So, naturally, many of us were disconcerted and disappointed by the outcome. How could we end up sleeping with the enemy? Should we blame Nick Clegg? Should we blame our negotiating team? I say, Balls! Ed Balls, that is, the new Old Labour dinosaur who, in particular, refused to offer a single meaningful thing during our talks with Labour. Not even AV, which was in their manifesto. Do they understand what negotiation is? Heaven help the country if he is their next leader.

Perhaps if we had called for an all party coalition, Labour’s cowardice would have been more public. Not just unfit to govern, but unwilling to try to govern when the going got tough. We need to work overtime to make it clear to voters and the media that they gave us no choice.

While Labour ran away, the real progressive party in British politics was willing to go into the lions’ den and fight for justice where it matters: in government. Where Liberal Democrat ministers can argue for fairness and social justice directly against those who seek to curtail them. Where Liberal Democrat ministers can deliver progressive outcomes. Not everything that we’d like to. But real, significant change.

The Social Liberal Forum called in particular for Lib Dems in coalition to insist on four things:

• Policies to narrow, not widen, the gap between rich and poor – especially in relation to tax policy.
• No cuts to frontline public services or social spending this year.
• Better treatment of asylum seekers.
• And no dilution of the Human Rights Act.

So far the agreement with the Tories doesn’t breach these. But we’ll be watching.

There seem to me to be three kinds of anxiety about this coalition. First that we’ll be swallowed up by the Tories. I just don’t buy it. Our government members are Liberals – they won’t become Tories overnight. I’m willing to trust them to fight from the inside on the key issues. To achieve Liberal goals and prove that coalition works, making the case for proportional representation even more unanswerable.

Second, annoyance that we have made some compromises and sacrificed some particular policies. But do we really want to be a party of purists who actively shun the chance to influence things? Sorry – I believe in PR, which means I believe in consensus politics, which means I believe in compromise, even if it means holding your nose. If you’re only willing to go one way, you won’t be taken seriously in negotiations.

Then there’s concern about outcomes. That’s legitimate. Liberal Democrats will be judged on what we do in government – and so we should be. If we don’t deliver progressive change for Britain, we’ll be punished at the polls. But before that, the Social Liberal Forum will be banging on the door, holding our people to account – as they hold the Tories to account. So come and join us and let’s all work together to make Britain better.

Soon after I joined the Liberal party in 1983 I discovered something that surprised me. Many of the best Liberals were not members of the party, and some were even members of other parties. This presented both a challenge and an opportunity. It was frustrating that these people were not in the party helping develop it’s political position. Yet clearly the potential was there; a Liberal party that could reach out to people beyond it’s current core supporters.

And that is how it has remained ever since. Today when you go to Lib Dem conference, the event is dominated by “Think Tanks”. The one that dominates is Centre Forum, of which I am a member. We should be grateful for the work Centre Forum does of course, and personally I would commend them for the work they did on the pupil premium (albeit I think they have more thinking to do on this policy, but that is another story). Generally however their pamphlets are either dull or on the odd occasion somewhat objectionable, at least from a Social Liberal perspective. On the other hand, Centre Forum are at their best at conference where they dominate the fringe meeting circuit.

So is there a better alternative for Social Liberals? Already links are being made with Compass, and another Think Tank I would recommend we take notice of is the New Economics Foundation (NEF).

Take a look at their website and ask why are Centre Forum not saying this? The difference of course is that Centre Forum are preoccupied with “free markets”, whilst NEF is about (to quote Fritz Schumacher) “economics as if people matter”. I would prefer to define “economic liberalism” more by the latter than the former.

Schumacher himself inspired the Schumacher Society, which has close links with NEF.

They are having their annual conference on the 17th October in Bristol, see http://www.schumacher.org.uk/.

Then on the following Saturday in London NEF have organised this following conference: The Bigger Picture.

If Social Liberal need more ideas to advance their cause, then this is the place to be this October.

This article was originally published in Reinventing the State: Social Liberalism for the 21st Century. We are grateful to Duncan for allowing us to reproduce this article. Visit the Methuen website to purchase the latest edition of this book for the discount price of £10.

The Liberal Democrats exist to build and safeguard a fair, free and open society, in which we seek to balance the fundamental values of liberty, equality and community, and in which no one shall be enslaved by poverty, ignorance or conformity … We reject all prejudice and discrimination based upon race, colour, religion, age, disability, sex or sexual orientation and oppose all forms of entrenched privilege and inequality … We recognise … that the market alone does not distribute wealth or income fairly. We support the widest possible distribution of wealth …

Extracts from the Preamble to the constitution of the Liberal Democrats

Of the three ‘fundamental values’ which the party’s constitution claims we ‘seek to balance’ – liberty, equality and community – equality has traditionally held least appeal for Liberal Democrats. The very title of the 2002 policy paper on Lib Dem philosophy, It’s About Freedom, relegates it explicitly to, at best, second place. As the paper made clear:

We place the principle of freedom above the principle of equality. Equality can be of importance to us in so far as it promotes freedom. We do not believe that it can be pursued as an end in itself, and believe that when equality is pursued as a political goal, it is invariably a failure, and the result is to limit liberty and reduce the potential for diversity.¹

I served on the working group that produced that paper, so I share the responsibility for the statement. I now believe, however, that it drastically understates the importance of the pursuit of equality as the essential underpinning of our ultimate aim of individual freedom, Similarly, equality underpins the type of communities in which individuals thrive best. The pursuit of both these other values will be compromised by a lack of attention to equality. Furthermore, I don’t mean just equality of opportunity, the Liberal get-out for most of the past century. I mean equality of outcome – or to be more accurate, a significant reduction in inequality of outcome.

This chapter will argue the case for promoting (or restoring) equality to the place where the party put it in its founding constitution, as a ‘fundamental value’ balanced against – rather than subordinate to – the other two. My case is based on three main arguments. First, that the extent of income and wealth inequality in modern-day Britain is seriously undermining the fabric of society, and needs urgently to be tackled by government – not just for the sake of those at the bottom of the income and wealth pile, but for all of us.² Second, that a commitment to reduce levels of income and wealth inequality fits naturally into our Liberal philosophy. Third, that it’s smart politics.

Is Britain unequal? Income and wealth inequality

First, we need to examine the extent of income and wealth inequality in modern-day Britain. Is Britain in reality an unequal society? The answer is emphatically yes. After falling in the 1970s, income inequality grew significantly under Thatcher, and has declined only slightly since. By 1979 the percentage of the population living in relative poverty³ had fallen to about 14 per cent, a post-war record. By 1996–97 this had almost doubled, to 25.3 per cent, and by 2006–07 it still stood at 21.6 per cent, representing 12.7 million people.⁴ As the Institute for Fiscal Studies found:

Inequality rose dramatically over the 1980s … The scale of this rise in inequality has been shown elsewhere to be unparalleled both historically and compared with the changes taking place at the same time in most other developed countries … Over the first two terms of the Labour government, the net effect of these changes was to leave income inequality effectively unchanged and at historically high levels.⁵

Wealth distribution remains even more unequal than that of income, partly because of the substantial rise in house prices. Between 1990 and 2001 the proportion of wealth held by the wealthiest 10 per cent of the population increased from 47 per cent to 56 per cent.⁶ A Joseph Rowntree Foundation study published in July 2007 concluded that Britain was becoming an increasingly segregated society in terms of wealth distribution. The last fifteen years have seen an increase in the total number of households living in poverty. At the same time, households in already wealthy localities have tended to become even wealthier, with many rich people now living in areas segregated from the rest of society. This widening gap between rich and poor has led to a fall in the number of ‘average’ households (neither rich nor poor), with those families gradually disappearing from London and the South East. The report concluded that ‘Britain is moving back towards levels of inequality in wealth and poverty last seen more than forty years ago’.⁷

The filthy rich

That income and wealth inequality grew dramatically under the Thatcher governments is no surprise. It was a predictable side-effect of the reductions in the higher levels of income tax, the shift from direct to indirect taxes, cutbacks in government spending on public services, and government- engineered recessions which saw unemployment soar. It was not countered significantly, however, by the recovery in employment and output experienced from the mid 1990s onwards.

Why is this? One might have expected a Labour government to be more concerned about inequality than their Conservative predecessors. In fact Labour’s tax and benefit reforms have helped the poorest groups, though only since 2000–01, after they dropped their rigid adherence to Tory spending plans. Since then, significant increases in means-tested benefits and the use of tax credits have helped to raise the income of most of the poorest 40 per cent by more than the average, although the poorest 10 per cent have not done nearly so well. The complexity of the tax credit system has led to significant administrative problems, and redistribution has also has been counteracted by substantial increases in Council Tax, which affects those on lower incomes more heavily.

The other main reason why inequality has remained stubbornly high is because the highest rate of growth of incomes, in both absolute and proportional terms, has been experienced by those in the top 10 per cent: the rich have got even richer. This is not really surprising; when Peter Mandelson said, in 1998, that New Labour was ‘intensely relaxed about people getting filthy rich’, he really meant it.

Partly this is the outcome of government policy – the way in which the tax system operates, or can be manipulated, to benefit the super-rich. Overall, the poorest fifth of the population pays a higher percentage of their gross income in tax than the richest fifth. The House of Commons Treasury Select Committee’s recent investigation into private equity firms revealed how the tax relief structure on capital gains tax has helped many in that industry pay less than 10 per cent on their investments,⁸ even if they paid tax legitimately. More broadly, chief executives’ pay levels have increased enormously. In 1979, FTSE100 chief execs earned on average about ten times as much as the average worker on the shop floor. By 2002, the ratio had increased from 10 to 54, and by 2006 to 76.⁹ Last year FTSE100 chief execs’ pay rose by 30 per cent on average; the average pay of their staff increased by 2.8 per cent.

Can’t this be justified by improved performance and competitiveness? After all, the British private sector in 2006 has a rather better image than its predecessor in 1979. A University of Manchester study comparing corporate performance from 1983 to 2002, however, showed that the sales of the top 100 quoted companies on the stock exchange rose by an annual 2.7 per cent, as did pre-tax profits, while the pay of their chief executives rose almost ten times faster, by 26.2 per cent.¹⁰ The study concluded that ‘giant-firm CEOs might be just another averagely ineffectual officer class’, who have in effect been ‘value-skimming’, quietly enriching themselves for mediocre performance. This picture was reinforced by a Work Foundation study in 2006 showing that higher pay rates could be justified neither by higher levels of personal risk (the turnover rate for their jobs was lower than the national average; only one was made redundant, and he left with £5m compensation) nor by competition in the global market (most CEOs of British companies are British, and promoted from within their companies).¹¹

Does this growth in the super-rich really matter? I return to this question below, in terms of its indirect impact on social cohesion, but there are direct impacts too. As the Rowntree Foundation study highlighted, the concentration of super-rich households in some urban and suburban areas is pushing house prices way out of the reach of even the betteroff. Shops and restaurants follow the trend, helping to create super-rich ghettos – the real impact of ‘trickle-down’. The super-rich increasingly buy their own media and then use it to promote the political parties that come to them for funds, as ordinary party membership dwindles.

No way out: social mobility

None of this need matter so much if people have a reasonable chance of escaping from poverty, of climbing into the ranks of the rich – or even into those of the average. But on top of the UK’s current pattern of income and wealth inequality, the country suffers from low and declining social mobility.

A 2005 study showed that the chances of children born into low income groups of moving into high-income groups as adults were lower in the UK than in the Nordic countries or Germany, and the chances of upward movement were significantly lower for people born in 1970 than for those born in 1958. There is a far stronger relationship between educational attainment and family income in Britain than in other European or North American countries. Young people with parents with higher professional jobs, for example, are four times more likely to go to university than those with parents in routine manual employment.¹²

The UK performs very poorly in international comparisons of social mobility. A league table of eight developed states found that only the US had lower social mobility than the UK. In contrast, the four Scandinavian countries, along with Canada, are all nearly twice as socially mobile as Britain. Social mobility appears to be related to, or at least strongly correlated with, the degree of income inequality.

And despite the small fall in levels of inequality, social mobility is not improving. A 2006 Rowntree study on persistent poverty suggested that the chance of a poor child growing up to become a poor adult were still growing.¹³ An Institute of Education report in June 2007 showed that by the age of three, children from disadvantaged families were already lagging a full year behind their middle-class contemporaries in social and educational development.¹⁴

The impacts of inequality: health and well-being¹⁵

Clearly, then, Britain is a deeply unequal society in terms of income and wealth distribution. It is also relatively socially immobile: your life chances are determined heavily by your parents’ social class and status. Self-evidently, this is bad news for those at the bottom of the pile.

