The failure of the welfare-to-work scheme
Britain's £5bn Work Programme to get people off benefits and into work is failing, according to the House of Commons Public Accounts Committee, which says it's performance over the first 14 months of operation 'fell well short' of government expectations. It seems only 3.6% of claimants moved off benefit and into sustained employment as a result of the scheme, less than a third of the 11.9% target.
The Committee chair, Labour MP Margaret Hodge, complains that young people in particular are being let down (around a million of them are unamployed), along with those people who are hardest to help into a job.
Should we be surprised? Both this government and its predecessors have a history of dreaming up all sorts of work or investment schemes that grab a day or two's headlines for them, or maybe get a hostile story parked harmlessly – schemes that invariably cost a lot of money and, in the event, produce little or even negative results. That is because they do not focus on the root of the problem.
Workers are getting cheaper, it is true – wages have been falling in real terms since the financial crash of 2007-08 – and firms have carried on hiring, as yesterday's employment figures demonstrate. But employers are still sceptical about taking on young people in these difficult times. When you take on an employee, the law makes it hard to get rid of them should they turn out to be unsuitable or should business simply not be up to carrying them. When things are booming, there is less risk. When business could nosedive at any point, the risk is daunting.
Young people come to employers with few or no skills and little or no workplace experience. Employers have to train them up – to get them into the habits of work, to getting along with others in an office or factory environment, and of course to actually do the job.That can take months, even years. Until comparatively recently, the value of this training was understood and young people did apprenticeships at very low wages until they acquired their skills. Today, however, we increase the hurdle and the risk of employing them with a minimum wage. Is it any surprise that employers are choosing well-skilled, experienced workers over kids?
The inheritance tax of loss
The Health Secretary Jeremy Hunt plans that, from 2017, anyone with assets, including their home, worth more than £123,000 will be liable for the first £75,000 of their social care costs. They will also pay accommodation expenses of up to £12,000 a year. This, he says, will prevent people having to sell their homes when they need to move into residential care, which can be very expensive.
Meanwhile the Chancellor of the Exchequer, George Osborne, will say that the level at which inheritance tax becomes payable on estates will be frozen at £325,000 instead of being raised to £1m as the Conservatives had pledged before the election.
The care funding plans will benefit perhaps a fifth of the UK's pensioners: at present, people with much lower levels of assets are liable for their own care costs.
But then the money has to come from somewhere. Why should younger people, many of them starting out in life and trying to provide for their families on modest incomes, face higher taxes to support those who already own their homes?
After all, people in the UK see their homes as a form of saving. And it has been a much more reliable form of saving than having your money in the bank, where it is whittled down fast by inflation – inflation caused, of course, by the bad monetary policy of the authorities.
Governments have actually encouraged this form of saving too. Many of those benefiting from Jeremy Hunt's plans will have enjoyed tax relief on their mortgage interest payments for many years under the old MIRAS scheme. When they cashed in and moved up the property ladder, they would not pay the 28%-40% capital gains tax rates that have been levied on other kinds of assets like shares and bonds. Planning restrictions have ensured that house prices have kept on going. And so on.
If governments have encouraged people to save in their homes in these ways – using taxpayers' cash to fund the process – it is remarkable that they now maintain that people should not be expiated to cash in those assets when they need to. Yes, if you have to move into a residential care home it is a difficult time, but if you have saved in your home for a rainy day, it is a bit much to expect taxpayers then to hand you a very expensive umbrella so you can pass the home on to your kids.
...Who will then end up paying more inheritance tax on that asset – a 40% tax which breaks up capital (just at the time when we need capital to invest in economic recovery) and which encourages people to juggle their assets so as to avoid the tax. So big is the loss from this that the tax – though a nice earner for the government – has probably produced negative returns for the economy for the 100+ years of its history.
