 Commission Outreach Visits 415 P REFACE The Commission on Social Justice was set up in December 1992 at the instigation of the late Rt Hon John Smith QC MP, then Leader of the Labour Party. John Smith allied a passion for social justice with a vision of economic renewal; his early death robbed his party and the country of a principled advocate of change. We hope this report will be seen as one legacy of the time and energy he devoted to public life. The Commission was launched in 1992, the fiftieth anniversary of the pathbreaking Beveridge Report Social Insurance and Allied Services, which became the foundation of the welfare state in the UK. The Commission’s job was to carry out an independent inquiry into social and economic reform in the UK; the terms of reference are listed on page 412. Commissioners served in a per- sonal, part-time, unpaid capacity; their names are listed below. The Commission was based at the Institute for Public Policy Research, the independent, left-of-centre think-tank. It met six- teen times. Detailed work was done in three panels of Commis- sioners, covering ‘work and wages’, ‘money and wealth’, and ‘services and communities’. The first panel was greatly assisted by the expertise of Hilary Metcalf of the Policy Studies Institute. The Commission undertook eleven outreach visits around the UK; details of these visits can be found on pages 415—418. We are grateful to all the people who helped make this part of our ix A BBREVIATIONS AEEU Amalgamated Engineering and Electrical Union ALBSU Adult Literacy and Basic Skills Unit A Levels Advanced Levels ANC African National Congress BA British Airways BBC British Broadcasting Corporation BSI British Standards Institution CAB Citizens Advice Bureaux CAT Credit Accumulation & Transfer CBI Confederation of Business Industry CDF Community Development Fund CLES Centre for Local Economic Strategies CNAA Council for National Academic Awards CPAG Child Poverty Action Group CRE Commission for Racial Equality CSVs Community Service Volunteers DM Deutschmark DSS Department of Social Security DTI Department of Trade and Industry EC European Community ECU European Currency Unit EMA Education Maintenance Allowance EOC Equal Opportunities Commission ERM Exchange Rate Mechanism ESOPs Employee Share Ownership Plans ET Employment Training EU European Union FE Further Education FT Financial Times XII ABBREVIATIONS FTSE Financial Times Stock Exchange 100 Index G7 Group of Seven Major Industrialised Countries GATT General Agreement on Tariffs and Trade GCSE General Certificate of Secondary Education GDP Gross Domestic Product GLC Greater London Council GNP Gross National Product GNVQs General National Vocational Qualifications GPs General Practitioners HAG Housing Association Grant HE Higher Education HPAEs High Performing Asian Economies ICA Invalid Care Allowance IFS Institute for Fiscal Studies ILA Individual Learning Account ILMs Intermediate Labour Markets JET Jobs, Education and Training Programme LA Local Authority LB Learning Bank LEA Local Education Authority LEC Local Enterprise Company LEL Lower Earnings Limit LETS Local Exchange Trading Systems LPU Low Pay Unit LSE London School of Economics MIRAS Mortgage Interest Relief at Source MITR Mortgage Interest Tax Relief MMC Monopolies and Mergers Commission NACRO National Association for the Care and Resettlement of Offenders NAFTA North American Free Trade Agreement NAO National Audit Office NATO North Atlantic Treaty Organisation NCE National Commission on Education NCRA National Community Regerneration Agency NCVO National Council for Voluntary Organisations NCVQ National Council of Vocational Qualifications NHS National Health Service NI National Insurance NICs National Insurance Contributions NIT Negative Income Tax xiii SOCIAL JUSTICE NSPP National Savings Pension Plan NVQs National Vocational Qualifications OECD Organisation for Economic Co-operation and Development OPCS Office of Population Censuses and Surveys PSBR Public Sector Borrowing Requirement PSI Policy Studies Institute R&D Research and Development RSA Royal Society of Arts SERPS State Earnings Related Pension Scheme SMP Statutory Maternity Pay SRB Single Regeneration Budget SSAC Social Service Advisory Committee SSP Statutory Sick Pay TAPs Training Access Points TECs Training and Enterprise Councils TGWU Transport and General Workers’ Union TPAS Tenant Participation Advisory Schemes TUC Trades Union Congress UB Unemployment Benefit UCW Union of Communication Workers UEL Upper Earnings Limit USDAW Union of Shop, Distributive and Allied Workers VAT Value Added Tax WHO World Health Organisation YT Youth Training xiv L IST OF F IGURES AND T ABLES Figures 1.1 A Few Get Richer 29 1.2 Something for Nothing: Top Pay Rockets 30 1.3 Inequality is Rising 31 1.4 Poverty is Rising 32 1.5 Diverse Fortunes: Pensioner Inequality is Rising 33 1.6 Men Not at Work 34 1.7 More Unemployed, for Longer 35 1.8 Women at Work 37 1.9 Bottom of the Learning League 40 1.10 Learning Improves Earning 41 1.11 Infant Mortality: Class Still Counts in Britain 43 1.12 Killed by Class: Children Killed in Traffic Accidents and Social Class 44 1.13 Dying from Poverty? 45 1.14 Inequality is Bad for Your Health 46 1.15 Richer Economy, Poorer Society? 47 1.16 Streets Ahead: Homelessness in Europe 1991/2 48 1.17 Crime Rises ... and Rises 49 2.1 Catching Up: Later Growth is Faster Growth 68 2.2 The UK Cannot Complete on Low Wages 69 3.1 The Link Between Investment and Productivity 100 4.1 Rich Pickings 137 4.2 The Learning Bank 142 5.1 Regulation and Prosperity Can Go Together 163 5.2 Work and Wealth Creation 168 6.1 No Better Off on £10,000 a Year 246 8.1 The Growth Dividend 375 xv SOCIAL JUSTICE 8.2 Where the Money Goes 377 8.3 Employer Social Contributions in Europe 388 Tables 5.1 UK Employment Trends by Sex 153 5.2 The Decline of Collective Bargaining 198 8.1 Tax at the Top 390 xvi A CKNOWLEDGEMENTS In addition to the many people who wrote papers and answered queries, the Commission are indebted to a number of people who were especially helpful during the course of the Commission’s work. Among IPPR staff, we would like to thank former Direc- tor James Comford, the publications team of Ros Burton, Helena Scott and Joanne Bailey, Senior Economist Dan Corry, Hamlyn Fellow in Social Policy Anna Coote, Research Fellow Sarah Spencer and our graphic designer James Sparling. Susan Harkness provided invaluable help in the preparation of chapter 1. We have also been greatly helped by a number of interns and volunteers: Rachel Abrams, Rachel Foran, Dominic Johnson, Daniel Pearl, Simon Preston and Hyong Yi. We are very grateful to the authors of the Commission’s 13 issue papers. In addition, a number of people were kind enough to help with our visits around the country: thanks to Dr David Donnison (Glasgow), Professor Nicholas Deakin (Birmingham), Dr Andy Pithouse (Cardiff), Professor Bryan Robson (Manches- ter), Professor Denis Kavanagh (Nottingham), Professor John Veit Wilson (Newcastle), Dr Ian Forbes (Southampton), Bryan Heading (East Anglia), and Alan Sinclair of the Wise Group (Glasgow).