Its has been recognised for almost thirty years that standards of health and well-being are closely related to income levels. As far back as 1980, the Black Report, Inequalities in Health, concluded that from birth to old age, those at the bottom of the social scale had much poorer health and quality of life than those at the top. Recent studies show that the gap is still widening – the areas with the highest life expectancy a decade ago are the places that have seen the biggest increase in life expectancy since.¹⁶ These disparities in health standards are nothing much to do with the NHS: social and economic factors such as income, wealth, employment, environment, education, housing and transport all affect standards of health more fundamentally, and all favour the better-off.

So inequalities in health are an outcome of inequalities in society. Life expectancy in rich nations correlates precisely with levels of equality – so Greece, with half the GDP per head, has a longer average life expectancy than the US, the richest country in the developed world, but also the most unequal. The people of Harlem live shorter lives than the people of Bangladesh. Average male life expectancy in the Calton area of Glasgow is eight years less than in Iraq, even after more than ten years of sanctions, war and insurgency.¹⁷ A study of 528 cities in the US, UK, Sweden, Canada and Australia showed a strong relationship between death rates and inequality levels within each city. The two most egalitarian countries in the developed world, Japan and Sweden, also have the longest life expectancies.

This is not just about differences between extremes of wealth and poverty; there is a continuous gradient in death rates all the way through society. The higher people’s status, the longer they live. A study of government office-workers in London in the 1970s and ’80s found that death rates from heart disease were four times as high among the most junior office workers as among the most senior administrators working in the same offices; intermediate levels had intermediate death rates. Only a third of these differences could be explained by risk factors such as smoking, exercise and diet. Considering all causes of death, not just heart disease, the most junior workers were three times as likely to die prematurely as the most senior. As Polly Toynbee put it, if one office was found to be killing three times more than another next door, it would be evacuated instantly – but the social environment doesn’t matter as much as environmental pollutants like asbestos.¹⁸

The impacts of inequality: violence, trust and social cohesion

This link between inequality and health standards is relatively familiar. What is much less appreciated is just how strongly levels of inequality are correlated with other social outcomes – which in turn mean that inequality is bad not just for those at the bottom of the pile but for everyone. Unequal societies function badly.

Violence is more common in societies where income differences are larger. About half the variation in homicide rates between different states or provinces in the US and Canada is accounted for by differences in levels of equality. Most criminologists regard this relationship as the most firmly established link between homicide and any environmental factor. Levels of imprisonment in a country can be shown to be related to income inequality and levels of literacy and mathematical ability – which are themselves closely linked to inequality.

This link between violence and inequality is not just exhibited in murder rates; it reaches all the way along the ‘spectrum of hostility’. Both racial hostility and discrimination against women in US states is greater where inequality is higher. One British survey in the 1990s showed that families living on less than £10,000 a year were more than twice as likely to have daily arguments as those living on more than £20,000.

Perhaps most striking of all for Liberal Democrats, the extent to which communities work as communities is also highly correlated with levels of equality. In the US, levels of trust between individuals – the essential underpinning of any functioning community – can be shown to be higher in the more equal states. In the most equal states, only 10 or 15 per cent of the population feel they cannot trust others, while in the most unequal ones the proportion rises to 35 or 40 per cent.

The US Professor Robert Putnam has worked on people’s involvement in community life, using a range of indicators, including the proportion of people belonging to voluntary groups and associations, propensity to vote in local elections, and readership of local newspapers. In Italy, he showed that involvement was highest where inequality was lowest. Although there was a tendency for local government performance to be better where the region in question was richer, a stronger correlation could be demonstrated with his index of ‘civic community’, which was in
turn linked to equality.

Underlying causes: why inequality is harmful

Why is there such a pervasive relationship between inequality and social outcomes? The underlying reason, it is believed, is the stress caused by living at the bottom of the pecking order, on the lowest rung – the continuous stress of low social status, disrespect and exclusion.

Humans are a social species, and the quality of the social relations we experience matters enormously. Feelings of shame and embarrassment are powerful ones, and in extreme cases can lead to violence. Similarly, in Britain today, small premature babies are not, with a few exceptions, caused by bad diet – even poor nutrition, by British standards, will rarely harm a foetus. It is stress in pregnancy that does the real damage, and the poorer the mother, the more likely she is to be stressed. This is hugely important – maternal stress in pregnancy affects the son or daughter throughout their life, from behavioural patterns to standards of health to life expectancy. And these are further affected, of course, by stress levels in the children themselves. An orphanage in post-war Germany found that children on the same diet were found to have grown most under the kindest matron and least under the unkindest matron.

The stress hormone cortisol appears to be responsible. Cortisol is the most important hormone involved in preparing the body for sustained physical activity in meeting a threat. It shifts the body’s functions away from housekeeping activities like digestion, energy storage, fighting infection and growth – a sensible move when fleeing from a predator or an enemy, but of less use in dealing with pervasive shame and disrespect. Long-term elevation of cortisol levels impairs immune system efficiency, raises blood pressure, causes diabetes and arteriosclerosis – and reduces birth weight amongst the children of stressed mothers.

How can stress levels be reduced? Primarily through improving the quality of social relations. We need to build a society which relies less on social status and more on friendship, which tend to vary inversely. Status and friendship have their roots in fundamentally different ways of resolving the problem of competition for scarce resources. Status is based on pecking order, coercion and privileged access to resources, while friendship is based on a more egalitarian basis of social obligations and reciprocity. Lynne Featherstone’s chapter in this book explores this theme in more detail. It is a complicated and difficult area for government to be involved in, but an important one. Here I concentrate on the extent to which the reduction of income and wealth inequality can contribute to this strategy.

Why equality matters to Liberals

So tackling inequality is hugely important for those at the bottom of the income and wealth distribution, those lacking disposable income and assets and, furthermore, trapped by social immobility, where too much of an individual’s future is determined before she is born. It is also important for the rest of us, for those lucky enough to live on a reasonably decent income and to enjoy possession of some level of assets, but who nevertheless exist in the middle of a broken society, riven by distrust, unhappiness and failing communities.

That’s fine in practice; how does it work in theory? Aren’t Liberals more concerned with freedom than with equality? Don’t we fear that too much attention to equality risks creating a society of dull uniformity, where initiative, choice and innovation are frowned upon?

No. The Liberal commitment to equality derives from the Liberal commitment to freedom; it is neither separate from it nor subordinate to it. This belief can be traced right back through the long history of British Liberalism, and can perhaps best be expressed as a commitment to equality of justice.¹⁹

The fundamental belief in freedom leads logically to a corresponding belief in a diverse and tolerant society, where individuals are able to exercise freedom of choice, conscience and thought. Since such a society cannot exist where individuals are treated differently by the law or by government institutions because of their nature, ‘equality before the law’ has been one of the great rallying cries of Liberalism, from the earliest days of the Whigs in the seventeenth century.

The French Revolutionary slogan of ‘liberty, equality, fraternity’ (transposed in the Liberal Democrat constitution into ‘liberty, equality, community’) was not simply a list of three separate words; the three concepts interlinked and reinforced each other. ‘Liberty’ did not mean merely the freedom of choice that consumers experience in modern market democracies – it meant not being subordinate to arbitrary power, whether exercised by monarchy, aristocracy or clergy. The concept of freedom was very closely bound up with the extent of differences in social status and social exclusion, and the belief in equality (and in fraternity) in the levelling of those differences.

This Liberal belief in equality was expressed in the nineteenth century primarily through the removal of barriers – to the right to vote, to the right to practise one’s beliefs free of discrimination, to the right to trade freely across national borders. From the end of the century onwards, however, it became obvious that this was no longer enough. Industrialisation, urbanisation and the drastic changes in the structures of society that resulted had led to the spread of poverty, slums, ignorance and disease. Not only were these all serious impediments to freedom, to the ability of people genuinely to exercise control over their own lives and destinies, but they were also impediments that it was difficult, if not impossible, for the affected individual to remove by themselves. Negative liberty, the removal of constraints on the individual, would not necessarily lead to freedom of choice for all, as not everyone enjoyed access to the same opportunities; freedom of choice was therefore heavily constrained.

Equality and social liberalism for the twentieth century

Thus was born the New Liberalism, which came to be the dominant ideology of the early part of the twentieth century. As Michael Freeden put it, this was ‘the crowning achievement of British liberalism … its subtle and intelligent integration of the requirements of social welfare into a continuing respect for individual liberty, a formula that encapsulates its commitment to both individual and social progress’.²⁰

The great reforming Liberal government elected by a landslide in 1906 took up this agenda of social justice. Asquith, Lloyd George and Churchill laid the foundations of the modern welfare state. Labour exchanges were introduced, old-age pensions were paid by the state for the first time, the national insurance system was created, taxation was raised in aggregate and made more redistributive. This was the realisation of the New Liberal programme – removing the shackles of poverty, unemployment and ill-health so as to allow people to be free to exercise choice and realise opportunity. Thus freedom and equality remained interlinked. As the New Liberal thinker L. T. Hobhouse put it:

The struggle for liberty is also, when pushed through, a struggle for equality. Freedom to choose and follow an occupation, if it is to become fully effective, means equality with others in the opportunities for following such occupation. This is, in fact, one among the various considerations which leads Liberalism to support a national system of free education, and will lead it further yet on the same lines.²¹

Or, as it is more commonly attributed, ‘liberty without equality is a name of noble sound and squalid result’. This belief underpinned the system of redistributive taxation and social services which Labour built on after 1945 and which brought Britain to its lowest level of inequality – until Thatcherite Conservativism came to reverse the achievements of the previous seventy years.

Equality and social liberalism for the twenty-first century

Thatcherism did not, of course, appear out of thin air. The growth in the size of the state throughout the twentieth century, partly consequent on its new welfare role, led to new problems, including the increased power of bureaucracies, and the infringement on civil liberties that may entail, the tendency for elites to capture elements of state power (leading to market distortions such as subsidies), the growth of corporatism, a rising burden of taxation, and so on. The centralised and directive state that Labour built – very different from that which the Liberal Party would have created – helped to create the Thatcherite backlash, and its consequent legacy of inequality.

So, in taking action to reduce inequality, it is important that we do not simply recreate the centralised state. Many chapters in this book stress the need for a more decentralised, responsive and participatory structure and style of government. It is not just the structure and size of the state, however, that is the problem. More fundamentally, the redistribution of resources needed to reduce inequality must, to the greatest extent possible, equalise conditions (or endowments, or birthrights), while respecting choices.

There are two main reasons why inequality may exist. First, because individuals choose different lifestyles. I have worked all my life in the voluntary sector; I have had fulfilling jobs, for the party, for a trade union and for a think-tank, but I have been consistently paid less than my university friends who went into the civil service, or law, or public relations. That was my choice, and I don’t regret it (usually). Given the ability to choose freely, people can and should choose different types of jobs, or different mixes of work and leisure. No system of redistribution should counteract that, or reduce the incentives for effort and enterprise.

What we are concerned with, of course, is the inequality which stems from the unequal distribution of endowments. We have seen already how parents’ income, social class and levels of education affect the lifechances of their children, so markedly that this can be measured even by the age of three. Similarly, people experience different levels of health and ability and access to knowledge, generally through no choice of their own. Liberals have always opposed vigorously discrimination based on gender or race or sexuality or disability; should we not also oppose just as vigorously discrimination based on inherited poverty and ignorance?

The trick, of course, is to create a system that redistributes resources while preserving choice and incentives. This is not easy, either in practice or in theory, though it has occupied the time of many of the liberal thinkers of the later twentieth century.²² John Rawls developed his ‘difference principle’, which stated that inequality could only be justifiable if it proved to be to the greatest benefit of the least advantaged members of society. Perhaps more importantly, Ronald Dworkin’s theory of distributive justice, or equality of resources, claims that how people fare in life should, as far as possible, depend on their ambition, or personality, but not on their endowment, or circumstances. Dworkin defended the postwar structure of progressive taxation, unemployment insurance and universal health provision, while at the same time arguing for the option to buy private health insurance, in order to maximise choice.