Two cheers for the new state pension rules
The new state pension arrangements announced this week follow the recommendations of a 2004 Adam Smith Institute report by the actuary Alan Pickering. We had to wait eight years, but at last the bureaucracy has got there.
The current state pension system is absurdly complex and out of date. It has two different components, a basic pension and an earnings-related pension. You might think that the idea of the state pension is simply to keep retired people out of poverty and give them a decent income. But no. If you earn more, you pay in more and get a bigger pension. Nice for the higher earners. But even with that supplement, your pension still won't be enough to live on and you are forced to supplement it with welfare. If you save for yourself, you will of course lose that welfare supplement because of means-testing. It's a system that seems almost designed to trap people in poverty and make saving pointless.
Meanwhile the arrangements for women also reflect a postwar world in which women were expected to be dependent on their husbands. This has disadvantaged women who take time out to look after children or elderly relatives: without a full set of national insurance contributions, they get an even smaller pension.
Oh, and actually higher earners can contract out of the earnings-related bit and do their own thing instead. Simple, huh?
The new arrangement, starting in 2017, will provide a simple flat-rate pension that will be higher than the means-tested welfare floor. So if you save for yourself, you will get the reward for doing so. There are credits for those who cannot pay national insurance contributions because of their responsibilities as carers. It is a lot simpler, and it does what the state pension is there for: to make sure that people save enough during their working lives to allow them to live decently and not have to rely on the welfare support of taxpayers.
Generally the state should not force people into saving – it should be their decision – but when you have a welfare system, problems arise if you do not. If you are going to force people to save, you should do it in a simple way that does the job and no more. The new system will be very much simpler and will achieve the basic aim without trying to do more and getting everyone in a bureaucratic model.
So, from 2004 to 2017…by current standards, thirteen years is pretty short time for a good idea to actually come into effect in legislation. Bad ideas usually get through a lot quicker. A muted cheer.
William Beveridge's violin
By now almost everyone has heard that Child Benefit is going to be means-tested. We’ve also heard the middle class has responded to the move with “outrage.” We might also have heard the world’s smallest violin somewhere in the background of a BBC interview where a married mother complains of the manifest injustice that her six-figure income is structured so that her state aid will be taken away, whereas other families' six-figure incomes are not. She is not alone. Tonight, parents everywhere will cry out for Leviathan's intercession, hoping government will hearken to them in the spirit of fairness and equality… and, perhaps, with a little cash.
The refrain is a familiar one, and reminds me of a time I went down to Occupy London Stock Exchange – the cleaner, British version of Occupy Wall Street. I attended a talk there once on the subject of work, and the attendees – about twenty of them – began the session by stating their employment, only to follow with aggressive complaining about how their work represented their abject mistreatment by the “system." “The terms of my employment are unfair,” said one; “my work is not valued,” said another, an unpaid intern in an art gallery. “I am not paid enough for what I do,” said a third.
A range of employment – builder, cleaner, lecturer, doctor, student, protester (really?), freelance writer, freelance landscape architect – was represented. But the solution which the twenty of them agreed in council was not, as one might think, to go out and find another job, or to change careers to one which provided steadier work than freelance journalism, art internships or landscape design in central London. Instead, it was agreed that their labour should be withdrawn for a day on 30 November (even those who were self-employed): they would go on strike and seek a political solution in the longer term.
None of which, of course, does anything to solve the particular problem each of them faced: that their incomes were unsatisfactory compensation, in their eyes, for the marginal disutility of their labour.
Life is hard, goods and services are expensive, and competition in the labour market is ferocious. Nonetheless, except in cases of egregious civil rights violations, politics is almost never the best answer for improving one’s lot, particularly when one wants to make meaningful improvement on a middle-class financial position in a developed industrial state.
We each possess a degree of influence over our own lives which is far greater than that of any redistributive policy. What job to accept, what job to keep, what job to quit -- whether we can afford to have children, and how many. What these choices have in common is that they are ours alone. So should be the consequences. Viewed this way, spending life begging the government to save you is merely a waste. But asking your fellows to subsidise your expensive decisions — especially when you can afford to shoulder the burden yourself — is simply rotten.