A series of further writers, including Bruce Ackerman, Philippe van Parijs and John Roemer, have suggested various means of putting Dworkin’s approach into practice. This includes, most commonly, the idea of allocating some form of basic income or ownership of wealth to every citizen, regardless of their status. Roemer has argued for a programme of ‘compensatory education’, investing more in the education of children from poorer families and communities. What these approaches have in common is their aim of giving everyone a more equal share of society’s resources, and thus a fair start in life. As R. H. Tawney observed, opportunities depend ‘not only upon an open road, but upon an equal start’.²³ This is more than just the traditional Liberal approach of aiming to guarantee equality of opportunity (the ‘open road’); we recognise that whatever people choose to do later in their life, it is socially just to start them from a position where they have as equal as possible a prospect for a good life (the ‘equal start’).

Equality and liberty

It should be obvious, then, why Liberals should support a substantial reduction in inequality. First, because it is an important extension of freedom for those suffering from low levels of income, wealth, education, etc., though no fault of their own – the equality of justice argument. In that sense, It’s About Freedom was right to point out that equality is important because it promotes liberty.

Clearly, though, if income and wealth are to be redistributed, some people will have their freedom restricted, for example by being subject to higher levels of taxation. The classical utilitarian argument in favour of this is that the marginal utility of income decreases as income increases – i.e. an extra £1,000 a year is worth a lot more to someone living on £10,000 a year than it is to someone on £100,000. In addition, however, as I have tried to show above, there are direct benefits to everyone, no matter what their levels of income and wealth, from living in a more equal society. Lower levels of crime and anti-social behaviour, stronger political institutions, and more thriving communities provide a benefit to set against the cost of redistribution. Thus, once again, equality promotes liberty, in that a well-functioning society provides an easier and better environment in which to live.

And a more equal society is probably a more economically efficient one too. Higher levels of inequality tend to lead to lower educational attainments, on average, wasting the talents of those at the bottom of the pile. A focus on the equality agenda will be essential to deal successfully with the pressures of competition from the developing world (particularly China and India) and economic migration – both clearly of benefit to world development and to the migrants themselves, but both also leading to downward pressures on wages for the low-skilled in developed economies, including the UK. Once again, equality promotes liberty by spreading prosperity.

At this point opponents of reducing inequality will generally come up with the argument that the danger of pursuing equality is that in practice it limits liberty, stifling initiative, destroying the incentive to work, and generating uniformity. This may be true, at least in theory, if equality is pursued as an end in itself, regardless of the consequences. But why should we do that? One could just as well criticise the pursuit of freedom as a dangerous slippery slope. No one (no Liberal, at least) quarrels with the need to force people to drive on the left, be educated to a minimum age or pay taxes – yet we can still regard liberty, or freedom, as one of the party’s fundamental principles. We do not pursue it to its extreme conclusion any more than we need pursue equality – or, indeed, community.

The question then becomes, how much equality is enough? It is hardly necessary for Liberals to give a precise answer, any more than they need answer how much freedom is enough, or how much community. I would settle for the levels of equality seen in most of the Scandinavian states, but in the mean time Britain is so far away from that level that it would take a government dedicated to reducing inequality many, many years to reach it – so let us at least make a start. The reality is that the degrees and forms of freedom, equality and community that best suit a country at any particular point in time will vary, and will themselves depend on circumstances and political compromises.

If you want a theoretical answer, though, I would argue that it is not the difference in outcomes that derives from individual preferences that should worry us; rather, it is the inequality in outcomes that arises from the structures of society which should, as far as possible, be eliminated. Different outcomes should be the result of choice, not inheritance.

Liberty and equality are not a zero-sum game; on the contrary, the ability to enjoy the opportunities provided by a democratic society is increased by the redistribution of wealth and power. Equality is not just another desirable objective in the party’s list of three, but the essential precondition for liberty and community. Too much inequality limits freedom and destroys community.

An equality agenda for Liberal Democrats

What does all this mean in practice? In the same way as the party has tried, with some success, to ensure that a commitment to environmental sustainability underpins all our policy proposals, not just those relating directly to DEFRA, a commitment to reducing inequality should similarly underpin our programme. This is a logical outcome of the ‘Meeting the Challenge’ policy review exercise of 2005–06, which concluded that ‘tackling inequality is one of our top two political priorities’.²⁴ I do not have the space to do more than outline a few headings, but here are some thoughts.

To redress the great injustice of inequalities of income and wealth in Britain today requires a commitment to a thoroughly redistributive taxation system. To a significant extent the party now has this; its two recent policy papers on taxation²⁵ aim to make the system more progressive by removing many of the exemptions and tax reliefs enjoyed by the upper income groups, reducing the basic rate of income tax, and replacing Council Tax with local income tax. Nevertheless, this is a complex and not easily communicated package, and there is a strong case, in due course, for increasing the top rate, both to increase the extent of redistribution and as a clearly visible commitment to a fairer society. It’s worth remembering that Britain has lower top tax rates than almost all other comparable countries – in 2004 it was twenty-third (just ahead of Turkey) in the list of thirty OECD countries ranked by top marginal tax rates. Push it up to 50 per cent and it would rise only to eleventh.²⁶

As has been seen, part of the problem of inequality is caused by excessive pay rates and tax loopholes for the super-rich. The party’s approach of closing tax loopholes should help with the latter, but can we do anything about high rates of pay? Legislation in this area is notoriously difficult, but there may be scope for exposure – along the lines of the Treasury Select Committee’s investigation into the private equity industry. I would suggest converting the Low Pay Commission into a Pay Commission, analysing and commenting on the disparities in pay rates within major companies, and their relation (or lack of one) to performance indicators – if not company by company, at least on a sectoral basis. Shareholders could be encouraged to require companies to justify, at their AGMs, increases in top executives’ salaries greater than the rise in the average company wage.

The tax papers did not address the issue of a wealth tax, or even the related one of a property tax. Yet this is a hugely important area; as has been seen above, inequalities in the distribution of wealth are more pervasive than inequalities in the distribution of income, and thanks to the housing market are changing the social fabric of many communities. The introduction of land value taxation for domestic properties, sensibly adjusted for the income of the owners, needs exploring.

Along with the taxation papers, the party’s 2007 policy paper Freedom from Poverty, Opportunity for All: Policies for a Fairer Britain goes a long way towards creating a programme based on social justice in the areas of pensions and benefit, education, employment and housing. The idea of the ‘pupil premium’, increasing the funding available to schools for pupils from the most disadvantaged backgrounds, fulfils John Roemer’s aim of ‘compensatory education’, touched on above. Similar principles need to underpin the party’s approach to health and social services.

Studies of health standards in the workplace show that people are healthier, with lower death rates, where they have more control over their work. Industrial democracy – employee participation and share ownership, and support for cooperative enterprises, creating a more equal society at work – used to occupy a prominent place in Liberal manifestos. They have, however, steadily disappeared from Lib Dem programmes: the 1992 commitment to a right to participate in decision-making had become, by 2001, simply a right to consultation, while by 2005 the topic was entirely absent.²⁷

It’s about equality

Undoubtedly there is much more that needs to be added to this programme – but much of this is already party policy, or has been at various points in the recent past. Perhaps my main conclusion is that the party needs to talk about it all more. As I observed above, Liberal Democrats tend to talk about ‘freedom’ and ‘community’ much more than ‘equality’. The party’s new tax package, although it is more redistributive than the old one, does not look like it very obviously. The party runs the risk of failing to engage with the electorate about why redistribution is so necessary, leaving the field open for our opponents to focus only on perceived negatives around such policies. As Steve Webb has written, ‘a comprehensive expression of liberalism must not simply accommodate fairness as some reluctant and unwelcome travelling companion, but must embrace it as an indispensable partner’.²⁸

Furthermore – and this is the final reason for advocating a greater emphasis on reducing inequality – it should be popular with the kind of people who are likely to vote for us, generally highly educated, socially liberal and progressive, concerned about the quality of life, not just personal consumption. Private polling for the party before the 2005 election suggested that the ‘fairness’ component of the ‘freedom, fairness, trust’ slogan used in the run-up to the election resonated well with the electorate. It made a welcome return in the 2006 policy review document Trust in People: Make Britain Free, Fair and Green, and we should keep it. Because the equality agenda is all about fairness. An unequal society is not a fair one. Too many of its members start off hobbled by inherited disadvantages which are enormously difficult, by themselves, to remove. Almost all of its members are affected by the breakdown in neighbourliness and social cohesion which they did nothing to choose themselves. A stress on fairness would resonate with these people – and, possibly, already does. The coverage given to the Treasury Select Committee investigation into the private equity industry is one symptom; Harriet Harman’s condemnation of a £10,000 handbag is another. No minister today would dare repeat Peter Mandelson’s affection for people ‘getting filthy rich’. Opinion polling regularly shows that a substantial percentage – 73 per cent of people in 2004 – considers the gap between those with high and those with low incomes to be too large.²⁹

Can the other parties adopt this agenda? David Cameron has argued that society is ‘broken’. As we have seen, in many ways it is, but it is almost impossible to see even Cameron arguing for the fundamental redistribution of income and wealth than is needed to help heal it. Labour under Gordon Brown could go further – though it was the government in which he was Chancellor that failed to do more than reduce inequality marginally, and has seen social mobility levels decline. Furthermore, part of the fairness agenda is about democratic and civic equality, building on and supporting the redistribution of income and wealth by a redistribution and decentralisation of political power – not a subject Labour is particularly familiar with.

A hundred years ago the New Liberals faced many of the same challenges of deeply ingrained inequality as we see today. They rose to this challenge, recognising that however much one removed constraints upon individual liberty, there were some things that individuals could not accomplish by themselves – and therefore could not be truly free.

Now we face the same challenge, to accept that there is a limit to what we can do to promote health and well-being, reduce violence and disorder and build functioning communities without tackling the underlying problem of a deeply unequal society, where social relations are dysfunctional and the stress of low social status, disrespect and exclusion is widespread. We need to accept the central role that the assault on inequality plays in all our attempts to promote both liberty and community. They can’t be won without it.

1. Liberal Democrat Policy Paper 50, It’s About Freedom (Liberal Democrats, 2002), p. 8, para 1.10. The paper itself did not have a separate section on equality.
2. This chapter is primarily about income and wealth inequality. I recognise, of course, that other forms of inequality – e.g. those deriving from race or gender – are also serious issues, but I do not deal with them here because I think the party’s position on them is right.
3. Sixty per cent of median income.
4. Mike Brewer, Alissa Goodman, Alistair Muriel and Luke Sibieta, Poverty and Inequality in the UK: 2007 (Institute of Fiscal Studies Briefing Note 73), p. 29. Figures are after taking housing costs into account.
5. Ibid., pp. 19–20.
6. Will Paxton and Mike Dixon, The State of the Nation: An audit of injustice in the UK (IPPR, London, 2004), p. 60.
7. Poverty and Wealth Across Britain 1968 to 2005 (Joseph Rowntree Foundation, July 2007).
8. By the admission of the British Private Equity and Venture Capital Association’s chief executive – he resigned two days later. ‘Private equity boss quits after Commons mauling’, Daily Telegraph 15 June 2007.
9. Larry Elliott, ‘Nice work if you can get it: chief executives quietly enrich themselves for mediocrity’, Guardian 23 January 2006; Polly Toynbee, ‘I was only the hapless decoy duck for David Cameron’, Guardian 28 November 2006.
10. Julie Froud, Sukhdev Johal, Adam Leaver and Karel Williams, Financialisation and Strategy: Narrative and Numbers (Routledge, London, 2006).
11. Nick Isles, The Risk Myth: CEOs and Labour Market Risk (The Work Foundation, London, December 2006).
12. Liberal Democrat Policy Paper 76, Trust in People: Make Britain Free, Fair and Green (Liberal Democrats, 2006), para. 3.1.2.
13. Jo Blanden and Steve Gibbons, The Persistence of Poverty Across Two Generations (Policy Press / Joseph Rowntree Foundation, 2006).
14. Kirstine Hansen and Heather Joshi (eds.), Millennium Cohort Study: Second Survey (Centre for Longitudinal Studies, Institute of Education, University of London, June 2007).
15. Except where noted, all references in this and the next two sections are from Richard Wilkinson, The Impact of Inequality (Routledge, 2005).
16. ‘What’s the prognosis?’, Guardian, 7 September 2005.
17. Audrey Gillan, ‘In Iraq, life expectancy is 67. Minutes from Glasgow city centre, it’s 54’, The Guardian, 21 January 2006.
18. Polly Toynbee, ‘Inequality kills’, Guardian 30 July 2005.
19. See Duncan Brack and Richard Grayson, ‘Equality’, in Duncan Brack and Ed Randall (eds.), Dictionary of Liberal Thought (Politico’s, 2007).
20. Michael Freeden, ‘More than freedom: the ideology of liberalism’, in Julia Margo (ed.), Beyond Liberty: Is the future of liberalism progressive? (IPPR, London, 2007), p. 28.
21. L. T. Hobhouse, Liberalism (Williams & Norgate, London, 1911).
22. For summaries of their thinking, see the relevant entries in Brack and Randall (eds.) Dictionary of Liberal Thought; and Will Kymlicka, Contemporary Political Philosophy (OUP, 2nd ed., 2002), particularly Chapter 2, ‘Liberal Equality’.
23. R. H. Tawney, The Acquisitive Society (G. Bell & Sons, London, 1921).
24. Liberal Democrats, Trust in People: Make Britain Free, Fair and Green, para. 3.2.4.
25. Liberal Democrat Policy Papers 75, Fairer, Simpler, Greener (Liberal Democrats, 2006) and 81, Reducing the Burden: Policies for tax reform (Liberal Democrats, 2007).
26. OECD Tax Database, ‘Taxation of wage income’, table I.4; available at http://www.oecd.org/document/60/0,3343,en_2649_37427_1942460_1_1_1_37427,00.html. Figures include central and local taxation, employee social security contributions and tax credits.
27. See Stuart White, ‘Liberalism’s progressive past: post-war Liberalism and the property question’, in Margo (ed.), Beyond Liberty.
28. Steve Webb, ‘Free to be fair or fair to be free?’, in Margo (ed.), Beyond Liberty, p. 135.
29. Michael Orton and Karen Rowlingson, Public Attitudes to Economic Inequality (Joseph Rowntree Foundation, 2007).