Cutting the Gordian knot on pensions
The UK Labour party wants to end higher-rate tax relief on pension contributions, arguing that current reliefs are a subsidy to higher earners. As I argued on Monday, they are not – they simply defer tax on that part of a person's income that they defer drawing, and put into a pension investment instead. But what should the right policy on pensions be?
The straight libertarian argument is that governments have no business trying to encourage savings, whether through tax deferral, outright subsidy, or anything else. To do so distorts the market and puts the values of the authorities ahead of the values of the general public.
But of course we are not living in a libertarian paradise. The fact is that we have a large state welfare apparatus, with something like one-eighth of government spending going on transfer payments. And unless people are encouraged to make provision for their retirement, some (or perhaps many, given the natural human tendency to value present income more than future income) will consciously choose not to save while they are in work and rely on state welfare once they have retired. There is, therefore, a case for subsidising pension contributions as a way of incentivising people to provide for their own income in retirement, rather than relying on state benefits.
If that is so, then the state has no business encouraging people to save more than they need to save in order to keep themselves off the welfare rolls. That would suggest that any state encouragement of pension contributions should be limited. Once you have saved enough to prevent yourself being a charge on the welfare system in retirement, you should receive no further tax relief.
It also suggests that you should indeed convert the bulk of your pension pot into an annuity, providing you with a regular retirement income – or that you draw down your pension pot at a steady rate. Otherwise there would be 'double dipping' - people using the tax relief to accumulate pension pots that they then spend liberally, before declaring themselves impoverished and then relying on state welfare.
Again, though, practicality may intervene. It may be complicated to grant tax relief to some contributors rather than others; there is a bureaucratic cost to checking how much people have actually saved. Likewise, annuity rates may fluctuate considerably, perhaps leaving people with much lower pension income than they anticipated. And drawdown arrangements can be hard for people to understand and for the tax authorities to police.
Inevitably, such considerations make pensions complicated – and that complexity must discourage people from paying in to pension plans. A simple regime has much going for it – say a straight pound-for-pound matching by government of everything you put into a pension – up to a total or annual limit, calculated to be enough to keep folk off the welfare rolls in retirement. Easy. The only trouble is, you can't just tear up the existing pension contracts that people have, as pensions are inherently long-term commitments. And there are lots of those different arrangements, because the pension rules have been changed many times in the past. Which means that pensions will continue to confuse the general public. Annoying, but true.
Welfare cuts might save money, but where's the growth?
Following the benefits cap debate today, I can’t help but think that, yet again, the government has missed the point. Yes, the cap will save some money. Virtually everything the government spends money on needs to be cut. But where are the pro-growth policies? Where are the jobs that people on welfare are supposed to take? And where is the wholesale reform of the state that would allow the really big cuts to be made?
The country is broke. Government debt has topped £1 trillion. This year, we will have borrowed another £108.5 billion, only down £13 billion from the year before. The deficit reduction plan has only just begun, and we'll keep borrowing until 2018 at the earliest.
At a little under £3bn/year, the savings from capping the rise in benefits at 1% in cash terms (a real-terms cut, in other words) are better than nothing. But let’s not kid ourselves – they will be painful, especially since the fastest-rising prices are for things like food and home heating. Because we tax low-income workers and then give it back to them in the form of ‘tax credits’ (which are really just a cash transfer payment), many people who are in work will be affected.
On the other hand, public sector pay has been capped at the same rate, and it would be perverse for benefits to rise faster than Whitehall cleaners' pay. And this is no ordinary recession – the deficit is staggeringly big, and the global economy is moribund. Cuts really do need to be made, and I haven't heard any alternatives from the people opposing these ones.