For Labour, it all comes down to defending the N in NHS.

You read that right. Given the choice between “national”, “health” and “service” the word that Burnham considers most key to the Labour approach is the former. Ignore “health”, never mind “service” – who needs a bandage when you can wrap yourself in a flag?

Think I’m being unfair? Burnham is of course a repeat offender. His response to Dan Hannan’s American adventure last week was to attack Hannan for being “unpatriotic.” With Labour floundering in the polls, never has Samuel Johnson’s adage that “Patriotism is the last refuge of a scoundrel” seemed so apt.

Burnham goes on to set out three specific examples of what he means:

Labour’s job is to speak up for the N in NHS – for national standards, national pay and national accountability

Let’s take these in turn. It is certainly the case that Labour has focused on national standards and it would be churlish to deny that over the past 12 years we have seen significant improvements. But it is foolish to suggest that mere regulation of health standards is a significant dividing line; even the US is pretty strict in this respect. And all too often Labour’s achievements have been bought by throwing money at the problem and by entrenching a target culture. Certain things, such as hospital hygiene, seem to have escaped them entirely.

But standards don’t automatically lead to results and the experience of healthcare around the country varies enormously. After writing about it last week, I am loathe to use the phrase “postcode lottery” but what is clear is that all the national standards in the world can’t get you an equal level of standard at a local level. Labour has tried everything – short of localism – to tackle this problem and after twelve years it has comprehensively failed. Burnham offers nothing new, merely that the Tories would have fewer national standards. This displacement activity fools no-one.

His second dividing line, unbelievably, is pay. Whatever the rights and wrongs of national pay bargaining, it is frankly gobsmacking that a Secretary of State considers this to be one of the crucial dividing lines in health on which Labour will fight the election. And you could argue with some force that its approach to national pay bargaining has been one of Labour’s biggest screw ups in recent years, driving the epitome of a soft bargain. Is Burnham serious about his desire to fight the next election on this record? Or is this more a case of deference to Labour’s paymasters, the unions?

Finally, somewhere below pay, comes the piffling issue of accountability. Here we are told we have two options: Labour’s centralised health service or a Tory quango. If ever there was a false choice, it is this.

The problem with the Tory’s policies on health are not that they are localist but that they aren’t localist enough. As we saw with IVF, at the first sniff of controversy they tend to reach for the national comfort blanket. They have nothing to say about the most important tool at a localist’s disposal: tax. They might support democratic administration of health services at a local level but the decision making will continue to be made centrally.

The social liberal alternative is spelt out on this website in Richard Grayson’s chapter on the NHS from Reinventing the State. Current Liberal Democrat policy is broadly along these lines. Far from leading to a decline in standards, the experience of continental Europe is that devolving decision making is key to ensuring them. The lesson learned is that accountability and standards are inter-dependent.

As a party, we have rejected social insurance as a funding model. Chris Huhne, who chaired the party’s public services working group in 2002 gives three reasons for doing so (pdf):

The first is that insurance schemes usually insist on co-payment. Thus patients pay nearly a third of primary care themselves in France, and in Germany the sick pay charges for the first period they spend in hospital, rather like an insurance excess in this country. The result is inevitably to exclude some of the poor. These schemes do not ensure universal access to health care when and where people need it.

The second problem is that social insurance schemes are surprisingly bureaucratic. Far from abolishing NHS administration, insurance schemes require more paperwork by both GPs and hospitals so that they can ensure proper reimbursement of insured costs, but no more. This is the flip side of the patient knowing how much operations cost, but it is itself costly and timeconsuming for the health professionals.

The third difficulty is that they also involve a separate and often expensive premium collection system, and even supposedly universal schemes based around employment suffer holes. Although much more comprehensive than the United States reliance on private health insurance – where some 45 million people currently have no health insurance at all – the safety net is not universal.

Moreover, if people are allowed to top up either spending or insurance payments, there can be the rapid development of a two-tier service. There would be choice and quality for the well-off, but a rump service for the rest.

Instead, we party has generally favoured the Danish model, a model which – as Richard explains – has been further reformed in recent years and could be emulated in the UK.

After twelve years, the model that Labour has demonstrated it is most comfortable with involves inconsistently applied standards and virtually no accountability. Andy Burnham’s comfort with such a patchy record is quite galling. If he thinks it is an election-winning position to hold, he is quite wrong.

This article was originally published in Reinventing the State: Social Liberalism for the 21st Century. We are grateful to Richard for allowing us to reproduce this article. Visit the Methuen website to purchase the latest edition of this book for the discount price of £10.

The democratic deficit in the NHS

Of all issues in public policy, health care is the one in which the public is consistently most committed to a major role for the state. The basic principle of the National Health Service – a tax-funded state-run system free to all citizens at the point of use – is a hugely popular one. Even the most pro-market politicians are reluctant to challenge it. Of course, the principle of tax funding was undermined as early as 1951 when the Labour government introduced prescription charges for false teeth and spectacles, and charges were then expanded further under the Conservatives in 1952. However, charges make up a tiny percentage of the NHS budget today, and the core of the tax-funded system remains unchallenged in party programmes.

Is that a problem? Some believe that funding through taxation has meant that the level of financing the NHS has been too low compared to other European countries. Michael Portillo made that case in 1998, saying that the necessary money could not be found through taxation: ‘The gap between what we spend on health care today and what we ‘ought’ to spend is large, and no party is going to make it up from taxation.’¹ However, the record of the Labour government since 1997 has suggested that this analysis is wrong. They have put billions more into the NHS; one of Labour’s proudest claims is that ‘Investment into the NHS has doubled since 1997 and is set to treble by 2008 to over £90 billion.’² The funding of health care in the UK now compares favourably with other European health systems, whether publicly or privately funded.

This suggests that it is possible to fund the NHS through general taxation at levels which compare with other countries, and that Liberal Democrats should not be seduced by arguments that more funding means private funding. Moreover, Liberal Democrats should recognise that tax-funding is the surest way to ensure socially just funding. Such funding is socially just on two grounds. First, it is redistributive, in that the wealthiest in society pay the highest share of the costs. Second, and most important, access to health care is not limited (at least in principle) by an individual’s ability to pay charges, whether on a one-off basis or through an insurance premium. For these reasons, this chapter does not propose any alteration to the basic funding regime of the NHS.

In contrast, decision-making within the NHS needs radical change. Despite the increased levels of funding under the Blair government, if only from 1999, there is no sense in which the public believes that all is well with the NHS. In particular, despite the extra money, the cumulative deficit of NHS trusts has risen past £1 billion. Consequently, some hospitals are faced with losing services or even closing altogether. The case has been particularly marked in the author’s own constituency, Hemel Hempstead. In July 2006, Liberal Democrat research found that sixteen hospital trusts, running twenty-seven hospitals in England providing acute services, were under strong pressure due to their deficits. The research identified the West Hertfordshire NHS Trust, which runs St Albans City Hospital, Hemel Hempstead General Hospital and Watford General Hospital, as being under the most pressure. Others at high risk included West Middlesex University Hospital NHS Trust, and Surrey and Sussex Health Care NHS Trust. The list suggests that deficits appear to be greatest in the south-east of England.³ The deficit means that trusts are obliged by the rules to make cuts, albeit after going through public ‘consultation’ exercises. Despite the huge public support for keeping all hospital services, trusts find they cannot do that because they do not have the money. But because they have little real meaningful independence from central government, and no power to raise extra public funds locally, they are unable to have a meaningful debate with local people about how local aspirations can be met. The end result is that after nearly a decade of increases in NHS funding, all that some local people see is the closure of wards. They understandably fear for the future of entire hospitals.

The situation in West Hertfordshire is admittedly an extreme example of the problems faced by today’s NHS. But it flows from a political failure at the heart of the NHS throughout England: the inadequacy of the current decision-making structure for any kind of rational debate about the cost and shape of health-care provision in local communities.

The NHS is enormous. As Patricia Hewitt pointed out in June 2007, ‘If the NHS was a country, it would be the 33rd biggest economy in the world, larger than new European Union transition economies like Romania and Bulgaria … The NHS is four times the size of the Cuban economy and more centralised.’⁴ Within this massive bureaucracy the ability of local people to influence decisions is extremely limited. In the current system, ministers are able to claim that any local closures have followed public consultation and that decisions have been made locally. Yet the unelected bureaucrats who make such decisions pay scant attention to local wishes for two reasons. First, they do not have to: they are unelected and their jobs do not depend on any form of public satisfaction. Second, they are not able to act on most local demands because they work within tightly defined budgets and central rules, which do not allow them any flexibility in the amount of money they spend on local services.

It is argued in this chapter that it is this absence of a democratic authority which can take decisions based on meaningful local debate that is the greatest barrier to satisfying public demands on the NHS. Without such a body, it will always be possible for everyone to blame somebody else without taking responsibility. Ministers can blame local bureaucrats, when those ministers have given the bureaucrats very little independence. Health care bureaucrats can point to rigid central controls, but can also blame the public for making supposedly unrealistic demands, when the bureaucrats have little incentive to engage with the public. The public can blame ‘them’ – usually the government or bureaucrats – despite the fact that the system allows the public to make demand after demand for high levels of local services without ever having to face their real cost. Meanwhile, without local power, demands for higher quality are difficult to balance with fairness, as only the better off can access the ‘more’ or ‘quicker’ health care which is so often what people mean by quality.

In place of this current system, the NHS in England needs radical reform. We need a radically different system which puts elected local people in charge instead of the plethora of unelected bureaucrats currently in power, and the remote national ministers who set targets. Crucially, these elected local people need to have the power to raise funds for the NHS so that any demand made by the public for higher quality can have a real price attached. Only in that way can there be a rational public debate about local health-care provision in which those making the demands also pick up the tax bill.

The danger of not reforming the NHS is that its noble concept will lose public support. In 1970, the economist Albert O. Hirschman wrote a classic study of what happens to organisations faced with difficulties: Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States.⁵ This study has relevance for the NHS today. Hirschman argued that in any organisation which is failing to deliver a satisfactory service, its users have two choices: exit and voice. In the NHS today, exit is an option for the wealthy, but it is not a real choice for the many. Meanwhile, the ability to have a voice is extremely limited. Democratic reform can provide that voice.

Counties and cities, not regions

Although the NHS is notionally UK-wide, and is certainly funded as such, the system in England post-devolution to Northern Ireland, Scotland and Wales is unique to England. So although an English parliament would stop MPs from the devolved parts of the UK voting on England-only matters, it would do nothing to decentralise decisionmaking in the NHS, as the Parliament in Westminster already makes decisions on English health matters. But the problem with the NHS in England is not that Jo Swinson, Alun Michael or Ian Paisley can vote on English-only matters, but that the NHS in England is too vast. The challenge is therefore not simply to remove Scottish, Welsh and Northern Irish MPs from decision-making in England, but to devolve power below the English level that already exists.

As part of a model for a federal UK, the Liberal Democrats have long argued for regional devolution. The regional dimension was a particularly important aspect of the 2002 Liberal Democrat public services policy paper, Quality, Innovation, Choice. This was the report of what was colloquially known as the ‘Huhne Commission’, named after the working group’s chair. The paper proposed that where elected regional authorities existed in England, current unelected Regional Health and Social Care Directorates and Strategic Health Authorities should be scrapped. Instead, regional assemblies would take responsibility for the strategic development of health and social care services. Crucially, these regional bodies would be able to vary taxation (specifically, a proposed earmarked NHS contribution) to supplement funding received from central government. Meanwhile, Primary Care Trusts would be scrapped, with their powers given to whatever tier of government in the area had responsibility for social services. In such a system, regions would have agreed collectively on setting minimum health care standards across England. The role of central government would be limited to public health, regulation, medical research, and medical, nursing and other professional training, while a new Finance Commission for the Nations and Regions would allocate central funds to each region based on need.⁶ There was no alternative proposed for regions without an assembly because implicit in the policy was the belief that in time, regional assemblies would cover all of England, and those which did not initially want such a body would be encouraged to adopt one through the promise of more control over the NHS in their area.

I was closely involved in developing these policies as the party’s Director of Policy at the time, and I still believe that given the assumptions of the time, they were the right policies for us to develop. However, it now turns out that one of our key assumptions was wrong. The context in which we operated was a shared belief, held in both the Labour Party and the Liberal Democrats. We believed that regionalism in England offered the only way in which England could have the same measure of democratic devolution as that enjoyed in other parts of the UK through elected bodies in Belfast, Edinburgh and Cardiff. It was assumed that there would be a rolling process of devolution across England, with the North East being the first to adopt a regional assembly. However, those assumptions were faced with a reality check when the North East decisively rejected such a body in 2004. It had always been known that some ‘regions’ (notably the South West, which has always had strong county identities) were resistant. But from the south of England, the ‘Geordie nation’ looked like exactly the kind of region that could blaze a trail for regional devolution.

With even the North East rejecting a regional assembly, that chapter in progressive plans for devolution is now closed. The Labour Party rapidly shelved further plans, and even the Liberal Democrats downplayed the proposal in the 2005 election. Three lessons came out of the North East case which need to be learned by anyone who wants to see decentralisation in England. First, people are inherently sceptical about additional layers of government or bureaucracy. There is always a fear that such a body could be a gravy train for politicians who had not quite made it to Westminster. Second, there is no appetite for ‘talking shops’ as bodies with minimal powers tend to be called. This was a major problem with the type of regional body proposed by Labour in 2004. However, it is not at all clear that people would have opted for a more powerful body, for the third problem that emerged from the North East is that regions, even in the North East, are not natural communities. For all that there is a ‘Geordie nation’, it is easy to forget that such a label does not apply to the people of Sunderland, Middlesbrough or Durham, and within each region there are often major divisions. Put simply, regions are just too big and too recent a creation for people to feel any emotional affinity to them.

So anybody who wants to decentralise within England has to look for alternative natural communities. These must be ones through which people will consent to organise services and with which people will feel some community of interest. They must also be large enough in which to take strategic decisions. Do they exist already? The simple answer is yes: they are counties and cities. Crucially, although county identities are not as strong as they once were, people already understand them as legitimate political entities because they exist in the form of county councils, and the same can also be said of England’s major cities which have their own authorities.

The task therefore becomes to prove that they are large enough units to take on strategic health care functions, or that in the cases of very small counties, there is a way of pooling responsibilities with neighbours. Part of the evidence lies in another part of the UK. Northern Ireland manages to take strategic decisions for its share of the NHS with a population of around 1.5 million. That is significantly below the populations of the current ten strategic health authorities and more in line with the size of many of the twenty-eight strategic health authorities that existed in England between 2002 and 2006. The NHS in Northern Ireland is also the part of the NHS with integrated decision-making on, and provision of, health and personal social services. Does it work? Mortality rates per 100,000 of the population (standardised for age) are about 2.4 per cent higher than for the United Kingdom as a whole. However, the direction of this figure is downwards, and at a faster rate than for the rest of the UK. Between 1996 and 2001, for example, overall mortality in Northern Ireland fell by nearly 14 per cent, which was faster than for the whole United Kingdom, at 9 per cent.⁷

However, further evidence of such a scale of decision-making can be found from another country: Denmark.

Danish lessons

In the early part of this century there was a vogue for examining public services in other parts of Europe – and indeed outside Europe – in order to see what can be learnt. The think-tank Civitas has carried out extensive research on health care. Conservative spokesmen were dispatched to the continent, prompting wry smiles from those who had grown used to the Conservatives being at best wary of the supposedly pro-state solutions of the French, Germans and, not least, the Scandinavians. Liberal Democrats took part in this exploration too, first on education, and then on health. Within the party, some of this research had an impact on policy. The Dutch model of funding schools, set out in a pamphlet by myself and Nick Clegg, found its way into the party’s policy in 2002.⁸ Meanwhile, the Centre for Reform’s work on comparative systems of health funding offered strong arguments against health insurance schemes at a time when the party was looking at all options and ended up not choosing insurance.⁹

However, the party skirted round the need for radical devolution. That was despite the fact that Denmark, the country with the most radically devolved health system in Europe, was cited as a model of good practice. The 2002 public services paper said, ‘Although Denmark has a population of just 5.3 million, its popular and tax-funded health service is run by its 14 counties and two cities. Denmark spends modestly more than we do as a proportion of national income – about 1.2 per cent – but has the highest satisfaction ratings in Europe.’¹⁰ Having failed to follow this approach through in 2001–02, it is now time that the Liberal Democrats revisited the Danish model as one that could be transplanted to the NHS in England.

The Danish system is now even more appropriate for England than it was in 2002. At that point, as the policy paper said, it was run by fourteen counties and two cities (Copenhagen and Frederiksberg). These bodies were responsible for both GPs and hospitals and they funded them mainly from county taxes, used primarily for health. Below the counties were local authorities (273 of them) which had responsibility for matters such as school health care. At a national level, the government played a hands-off regulatory role, for example on parents’ rights.¹¹ However, even though the Danish public were very satisfied with health care at that point, there was a sense that the system was not as efficient as it could be. Moreover, in a relatively small area, there were difficulties in coordinating between a large number of decentralised authorities.¹² Even the counties were often very small compared to England. The smallest, Bornholm, had a population of 43,245 in 2006. The largest, Aarhus, at 661,370, was smaller than most English counties. Several were smaller than all English counties except Herefordshire, the Isle of Wight and Rutland.

As a result, the Liberal Minister of the Interior and Health, Lars Løkke Rasmussen, pushed a series of proposals through the parliament, the Folketing, in 2005. These measures, a total of fifty acts under a broad ‘Agreement on Structural Reform’, abolished the counties (including the two city authorities) and replaced them with five regions, ranging in population from about 600,000 to 1.6 million, thus making them analogous in size to English counties rather than regions. The 273 municipalities were replaced with 98 on revised boundaries.¹³ The powers of the new levels of government, which came into being on 1 January 2007, are now as follows:

• Municipalities:
  • Preventive treatment, and non-hospital care and rehabilitation,including that at home; and
  • Treatment of alcohol and drug abuse.
• Regions:
  • Hospitals;
  • Psychiatry; and
  • General practitioners, specialists and reimbursement for medication.¹⁴
• State:
  • Planning for specialist treatment; and
  • Follow-up on quality, efficiency and IT usage.

The argument here is this: if Danish counties, which were smaller than English counties, could deliver a health care system, funded from general taxation, that was the most popular in Europe, why cannot English counties do the same? Moreover, why is this model not even more appropriate now that it has been established on a working basis in units that even more closely match the English counties in size? The arguments against are only those about whether the units are to small for strategic thinking, but the Danes have shown that a radically devolved system can work, and work well.

The argument about exactly what a Danish transplant would mean for England in terms of organisation is developed further below. However, one other issue from Denmark needs to be discussed before that: funding. Under the pre-2007 model, most of the money for health care in the counties was raised in the counties. In the new scheme, approximately 80 per cent of each region’s funding comes from a national health contribution, amounting to a rate of around 8 per cent on income tax. That is part of the replacement of county taxes which had been, on average, over 30 per cent, and which were completely scrapped in the 2007 reforms, so it is not an additional tax. The minimum national health contribution per year is 1,000 Danish kroner (about £90) and the capped maximum is 1,500DKK (about £140). That represents only a small amount, but it can provide useful extra funding at a local level, and can be vetoed on a vote of two-thirds of the municipalities. The final 10 per cent of the regional health budget comes from a basic contribution payable through municipalities, but set by the regions, described as an ‘activity-related contribution’. Since the municipalities have a non-hospital care role, the amount they pay through this final contribution is reduced as they make relatively low demands on hospitals, thus rewarding effective preventive treatment care.¹⁵

As with decentralisation, the funding aspect of the Danish model is similarly capable of being transplanted to English counties without being rejected by the host. At its core are concerns for equalisation and redistribution, to ensure that the very different tax bases of the regions and municipalities do not result in disparities in funding. As the Danish government said:

If each municipality were to finance its own expenditure, the service level and tax burden of the municipalities would … vary considerably. The purpose of the equalisation system is to ensure that the same service level involves the same tax percentage regardless of the income of the inhabitants and any demographic factors … [T]he grant and equalisation system means that money is transferred from the rich municipalities to the less affluent ones.¹⁶

However, the system also allows local flexibility in funding should more funds be needed and rewards attention to preventive measures. That makes the Danish funding system compatible not only with the principles of a National Health Service, but also with the Liberal Democrat commitments to localism.

The absence of democracy: the NHS in England today

To determine what could be devolved in England, the starting point has to be an analysis of the situation as it currently is. There are two main levels of the NHS which ministers regularly describe as ‘local’ and are concerned with commissioning services: Primary Care Trusts (PCTs) and Strategic Health Authorities (SHAs). Yet neither are democratic in any meaningful sense, as local councillors have very limited powers of scrutiny. Meanwhile, the Strategic Health Authorities are hardly local, as they operate on a regional basis. There are also other bodies, such as acute trusts, which will be discussed briefly.

The Primary Care Trusts are the key building blocks of the NHS. Created in 2002 following the government’s 2001 Shifting the Balance of Power initiative, they are responsible for 80 per cent of the NHS budget. PCTs can provide services but their main role is to commission services from GPs, hospitals and other parts of the NHS. Their role is officially described as to ‘make sure there are enough services for people within their area and that these services are accessible’.¹⁷ The boundaries of PCTs are often counties, but they can be smaller. For example, in the East of England region, there are fourteen PCTs. There are two for Hertfordshire and five for Essex; four nominally cover whole counties (Norfolk, Suffolk, Beds and Cambridgeshire), but a further three cover parts of these counties: Luton, Peterborough and Great Yarmouth & Waveney. Although these PCTs match local government boundaries in some cases, they do not always do so, and one result is a confusing array of mechanisms for accountability to local people.

The Strategic Health Authorities were created in 2002, to replace existing health authorities. They are the link between the Department of Health and the local NHS, ensuring that national targets are incorporated into local health service plans. They also develop strategic plans for health services across the region and monitor performance. There were originally twenty-eight of them, based on a city or one or more counties, with London divided into five. Most covered an area containing 1.5–2 million people. However, in 2006, they were reduced to ten: London, South East Coast, South West, South Central, East of England, West Midlands, East Midlands, Yorkshire and the Humber, North East, and North West. They range from a population of 2.2 million in the North East to 7.4 million in London, with most in the 4–5 million range (that is, as large as Denmark as a whole).

In addition to PCTs and SHAs there are other bodies which aim to make the administration of the NHS more local. Acute trusts manage hospitals and are sometimes regional or national specialist centres. They employ those who work in hospitals and thus have a crucial role in spending the money that comes from elsewhere in the NHS (for example, from PCTs), while those attached to universities have a role in training professionals. The acute trusts often have boundaries which come close to those of PCTs, but not always; for example, the East of England’s fourteen PCTs are joined by eighteen acute trusts. Some of the acute trusts have become the controversial foundation trusts, of which there are fifty-four across England. Other types of trusts include ambulance trusts (which largely match SHA boundaries), care trusts (covering only thirteen very specific parts of the country), and mental health trusts (MHTs). As regards the latter, their boundaries can match those of other trusts, but not always. To take the East of England as an example again, its fourteen PCTs and eighteen acute trusts are joined by eight MHTs. The result of this is a confusing mish-mash of overlapping boundaries which can bemuse any member of the public who is trying to work out who runs which part of the NHS. But all these bodies have one thing in common: democratic accountability, and the ability of local people to make meaningful choices about levels of service, is extremely limited.