As I wrote last week, the government has singularly failed to make the big reforms that would make public spending cuts work by promoting growth. There has been essentially no deregulation of enterprise; no simplification of the tax code to produce a revenue-neutral tax cut (for everyone who can’t afford a Westminster lobbyist, at least); no real, pro-construction reforms to the planning system; and no sense on immigration.
The principle of universal benefits is, thankfully, being chipped away, but as long as the health and pensions systems remain as they are there will not be any way to avoid people on £24,000/year paying for the healthcare and retirement of people who have earned three times that.
So long as the tax threshold is so low, the government’s claims to be ‘making work pay’ are a joke. Full-time minimum wage workers pay nearly £1,600/year in tax, which is then topped up by more welfare money (the mis-named ‘tax credits’, which will now be capped!). How different would today’s debate be if we weren’t taking low-income workers’ money away with one hand and giving it back as welfare with the other?
But these things are difficult. It’s easy not to touch business regulation, to keep immigrants out and leave reform of the welfare state to some other sods. Welfare cuts are very popular with voters, and it’s easy to see why. So, another frustrating day – some cuts, yes, but none of the reforms needed to grow the economy and make them work.
The Benefit-Industrial Complex
Housing benefit is a national industry, says Preston Byrne. In this article he argues that it sustains a national minimum rent and drives up rental costs for everyone.
Anyone following the progress of the government's “Universal Credit” welfare reform program will know that (1) its signature provision is the creation of the so-called Benefit Cap limiting the amount of benefits that any one person or family can claim in a given week to £350 or £500, respectively.
Lesser known is (2) that “under Universal Credit, the default position will be that all housing costs for both social and private sector tenants” – currently paid out as a single, discrete benefit but soon to be subsumed within the benefit cap – are to be paid directly to claimants, whereas previously it was paid directly to claimants' landlords.
That the second of these proposals should be controversial is a little surprising, considering the fact that paying one's rent is the sort of thing most people will do for a substantial majority of their working lives. So I was puzzled to see Mark Easton, BBC News' Home Editor, excoriating the government, and accusing it of being “secretive*... on a matter that affects the lives of hundreds of thousands of the most vulnerable people in Britain”: the proposal to, in his words, “force social housing tenants to pay their own rent”.
Ending employer pension plans
Last week’s autumn statement was further proof that Britain’s pension arrangements are out of date, grossly inefficient and far too complicated. The system benefits politicians, bureaucrats and the pensions industry to the detriment of savers, pensioners and employers. It’s time to sever the link between employment and pension provision.
To refresh your memory, the Autumn statement called for further reductions in annual contribution limits and in the total lifetime limit. Like Lucy in the Peanuts comic strip who pulls away the football just as Charlie Brown is about to kick it, so the government moves the goalposts. No wonder the vast majority of people can’t be bothered to save for their retirement – they know their hard-earned nest egg won’t be all it’s cracked up to be.
Yet again, the politicians couldn’t help mucking about with rules and regulations - it’s in their DNA to endlessly tinker and tweak. Bureaucrats have justified their existence by dreaming up new wrinkles that now need to be ironed out. And the pensions industry? Well, more complexity, more changes and more confusion can only mean more fees.
Way back when pensions were first created, the world of work was pretty straight-forward – you signed up with Metal Bashers Ltd., slogged away for them for the next few decades and then collected a pension for a couple of years before you dropped dead. It made some crude sense for the employer to be the officially designated pension provider.
That world is long gone – companies come and go while employees switch jobs far more often and work for far longer. Increased life expectancy will only heighten those trends as the modern world rewards flexibility, mobility and nimbleness.