Theoretically, the Secretary of State for Health can intervene in decisions made by trusts, but they have been reluctant to do so, sometimes deploying the argument that local decisions should be made by local people. That is right, yet it is not what happens, because local people have very little power or meaningful voice over decisions. There are plenty of ways for the public to make their views known about the NHS and to scrutinise its work. Not only can they lobby politicians, but they can currently get involved in Patient and Public Involvement (PPI) Forums. These Forums monitor each NHS trust (including SHAs) and monitored bodies are obliged to respond to their reports. However, the government is in the process of abolishing PPI Forums and replacing them with Local Involvement Networks (LINks) which will be organised in such a way as to match social service boundaries.

In addition to this, since 2000, local authorities (both counties and boroughs) have had powers to scrutinise the NHS in their area, and councillors have been vocal in criticising all types of NHS trusts. However, they can only challenge trusts over whether procedures have been correctly followed.

Consequently, the central political problem of this system in the NHS in England is that there can be mass consultation on local health care, but there are rarely the means to implement local people’s wishes on the most controversial issues such as keeping hospital wards open. Those running trusts are able to respond to local demands by saying that they would like to do as the public wishes but simply cannot. They can say that they are unable to act because they do not have the money within existing budgets and do not have the power to raise extra funds. Moreover, because local people are never faced with a real choice – such as having to pay higher taxes for the services they went – they end up feeling profoundly powerless and dissatisfied. The only way to change that is to introduce radical democratisation of the NHS at a local level.

A democratic and local NHS

One option for democratising the NHS in England is simply to elect Primary Care Trusts, replacing them with elected Local Health Boards. The attraction of this option is that it would not involve any reorganisation of the current NHS management, and would recognise the extent to which people see the NHS as separate from other parts of government. With all the change that there has been in the NHS in recent years, such an approach has huge practical attractions and may be necessary as a first step to further reforms. However, in the long term, more radical democratic decentralisation is necessary if we are not only to devolve decision-making in the NHS but to create the kind of devolved government in England that is enjoyed in the rest of the UK. Such radical reforms should be centred upon counties, which are historic units of England, and many of which encourage strong feelings of local identity.

Creating a democratic NHS at a county level will mean revisiting the boundaries of existing trusts. As part of that, the distinction between PCTs and SHAs should end, with their commissioning powers given to elected local people who are in touch with local needs and have the ability to raise extra funds to meet local demand. That will mean centralising some functions which currently take place at a level below that of counties (or a similar level of government), and decentralising those which are dealt with at a regional level. But it will mean democratisation all round, giving real power to elected local people.

The last thing the public wants is another level of government. Indeed, in many places, the number of levels is already being reduced with the introduction of unitary authorities. So instead of creating regions, the powers of SHAs and PCTs should be given to more local levels. The most obvious boundaries, very much in line with the Danish model, are those of the thirty-four counties, six metropolitan counties, or forty unitary authorities across England. London is a special case which is discussed below.

There are two options for the way in which such devolution could be achieved to provide local people with the voice that they lack. The quickest and simplest way might be to give PCT and SHA commissioning powers to existing county-level authorities. The great advantage of this approach is that it could have positive effects on the quality of government beyond the NHS. By giving county councils significant powers over the NHS, counties would become more directly comparable to the devolved bodies in Belfast, Cardiff and Edinburgh. This would help to answer the ‘English question’, which is increasingly a factor in debates on the power of Westminster. If an effect of that was that people who are ambitious to wield power in their area stood for county councils rather than Westminster, the overall quality of decision-making at a county level would be greatly increased.

An alternative option would be for each county-level local authority to choose whether to run the local NHS itself, or to create a Local Health Board with powers to vary local taxes in much the same way as unelected police authorities do. Such a Board would be directly elected by local people at the same time as local elections, on the basis of manifestos put forward by local parties or independents. The advantage of this approach over the more timid measure of simply turning PCTs into Local Health Boards along current boundaries is that county boards would reflect wellunderstood community boundaries and reduce confusion about where decisions are made and by whom. Meanwhile, the advantage of such an approach over submerging NHS functions into wider county-council matters would be that there could be a very clear focus on NHS-related issues at election. All the evidence suggests that this is the primary concern to voters, so why not give them a chance to have a separate debate over how to run the NHS? This would allow clear choices to be made over, for example, additions to the NHS budget in return for maintaining a local hospital ward, rather than confusing health matters with the broad range of issues tackled by local authorities. It would also allow those with specific expertise of the health service, such as retired doctors or nurses, to get involved in the running of the local NHS, having put their case to the electorate. Their expertise could greatly inform manifestos and invigorate local debates on health care.

County-level devolution – whether to councils or Local Health Boards – would be a significant development of Liberal Democrat policy. As regards the powers of PCTs, this approach is already in essence party policy in the proposal to give the commissioning powers of PCTs to local government at the same tier as social services.¹⁸ But the proposal goes much further on SHA powers because it assumes not only that regional assemblies do not exist and are unlikely to, but also that they should not exist, as they are far too remote from local people. Overall, this proposal will mean the devolution of commissioning powers from ten regional SHAs, and the centralisation of power from 151 PCTs. So the wide-ranging but unaccountable decision-making bureaucracies of 161 bodies will be scrapped and their powers given to around eighty existing countylevel councils.

Underpinning these changes in decision-making must be one crucial change on funding. Core funding has to remain at the national level, as it does in Denmark, to maintain fairness across the country and so that poorer areas do not have under-funded health care. Yet local decision-making cannot be effective unless there is local flexibility over funding. So aside from having the power to make those decisions currently made by PCTs and SHAs, local authorities must have the ability to support those decisions with necessary funding. Only by having the ability to raise extra funds can authorities truly respond to local needs because more often than not, local demands for services will have a price attached. Thus, authorities should be empowered to raise funds for the NHS through additions to the NHS Contribution discussed in the next section. That will give them the power to meet public demand, while at the same time showing the public that their expectations have costs.

There should not, however, be wholesale change of all structures in the NHS. Although the commissioning powers need radical reform, there are three reasons why it does not make sense to make such major changes in the provision-side of services, as regards the role of acute and mental health trusts. First, those working in the NHS are already demoralised by government targets and consistent reorganisation. Second, giving powers over provision to politicians rather than clinicians would fly in the face of the strongly held Liberal Democrat belief that professionals should be allowed to get on with their jobs. Third, if one wants to retain the advantages of the purchaser–provider split in the NHS, which can promote value for money, then it is necessary to retain separate acute trusts so that the commissioning arm of the NHS can make real choices between them. There is the danger that acute trusts will continue to make decisions which are unpopular with local people. For example, a trust which runs the same service at more than one different hospital (perhaps in two different towns), may decide that it wishes to centralise a particular service in one hospital. Such decisions are usually driven by financial limits, and so negotiations will have to take place between the acute trust and the locally elected commissioners. If the latter are convinced that there is no case for retaining services at both hospitals, then they will have to defend that at election time. However, if they believe that it is essential for services to remain at both, they will be able to raise money locally to pay for that.

There is one important caveat to the proposed radical democratisation of the NHS in England. We need to recognise that some local authorities may feel that they are not the right size for taking sole responsibility for health care because they feel themselves to be too big or too small. It may be that larger counties wish to split the geographic areas they cover into two or more units. If so, they should be able to do that. But smaller counties may wish to work with others. So they should be given the opportunity to collaborate with other authorities by agreement. Two smaller counties may decide to commission hospital services together, and that may well make sense. In such a situation, they would have the option of making decisions either through joint meetings of the county councils or through a joint health board. But the crucial democratic accountability element should remain, so that at elections, council or health board candidates put a health programme to voters and can be held to account on their NHS-related decisions.

The precise nature of boundaries is a problem that will be faced by Londoners in particular. The current London SHA covers a population of over seven million people. It may well be that Londoners would wish to run health on a city-wide basis, and if so, the Greater London Authority and Assembly already exist. However, to ensure that the potential benefits of devolution and genuine local accountability can be enjoyed across the city, London boroughs should be offered the same powers and choices as counties, or the chance to pool their powers with other boroughs. The result may be London-wide decision-making, or the city may be split into smaller units, but that will be for Londoners to decide.

Maintaining national guarantees

The Liberal Democrats have a clear position on how the national level of the NHS should be reformed and that approach is consistent with the model advocated here, though with no role for regions.¹⁹ The starting point should be a reformed Department for Health. Its current role in defining national NHS targets should end, as they have consistently distorted clinical priorities. Instead, the Department should focus on matters such as ensuring standards of professional training and competence, inspection and audit, and coordinating the agreement of minimum standards for quality of care and patient experience.

Funding for the NHS should come from an earmarked NHS Contribution, based on National Insurance, and distributed using current formulae. When this policy was first developed by the Liberal Democrats in 2002, the amount raised by National Insurance Contributions (NICs) conveniently matched the NHS budget. This meant that the revenue stream from NICs could easily be diverted to the NHS. However, the NHS now consumes more money than is raised by NICs. This is not a problem if five steps are taken. First, all NICs should be diverted to the NHS. Second, the shortfall should be made up by money from general taxation. Third, a rate should be set for an NHS Contribution which will provide enough revenue to maintain the current NHS budget. Fourth, the basic rate of income tax should be reduced by the difference between the NHS Contribution and the old level of NICs. Finally, there should be an exemption from part of the NHS Contribution for those pensioners who pay income tax (since they do not currently pay NICs) so that they do not pay more under the new system. The overall effects of these steps will be that the NHS Contribution will be higher than the NICs rate, but the basic rate of income tax will have been reduced, and pensioners will not have to pay the full NHS Contribution, so that the overall level of taxation remains the same. The amount of money coming into the NHS will remain the same, but the cost of the NHS would be much more transparent, greatly aiding political debate and decision-making.

Conclusion: the need for voice

Within such a national framework, a reformed local NHS can flourish. But it can only do so if the existing bodies are scrapped and given to democratically accountable local people with wide-ranging powers. Those could be existing local authorities on a county or city basis, or they could be new Local Health Boards. There may also be more short-term attractions in simply transforming PCTs into health boards, as already proposed by the Liberal Democrat health spokesman. But without one of these reforms, people will not have a voice over the local NHS and will be continually frustrated about their inability to influence decision-making in the areas of the NHS that most affect them.

Without local power, local people will be continually asking for health care that is not on the menu, and for which they have not been given a price. Without local power, people have no chance to pay for the quality they want, and monitor the quality of local services. Radical devolution has happened in Denmark, and it works. The challenge in England is to sweep away swathes of unaccountable local bureaucracies and give their powers back to the people through elections in which local health care can be thoroughly debated. As regards the NHS, that does not mean reducing the overall size of the state, but relocating it.

1. Michael Portillo, ‘The Bevan Legacy’, Kathleen A Raven Lecture given at the Royal College of Surgeons on 10 June 1998; available at: http://www.pubmedcentral.nih.gov/articlerender.fcgi?artid=1113449.
2. http://www.betterwithlabour.co.uk/nhs/Made_by_Labour#top10.
3. Liberal Democrat press release, ‘Lib Dems highlight English hospital trusts most under pressure’, 25 July 2006; available at: http://www.libdems.org.uk/news/story.html?id=10674&navPage=news.html.
4. Patricia Hewitt, ‘The NHS: The Next Ten Years, Speech at London School of Economics, 14 June 2007; available at http://www.lse.ac.uk/collections/LSEPublicLecturesAndEvents/pdf/20070614_Hewitt.pdf.
5. Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Harvard University Press, 1970).
6. Liberal Democrats, Quality, Innovation, Choice (Liberal Democrats, London, 2002), pp. 50–51.
7. Angela Jordan et al, Health Systems in Transition: the Northern Ireland Report (World Health Organisation, Copenhagen, 2006), pp. 1, 6.
8. Nick Clegg and Richard Grayson, Learning from Europe: Lessons in Education (Centre for European Reform, London, 2002), pp. 19–21; Quality, Innovation, Choice, p. 57.
9. Nicholas Bromley, Universal Access, Individual Choice: International Lessons for the NHS (Centre for Reform, London, 2002).
10. Quality, Innovation, Choice, p. 21.
11. Ministry of Health and the Interior [Denmark], Health Care in Denmark (Ministry of Health and the Interior, Copenhagen, 1997, revised August 2002), pp. 8–10 and 15–17.
12. Ministry of the Interior and Health [Denmark], The Local Government Reform – In Brief (Ministry of the Interior and Health, Copenhagen, 2005), p. 7.
13. The Local Government Reform – In Brief, pp. 53–56.
14. Note that this category is described as ‘health insurance’ in the English translation of the Danish documents. However, this is misleading as the ‘insurance’ is simply funded by taxation, and is not a form of insurance as understood in the UK.
15. The Local Government Reform – In Brief, pp. 36–39.
16. Ibid., pp. 36–37.
17. Details of the scope and roles of trusts are available at: http://www.nhs.uk/England/AuthoritiesTrusts/Default.cmsx.
18. Liberal Democrats, Healthy Communities, Healthy People (Liberal Democrats, London, 2004), p. 25.
19. Ibid., pp. 23–29.