Much of this well known but here’s one aspect that isn’t – the insidious effect of employer-provided pensions on companies themselves. At a recent seminar of pension trustees, the chairman of trustees for one of the UK’s biggest retailers detailed the impact of the current system on that company and its scheme. Here’s just a sampling of the issues:
- The scheme still has a now-closed defined benefits section with some 1,300 active members, 4,000 deferred members (not retired but working somewhere else and with pension assets left behind) and 3,900 pensioners. Its new defined contribution section has nearly 2,000 actives and 2,100 deferreds. That’s a lot of people (about 13,300) to keep track of – the majority of which are long gone. And it’s just going to get bigger as auto-enrolment kicks in.
- Among many other things, the company and trustees are now planning for the new auto-enrolment rules, mulling closing the DB scheme to future accrual or even buying out all the DB liabilities, restructuring the DC scheme and, of course, struggling to deal with the under-funded DB scheme. No shortage of consultant fees there.
- The chairman of the scheme last year attended five normal full-day trustee meetings, one ½ day meeting, three conference calls, nine special meetings on the DC scheme, two meetings with advisers, two with fund managers and another 20 conferences, seminars, etc to keep abreast of developments. Who’s minding the shop?
- Then there’s the endless stream of either ill-informed or simply confused current and former employees seeking advice, guidance and information as they transfer in, transfer out, quit, retire, take leave, work abroad, marry, divorce, move from full-time to part-time and back again. The company is like a harried parent working fulltime but also charged with the well-being of its children except that it has over 13,000 of them and thousands more due imminently.
The old joke used to describe General Motors as a large pension scheme with a subsidiary that made cars. Some companies may be able to cope but many others certainly can’t. If a company is very good at making state-of-the-art widgets, there’s nothing to suggest its expertise extends to administering the government’s welfare system. (General Motors proved itself a failure at both.)
So here’s the big idea: cut employers right out of the pensions business altogether in favour of a simplified universal savings scheme – a giant ISA, if you will. It would need some mandatory minimum contribution levels from both employers and employees with some restrictions on applying those savings to ensure adequate pension provision when the time comes.
The result would greatly increase transparency for savers because they will know exactly how much they’ve got. That same transparency will limit the scope for skullduggery by politicians, bureaucrats and pension professionals because any changes will immediately pop up in savers’ retirement accounts as a bigger or smaller number.
And, for companies, this is probably the biggest opportunity to reduce the regulatory burden that everyone claims they’re in favour of.
Minimum wages: examining the research
The Economist's Free Exchange column recently analyzed some of the existing research on minimum wages. They point out to a number of results that claim how moderate minimum wages do more harm than good for the economy, and can, in fact, have a net positive impact on total employment.
The argument from the left of the political and economic spectrum usually claims that employers tend to sometimes act as monopsonists and can set wages below a competitive rate. In addition minimum wages are supposed to solve the problem of wage inequality and increase the disposable income of lower paid workers. The Economist calls upon the results on two "noted labour economists", David Card and Alan Krueger, who accounted an increase of employment in New Jersey's fast-food restaurants to its newly legislated minimum wage. They used a DD (differences-in-differences) approach comparing total employment in February 1992 and in November 1992, so in two different points in time between which the (supposedly) only difference is the introduction of the minimum wage (in April 1992).
However, it is easy to dispute this type of research by referring to the omitted variable bias where the net employment effect was most likely affected by a factor that has nothing to do with the minimum wage law. Perhaps it was the general economic climate in the state during the observed period, or within-state differences that can explain the effect of employment increases at the given time in New Jersey. It's very hard and demanding to conclude of a causal relationship between a minimum wage law and employment, at least without taking into consideration a series of control measures. In addition there is a whole bunch of papers that can overrule the argument empirically and give it a completely different direction. This happens too often in the economics profession.
Something that empiricists often omit is the general effect a minimum wage could produce. Here’s a good point from a book by Jason Brennan: "Libertarianism, what everyone needs to know",
If Wal-Mart started to pay high wages, Wal-Mart jobs would become attractive to skilled workers. People who currently work as medical assistants or car mechanics would want Wal-Mart jobs. Since they are more productive and have more skills - since their labor is worth more - they will outcompete the kind of people who currently work at Wal-Mart. So, raising wages above market levels is unlikely to help unskilled workers. Instead, it causes job gentrification. (Imagine if Wal-Mart offered to pay its workers $100/hr. Then many of my colleagues would consider becoming Wal-Mart cashiers). (HT: Bryan Caplan)
This I fear is the problem. Even if an increase of the minimum wage could have a positive net effect on employment, as some research seems to show, the problem is re-specialization of people with higher skills for currently low-paying and low-skilled jobs.
It's interesting that the research by Card and Krueger (1993) actually did look at fast food restaurants. Increasing the minimum wage made this easily accessible job more attractive than the alternative of investing into gaining more skills or finding another, more demanding job.
The result is a reshuffling of the labour market towards certain types of jobs, rendering some higher paying jobs a lack of skilful employees, while the net effect for lower-skilled workers is negative. It would be interesting to observe the total effect on all industries during the observed periods, not just on one, favourable industry, to prove the employment effect of minimum wages.
In Britain, there are similar results:
"Britain’s experience offers another set of insights. The country’s national minimum wage was introduced at 46% of the median wage, slightly higher than America’s. A lower floor applied to young people. Both are adjusted annually on the advice of the Low Pay Commission. Before the law took effect, worries about potential damage to employment were widespread. Yet today the consensus is that Britain’s minimum wage has done little or no harm."
It is very difficult to conclude this based on the available evidence. Since the introduction of the minimum wage in 1999 Britain's economy experienced a boom decade which saw an upsurge of productivity and declining unemployment, but also an increase in labour costs and real wages. It is very hard to conclude that the minimum wage was a cause of all this. One can easily conclude that the labour market conditions improved despite the introduction of the minimum wage, not because of it.
As for the effect on increasing the relative wage for the bottom 5% thus lowering wage inequality, it would have been arguably much better for both the employers and the employees to increase the personal allowance which would have lowered the tax burden for the employers and leave the employees with more disposable income.
It would require a careful empirical analysis to prove this, but I suggest that an increase of personal allowance would have had a similar if not better effect on lowering inequality in Britain, than what the minimum wage floor did. For simplicity, compare the current net minimum wage in Britain with a personal allowance of £12,875 p/y which the Adam Smith Institute has proposed on several occasions, and calculate whether or not low paid workers would benefit from it. This doesn't necessarily imply that every employer would pay his employees the upper limit of the personal allowance, but it would open up the market for lower-skilled workers much wider than it was with the minimum wage, contributing to the liberalization of the labour market, and better occupational heterogeneity.
70 years on, it's time to dismantle the welfare state
This week sees the 70th anniversary of the Report of the Inter-Departmental Committee on Social Insurance and Allied Services, commonly known as the Beveridge Report, which is often credited as the underpinning of the welfare state in the UK (and several other countries which emulated the UK approach). To some extent this is an exaggeration as several aspects of the welfare state existed before 1942, especially in the area of education. Thus Beveridge represents a major expansion of an already existing shift away from private and philanthropic welfare and towards state provision.
It is salutary to note the timing - in 1942 Britain was in the midst of the greatest expansion of state activity it has ever witnessed. Government reached into and controlled nearly every aspect of socio-economic activity, allocating and planning resources, prices and labour to a minute degree. This philosophy, which proved highly successful for fighting a total war, was retained in peace time and employed as a mechanism for providing goods and services which had hitherto been privately provided. Many industries were nationalised and those areas of the economy which were left 'private' were heavily controlled. It was this state of affairs which promoted Hayek to publish The Road to Serfdom in 1943.
Without tracing the history of the past 70 years, it is clear that whilst some aspects of the World War II legacy have been rolled back - for instance the denationalisation of many industries during the 1980s - much of the philosophy of the Beveridge Report remains essentially intact. Whilst the nature of the welfare state has evolved, the mechanisms for provision are broadly identical to those introduced in 1945. For instance, the NHS remains a 'free-at-the-point-of-delivery' system in contrast to the Netherlands which dropped this approach and switched to a 'Bismarckian' one (nonetheless retaining the third-party payer problems inherent in all major health systems including the US one).