“Postcode lottery” is a cliché, and a peculiarly British one. Why is it, for example, that the only references on Google to “zip code lottery” I can find are articles in the US referring to the UK? Surely Americans, with their far greater local control of public services, would be screaming about the phenomenon and demanding a massive centralisation of services? Yet strangely they don’t.

Can it be a coincidence that the UK is both obsessed with postcode lotteries and happens to be one of the most centralised developed countries in the world (if not the most – depending on how you measure. Malta is unquestionably more centralised but has a population the size of Kirklees or Devon)?

There is local variation in public services around the world; the difference is that in most other countries people are able to do something about it. It is no coincidence that a country like Denmark devolves healthcare down to the local level yet can provide a consistently higher level of care. The gap between aggrieved voter and accountable politician is much, much closer. What’s more, the fact that the grass seems to be greener next door proves to be an excellent incentive for local government to always be on the lookout for ensuring that services are as good as they can be: the price they pay for failure is getting booted out of office.

Sunder Katwala may not realise it, but he is in fact an advocate of postcode lotteries. The system he seeks to preserve could indeed be called a lottery because how you cast your vote has almost nothing to do with the level of health services you go on to receive.

Nonetheless, he is correct to point out that this is an argument that has not yet been won in the UK. Oddly for a country so seemingly unconcerned about the widening equality gap, the British public are fixated on the idea of a national health service providing an identical service from Lands End to John O’Groats (and beyond). This idea has been encouraged by the courtly dance between the media and a political class all to happy to indulge it. It is no coincidence that we are not just more centralised than ever, but we have spent the last 50 years doing so. We’ve come a long way from the reforming zeal of Joseph Chamberlain. Nonetheless, local variation of public services is a fact whether you have local control or not. It is simply dishonest to try fooling the public into thinking that somewhere out there is a magic formula that will enable Whitehall to impose a standard service across the land. The con has worked for half a century; it is now time to start treating the electorate as adults.

Grant Shapps, as a paid up member of a party which claims to be localist, ought to know better than to fan these flames. His report doesn’t appear to have any positive suggestions at all, merely pointing out that there is significant variation in IVF provision and that it is all that wicked Gordon Brown’s fault. Playing the postcode lottery card makes it harder for a future Tory government do actually do anything about it.

This suggests that the Tory commitment to localism is only skin deep. The fact that the Tories remain steadfastly opposed to giving local authorities the single most important tool for local control of public services – greater tax-raising powers – only encourages this view.

It is encumbant on people who like to bang on about postcode lotteries – whether they are on the left or the right – to say what they propose to do about them. The Liberal Democrats, as true localists, have an answer. Can Fabians and Conservatives say the same?

School choice sits as one of a handful neo-liberal education reforms instituted since the late 70s. Others include the marketisation of schools, centralisation of curriculum and performance management, and all are interlinked and interdependent. They began as a reaction to two issues that faced, not just Britain, but many developed western nations at the time, namely: an engorged public sector which was seen as wasteful and sluggish, and a response to the perceived threat of globalisation. The Thatcherite government believed Britain had to become more competitive internationally and took pains to prove that public spending in education was ‘effective’ and ‘efficient’. The result was the quasi-marketisation of the sector. The marketisation part introduced the mechanism of school choice to drive up performance in schools while allowing them to respond quicker to the changing needs of the job-market. The quasi part was the centralisation of curriculum and funding and increased government montoring of performance imposed most vigorously by the New Labour government post 1997. Combined, the government said, we would have all the positives of a market (increased efficiency and responsiveness etc) without the problem of having any ‘losers’ in the imperfect market system.

To monitor the effectiveness and output of schools, tools such as league tables and targets were introduced. These precipitated a subtle but often ignored shift between student need and student performance. To illustrate this I think specifically of my experience as a trainee- teacher in a school in Hillingdon. In the third term I was shocked to discover that the year 10 students had been colour coded into red, amber and green depending on how likely they were to achieve 5A*-C GCSE grades. This in turn would determine the school’s position in the league tables (a 50% school for example has 50% of students getting these grades or above). We were to focus on the ‘greens’ but particularly the ‘ambers’, management said. The fact that at this crucial time we were to concentrate our efforts on those who struggled in effect the least is a pertinent example of how this market driven education landscape has turned common sense on its head. The greater need of ‘reds’ is sacrificed to enhance the performance of the ‘amber’ and ‘greens’.  Things have changed a little with the new ‘value-added’ league tables, but the practice still continues.

While the example above paints a grim picture, the truth is that the schools feel they have no choice but to behave this way. Though many schools achieve good results through good teaching there is room to manipulate the superficiality in the system. Currently, funding is associated with outcomes, thus a school with a low achieving population is likely to have less funding per pupil than a high achieving one. However, even if this funding issue were completely removed the problem would persist. Parents choose schools often based on more subtle criteria than simply funding. The results from the PISA surveys which test attainment in 15-16 year olds across OECD countries also show that funding has only a minor effect on academic attainment. Following the socioeconomic background of the family, the factor with the highest effect on attainment seems to be the socioeconomic background of the other pupils in the school. Schools know this and though state comprehensives are prohibited from having academic entrance requirements, they can choose to market themselves in such a way as to be more attractive to certain populations.

The school has become the provider of a commodity which reorients the role of parents as consumers. It is presumed by the champions of choice that all parents are equal in this equation, but this is not true. There is no doubt that parents of every background care about their child’s education (there is research supporting this too!), but it is true that that middle class parents have larger amounts of so-called ‘cultural’ and indeed real capital to draw on when making decisions about the ‘next stages’ of education for their children. The inequality is reproduced mainly at the transition points in education e.g. nursery to primary or primary to secondary, or at the points in system where choices are to be made. This is an important argument in favour of fully comprehensive systems with no streaming as found in the famed education systems of Sweden, Denmark and Finland. We should be cautious about cross-country policy borrowing, but the logic behind the success of the comprehensive system in maintaining equality does seem to be compelling.

Not only do middle class parents have the knowledge of how to best play the system but if needs be, they often have the means to physically move house to get what they want. In fact it has been known for families to think years in advance so they can move to the ‘right’ area to be near the ‘right’ school. So the best schools attract the best students and market continually reinforces the class divide. This in turn has a consequence on the make up of communities. If the ‘best’ schools actively attract the higher echelons, this results in middle class areas being built around ‘good schools’ leaving large numbers of the less well off to make do with what is more readily available to them. We won’t ever be able to stop people from moving, but removing the culture of treating education as a commodity may go some way to helping the problem of community division.

There is little evidence to suggest that choice can cure social inequality, as was the hope when it was initially introduced. The best evidence for this seems to come from Scandinavia. While the intergenerational transmission of social inequality has increased in countries like the UK, US, Germany and Italy since the 1960s, it has decreased in Sweden. The explanation seems to hinge more on social policy, such as the introduction of universal childcare, more than anything else. Social policy improved equality, but the comprehensive education system seemed to reinforce the ‘good start’ given to children by not allowing the social inequalities to perpetuate. Thus choice in education certainly causes educational inequality which in turn seems to reproduce and possibly amplify social inequalities. What is interesting is that Sweden has recently introduced some choice into the system and the PISA results are now showing that educational inequality is rising. Whether this will eventually lead to an amplification of social inequality is speculative, but what is does do is debunk the argument that if society is more equal, choice ‘will not matter’. There will always be inequalities in society (at least without extreme measures such as communism), and the effect of choice seems to always be harmful to some sort of equality; proven in the educational case and probable in the societal one.

So what does that mean for Britain with its streaming, choice heavy education system? The major point to note is that simply getting rid of choice altogether will not solve anything, but equally important is that fact that if we get everything else right, it seems that all choice does is reinforce and amplify social inequality. If our aim is to encourage society to be more equal, I cannot see the argument for insisting on keeping policy which actively undermines what we are trying to do. We can’t blame the middle classes either. While many middle class liberal parents feel strongly that society should be more equal, the way they act does not always reflect their ideology. They commonly invoke the happiness of their children as the reason  why they make such decisions, but by allowing the sort of choice which is realistically only employed by the middle class, it does subtly imply that only a middle class child’s ‘happiness’ is more important to society than a poorer one’s. While I recognise this is a bitter pill to swallow, I believe that political parties have yet to fully recognise their own bias in this matter. It is true that most political activists and policy makers are some of the most likely to understand and play the system in our own homes and this is an emotional issue. To what extent are we driven by our own middle classness in this debate?

Lack of choice does not have to mean lack of diversity. Rolling back the neo-liberal measures by abolishing league tables, decentralising of curriculum and rethinking funding to better reflect need rather than performance, will allow schools to best serve the rich tapestry of backgrounds present in the Britain’s local communities. Choice is a chimera, a fantastical political concept that serves no purpose other than to trick the middle classes into thinking they are empowered in the decisions that affect children’s future, often at the expense of others. Let us empower them in other ways and divert the immense energy middle class parents have to give from getting their children out of failing schools back into the school itself. We fool ourselves into thinking that choice does no harm. The stark truth perhaps is that the policy sediment on this matter is so deep and hardened that it will take a brave political party to take on the task of digging it up again.

Layla Moran is an activist in Acton, London.

Much of David’s article is about the causes of inequality. He rightly cites centralisation, education, snobbery and passivity. In the way that David describes them, none of them are about ‘tax and spending’. I would add another to this list, which crosses over with at least two in David’s list (snobbery and education): the persistence of social class, which leads to generation on generation holding on to power that it has, and perpetuating it through networks which outsiders can seldom access. The persistence of class is sometimes about money, but it is just as often about family connections and schooling, both of which can have an enormous impact on the kinds of informal opportunities and feet-in-the-door that are so often life-defining.

However, we must be clear that there are many problems which can only be tackled if money is spent on them, as David recognises in his article, especially in the short term. I think we also have to recognise that there are clear examples of where more money works, most notably in tackling problems like long waiting times in the NHS, and in providing resources (books, buildings and teachers) for schools. In these areas, extra spending by Labour since 2001 has made a difference, and improvements would have been very hard indeed without extra spending.

Moreover, huge challenges remain which have money as part of the answer. If you are living in poverty, then one of the greatest problems you have is a lack of money. Scott Fitzgerald wrote in his short story ‘The Rich Boy’, ‘Let me tell you about the very rich. They are different from you and me.’ A response to this, often attributed to Ernest Hemingway, was ‘Yes, they have more money’. For all that the wealthy have so many advantages and opportunities, we must not forget that fundamentally their advantages are driven by money. If we want to tackle that, then investing in public services so that all can have access to the best, regardless of their money, must be a priority. We must also not forget the people who need help now because they do not have warm decent homes, good food, clothing, and other basics which many of us take for granted. Here, the state can step in and it will take money. Moreover, let us not forget the ‘R Word’ – redistribution, which I believe should be central to any programme which seeks to tackle poverty. The Liberal Democrats are stronger on this than we ever have been, but there is more that can be done.

So the SLF must and will talk about money in relation to some policies. But we will also be addressing the many other issues that lead us to have a socially unjust and unsustainable society. We will be putting forward new ideas on decentralisaton, democracy and sustainability. It is in these, that the long-term solutions which go beyond money, can be found. A look at the many proposals in our ‘Ideas Factory’ shows how much fertile ground there already is.

We have a new Liberal Democrat think-tank. And when there has been little or no thinking around the party for two decades, that has to be a good thing. So why am I uneasy about the appearance of the Social Liberal Forum?

It isn’t that I am suspicious of social liberalism. Heaven knows, I was even a contributor to the excellent essay collection Reinventing the State.

Nor am I a closet ‘market liberal’ – if there is such a thing – dedicated to handing over health and education to faceless American corporates.

No, this is an argument inside social liberalism, but it is an urgent one. Because there is more than one kind of social liberalism, and we can’t afford for the backward-looking Fabian variety to dominate again.