Readers of this website will hopefully already be convinced that the Beveridge inspired welfare state has been an unmitigated disaster for the provision of welfare in the UK, so I won't rehearse the arguments and the evidence. For those wanting a good introduction, James Bartholomew's classic The Welfare State We're In is a sensible place to start. Suffice to say, and despite the pernicious prejudice of many statists, Classical Liberals like myself care deeply for the plight of the poor, sick and needy. However, instead of clinging to failed and bankrupt systems which do far more harm than good to both recipients of welfare and society as a whole and especially to those at the bottom of society, we seek a different approach. Of course, those opposed to the status quo adopt a variety of positions: from those who argue for different modes of provision (school vouchers for instance); to those who desire a much smaller welfare state which only offers aid to the very poorest in society; to those who wish to do away with state welfare altogether
On the one hand, it is quite clear that opponents of the welfare state have - for the most part - utterly failed to convince the majority of the case for radical reform and retrenchment. Some tentative steps have been made in the field of school and higher education reform but healthcare, pensions and social protection remain largely untouched and any genuine and far-reaching attempts to do so would be political suicide. The forces of vested interests so clearly described in Public Choice Theory indicate why this is so - nonetheless the only means to overcome the barrier of vested interests is via the dissemination of ideas and ideological support so we must continue this effort. Moreover, recent years have seen the resurgence of the regulatory and license state - an activity which grew popular with the denationalisations of the 1980s and has been compounded with the recent Banking Crisis into a widespread belief that markets cannot function properly without state intervention. Many of these interventions are logically underpinned by the existence of state welfare provision; e.g. alcoholism is creating a burden on the NHS so should be prevented. Strike at the welfare state and we strike at the root of this approach as well.
On the other hand, we must continue to propose sensible mechanisms for moving from the status quo and towards private provision. As I have argued before, this is probably best done piecemeal. Given that opposition to the welfare state spans a spectrum of opinion, it is also sensible to move from reform of provision towards much greater privatisation and then ask the question of whether we need any state provision of welfare at all. One major area to target would be universality. This was one of the key principles of Beveridge and is one of the most unnecessary and expensive aspects of welfare provision - witness pensioners donating their winter fuel payments to charity. Universality was also introduced in order to engender support for the welfare state amongst the better off, remove it and that plank may also disappear.
Reformers must be careful, however. I would argue that the creation of so-called 'internal markets' and use of private providers in such areas as PPI and the NHS may actually be harmful to the cause of privatisation. Government is a poor customer and its size means it prefers to deal with large, equally bureaucratic companies such as Capita and Serco rather than SMEs - this assists large companies in dominating market sectors and leads to monopolistic outcomes. Bad privatisations such as the railways lead to the discrediting of privatisation in general. Failures discredit attempts to privatise properly as the many PPI scandals and the G4S scandal show. Pseudo-markets are likely to lead to exploitation of consumers by entrenched market-occupants protected by state regulation and intervention - witness the energy market or banking.
Even if everyone suddenly saw sense and decided to tear down the features of the welfare state, it would still take many years of consistent reform to return to private provision in order to build up the necessary markets and charitable endowments which the original government interventions so comprehensively destroyed. There would also have to be sweeping reforms in other areas: radical reform of planning laws to allow housing to become more affordable, large scale tax cuts and endowments funded by sell-offs of state property and - perhaps most critically - a return to sound money to allow people to save sufficiently for their futures instead of being impoverished by government inflationism. The welfare state has taken 70 years to build into its present appalling and oppressive form and it may well take 70 years or more to repair the damage, even if that were the general consensus. Still, there is no time like the present...