When the electorate demands something progressive, it would be disastrous for us to exhume the soulless old language of the 1970s and argue that we just never tried Fabianism hard enough.

This article is me asserting my right to try to claw back a genuinely Liberal social liberalism from the jaws of the Fabian beast.

It is a kind of open letter to Matthew Sowemimo, Richard Grayson, Duncan Brack, and all the others involved in the Forum, to look forwards – to look for the real reasons why Britain is becoming so unequal. To be Liberals, which means, I believe, rejecting the Fabian idea that everything can be solved by tax and spending.

Cerebral Knees-up

The inspiration for writing this was the fringe meeting at this year’s Liberal Democrat annual cerebral knees-up at the LSE, under the title ‘Reclaiming the State’, an attempt to push the issue of equality higher up the agenda. Fair enough. We are social Liberals: that is what we are for.

But here we come to the crux of the matter. Measure equality broadly and design policies that can genuinely understand the complexity of it, and maybe we can move forward. Measure it narrowly, and assume that tweaking the bottom line is all the government needs to do – that it is only a question of how much money the state spends – and we find ourselves back where we started, somewhere around 1977.

The heart of the fringe meeting was a presentation by a personable young man from the Institute of Fiscal Studies. Listening to him made it horribly clear why narrow technocratic Fabianism failed to shift equality in Britain before.

Because defining equality in terms of income is all very well, but it misses the real question as we pore over the graphs: why is such inequality so persistent?

Defining it in terms of consumption, as he preferred to do, is an interesting intellectual exercise but compounds the error. It assumes that Lord Scrooge is poor because he spends as little as he can, but that a single mother is rich when she has five children and juggles the same number of credit cards.

This is the Fabian approach to policy. It reduces everything to a handful of technocratic metrics, chosen largely because it thinks the government can make a difference to them, but which ignores the basic problems.

Not just money

It pretends that the whole problem is about money, when people outside the policy bubble know perfectly well that it isn’t. It certainly is partly about money, but it is just as much about power, class, education and culture and much else besides.

And it implies that the whole solution to the problem is welfare. That poor people should be supplicants to government redistributors, when we know that won’t be nearly enough.

This is the original Fabian sin. It reeks of elitism, and ineffectual elitism too, rooted as it is in an organisation that was originally dedicated to moving very slowly and that – thanks to George Bernard Shaw – ridiculed anything that did not reduce any problem to money alone.

None of that is to pretend money is irrelevant. Of course it isn’t. But what the narrow obsession with poverty graphs is emphatically not is Liberalism, with its broader understanding of the problems of power, its human sympathy, and its understanding of the limitations of the central state.

Of course, Liberalism learned from the Fabians, especially in the days of the Newcastle programme. It learned, for one thing, to trust the state so far – that no other institution was available. But it always understood that human beings come before bureaucracies and that bureaucracies are not nearly as effective as politicians imagine they are.

Even if the occasional Liberal policy paper imbibed some of the technocratic language (it made them sound serious, after all), Liberals never followed the fearsome Beatrice and Sidney Webb in their rejection of people power.

“Some old ladies fall in love with their chauffeurs,” said Beatrice Webb just before she died, at the height of the Stalin’s purges. “I have fallen in love with Soviet communism.” Liberals never followed her that far.

Nor did they follow the Fabians where all this led to: the punishment of impoverished communities that failed to respond in the way the theory prescribed, to the destruction of their neighbourhoods and the theft of what power they had to the centre.

“We are dealing with people who have no initiative or civic pride,” said Newcastle’s chief planner in 1963. “The task surely is to break up such groupings, even though people seem to be satisfied with their miserable environment and seem to enjoy an extrovert social life in their own locality.” That was the logical consequence of technocratic Fabianism.

None of this suggests that equality is unimportant. Of course it is. But the Fabian idea that you can measure it simply and solve it just by increasing public spending dangerously misses the point – and leaves people just as unequal, but a little more cynical. The real problem is much more insidious than that.

Sixty years after the Beveridge Report, which identified the Five Giants that blighted mankind and predicted their progressive destruction, the Giants are still with us.

Beveridge didn’t slay them, and neither did the Fabians with all their graphs. Neither did Gordon Brown over the past decade when he doubled the money going into the NHS and increased the national budget from just below £4 billion to nearly £6 billion.

So tell me, Fabians. Is it possible that some other factors are involved which meant that the money wasn’t spent as effectively as it could have been? Or is the question really only how much?

Should we, as an effective opposition, articulate the real reasons why Britain doesn’t work for everyone? Or should we just confine ourselves to the old tried and failed metrics and the sheer dullness of the political promise of specific amounts of money?

Here is a handful of Liberal explanations of why such inequality is still with us:

• Centralisation: this plays a major role in increasing isolation and sense of powerlessness, as institutions get ever more distant from people – geographically and politically – and as frontline staff become ever more enmeshed in the target culture and ever less effective in helping those they are supposed to help.
• Education: generations of people in Britain have inherited a suspicion of schools and universities, and it is a suspicion that is reciprocated – how else can we explain why successive governments believe it acceptable that we shove teenagers into monstrous factories of 2,000 pupils or more?
• Snobbery: there are structural reasons why our public services are geared to treat some people differently from others, and to treat poorer people with deep and authoritarian suspicion. Why else is my local shiny new Children’s Centre absolutely empty of punters? Because those it is aimed at believe it isn’t on their side – and they are correct.
• Passivity: we have structured our public services in such a way that they prefer the poorest and most dependent to be passive supplicants rather than authors of their own destiny.

This last one is an insidious legacy of Fabianism; creating public services that are ruled by technocrats, and which waste the energy and imagination of the people who go so passively through the system. It is precisely what Beveridge warned against in his less famous second report on the urgency of people power.

The truth is – a Liberal insight this one – that none of our huge social problems are going to be tackled sustainably and effectively without a huge injection of voluntary effort by ordinary people on an unprecedented scale, bringing to bear their human skills, and to do so via our public service institutions.

Will that require more money? Of course it will, at least to start with. But is this primarily about money? It isn’t that simple.

So this is my challenge to the Social Liberal Forum. Will you dare to grapple with these broader structural issues – or will you turn back to the old Fabian delusions, handing down percentages and targets from on high to an electorate that has long since ceased to believe in numbers?

Will you hammer out a non-market social Liberalism that trusts people to take charge of their lives – or will you remain suspicious that this implies somehow that they need no support from government, central or local?

Will you develop a critique of the combination of state and corporate power, the new reality – or will you just re-hash the tired old assumptions of tax and spend?

The danger is that social liberalism becomes what the media tells us it is – torpedoing outdated market reforms to public services, without suggesting any real changes instead. A symbolic gesture, with money attached, here and there perhaps. No articulation of the basic problem. No ambition. No faith in people.

The real battle seems to me to be a tussle inside social liberalism for the soul of the party – not to accept or reject the state, but to decide between the old technocratic abstractions versus human solutions.

People can see the wreckage of Westminster solutions all around them. They want a political force that can see that too, but which doesn’t respond by consigning them into the arms of American corporations ringed all around by ‘commercial confidentiality’.

I still believe the Liberal Democrats will be that force. Not until they have excised the fantasies of Fabianism, they won’t be.

In the end, the people who can do that most convincingly are the new Social Liberal Forum. This is a small plea from a potential recruit: give us a lead into the future.

Social Liberalism is the mainstream philosophy of the Liberal Democrats and has been so since the Grimond era. Social liberalism recognises that an individual’s material and personal circumstances can act as a constraint on them realising freedom. How meaningful is freedom if you don’t have a house or a pension? This core Social Liberal analysis is as relevant to today’s world as it was to the Edwardian era.

While political freedoms such as freedom of speech are crucial, poverty, inherited disadvantage and in today’s world, climate change, can curtail freedom. Lloyd George preceded his challenge to the landed aristocracy with the damning phrase that “a nation that ruled the waves could not even flush its own sewers.” Liberals have used state action to challenge disadvantages that prevent individuals realising their full potential. As Nick Clegg has said, “freedom and liberty mean nothing unless the barriers to progress and opportunity are removed.”

Beveridge provided the intellectual underpinnings for a welfare state that brought about significant improvements in life expectancy and quality of life for many Britons. The call for state intervention to give disabled people full civil rights in the high street and the workplace did not come from some Fabian elite but from the grassroots. It came from people who had been dismissed from employment and who could not cross the threshold of the local supermarket.

The state can play a role as an enabler and can break up concentrations of power and wealth essential for expanding life chances. But a call for renewed state action does not mean an embrace of the forms of intervention favoured by Crosland, Brown and Blunkett. The state of 2009 is centralist, insensitive and unresponsive.

Despite record funding, our public services remain stubbornly unresponsive. All the consultation documents in the world do not amount to a genuine voice for citizens in the planning of key services like health care. Liberal Democrats need to refashion and reinvent the state and not simply through decentralisation.

For example, will citizens have a stronger voice in shaping decisions about schools and hospitals if they are given social and economic rights, enshrined in a written constitution? Campaigners used South Africa’s constitutional entitlement of ‘the right to health’ to force Thabo Mbeki to overturn his ban on the funding of HIV drugs. Defining clear rights in these areas should also be part of the debate.

But why the Forum and why now?

Social Liberalism speaks powerfully to the needs of our times. This is an age when we survey the ruins of insolvent financial institutions bequeathed to us by the abdication of regulation. Across the world, existing divisions over ethnicity, religion or caste are being intensified by poverty and the advance of climate change. Equality is now not just a moral imperative but is essential for the quality of life of people across the social spectrum.

Economies like South Africa and Brazil are the real growth engines for the world economy in the future but they are being held back by the inequalities within their borders.

I am diminished if the child down the road is underachieving at school and leaves school with inadequate qualifications. If a woman in Salford is paid less for her work than a male colleague doing the same job, our taxes will end up paying for her retirement. How can we compete in the world economy when working class children born at the millennium are already falling behind their less academically able middle class peers?

Richard Wilkinson’s new publication, The Spirit Level, has provided powerful evidence that unequal societies like Britain diminish the quality of life available to people across the social spectrum. For example, Wilkinson found that even in an area that is closely associated with working class disadvantage – achievement at school – more equal societies see higher levels of literacy among the children even of better educated families. He demonstrates how inequality hits the quality of life across the whole community in areas ranging from trust in your neighbours to homicide. Wilkinson’s findings should chasten those who believe that the affluent can insulate themselves from the consequences of deprivation elsewhere in our society.

So while there is a compelling case for a reinvigorated national and international effort to achieve equality, can Liberal Democrats generate the electoral support to make this possible? Some people have suggested that we have now reached the limits of public support for redistribution of wealth and opportunity. I disagree. When voters are shown the impact that successful anti-poverty policies can have, they rally in support of equality.

The banking crisis represents a major strategic moment for the centre left. Margaret Thatcher exploited the IMF crisis and the Winter of Discontent to press her case for free market policies and possessive individualism. The banking crisis demonstrates that free markets do not inherently serve the public interest. In this recession, both middle and working class people share economic insecurity and will look to the state to provide them with social protection. President Obama is taking advantage of this climate in the United States to push forward with the biggest expansion of the federal government since the New Deal.

And Social Liberalism is indispensable for our electoral coalition. Labour voters put us over the top in a series of seats won from the Conservatives in 1997 and 2001. We now represent a swathe of seats in university towns where middle class Labour voters were won over by our policy on tuition fees and our uncompromising internationalism on Iraq.

The Social Liberal Forum was formed in order to generate debate within the party and beyond. Our title is not accidental. We don’t exist simply to promote some pre-defined policy agenda. We want to engage with party members across the country. That’s why we have started the Ideas Factory on our website. A liberal party needs open debate.

There are some really big questions for our party to consider as we formulate our manifesto and beyond:

• Can we break the cycle of inherited disadvantage by investing in education alone? Will an emphasis on education be distinctive enough to counter David Cameron’s Conservatives?
• If we are serious about hitting the 2002 child poverty target, and we reject means-testing, what does that mean for child benefit?
• Who are the poorest in our society and what are the policy interventions that will help them?
• While worklessness is a key driver of poverty, free marketers should recognise that work that delivers low pay and limited progression can also entrench poverty, particularly for women.
• How can we develop a framework where business meets its social and environmental obligations and maintain competitiveness?

One hundred years on from the People’s Budget, the inequalities in life chances in today’s Britain demand that we reconnect with our radical heritage. Throughout our party’s history – whether it be honouring moral obligations to the Hong Kong Chinese; Kosovo; or upholding international law on Iraq – where we have shown leadership and moral clarity, we have been rewarded.