We believe that this policy has to take into account the following issues:

• It could require even deeper cuts in areas like affordable housing, schools and universities that are central for either the growth potential of our economy or to social harmony.
• Tax increases help the stronger in our society absorb more of the pain of deficit reduction. Taxation increases should not only come from individual taxpayers but can be obtained from sectors of the economy like the City of London that generates wealth that is disproportionate to their overall economic contribution.
• Spending cuts of the magnitude required pursuing this approach might result in substantial reductions in public sector employment, particularly in the regions that are more reliant on state funded jobs, like the Northeast.

A more balanced approach would be for tax increases, especially on the wealthiest sections of the economy to be accompanied by spending reductions spread over a period of eight years. We warmly support the party’s determination to resist premature spending cuts given the fragility of the recovery. However the country as a whole needs to weigh the importance of the composition and speed of any deficit reduction effort.

“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?

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.

Here, Richard sets out what he believes are distinct limitations to the market. Richard will assert that there is still a very clearly designed role for the state, one that is creative and enabling, rather than centralising and stifling.

I’m going to try to tackle three broad issues this evening. First of all, how recent events have affected views of the state. I then want to look at how social liberals approach the state, and finally consider what a social liberal state would be like.

In terms of recent events, I think one word illustrates how far debates have shifted. It’s a word we used to hear a lot about, but had largely been consigned to the history books.

The word ‘Keynesian’ was rarely heard in public debate in a positive sense. Today, faced with global economic meltdown, politicians of quite diverse shades have embraced some of the interventions which Keynes argued for. The word ‘Keynesian’ has been almost absent from political debate for two decades. Even where people have advocated job creation schemes, they have been shy of describing them as being influenced by an approach to political economy that the orthodoxy of the 1980s and 1990s had trampled under foot. Now it is on the lips of many, though sometimes only partially accurate, to describe the interventionist approach which governments are taking in the current crisis.

This, I think, shows how far current views of the state are in a state of flux. More fundamentally, as another co-editor of Reinventing the State, David Howarth, recently put to me, the fundamental realisation which many are making now is that where we once believed that key aspects of the market economy operated freely of the state, they now in fact rest on the state in more ways than we have imagined.

That does not just mean the state maintaining a basic framework of law which provides, for example, a framework for consumer protection. I am talking about the extent to which business people who, in usual times, want government to stay out if their daily lives, now plead for government to bail them out. The rhetoric of entrepreneurship, bemoaning the burden of the state, seems strangely hollow now. We are not quite in the 1970s, with every major employer the possible recipient of state aid, and we will not get there, but the mood music has certainly changed.

I hope that against the backdrop of that new mood music, people will come to realise that the best way to come out of the current crisis is not by pursuing policies which will just take the country back to exactly how it was beforehand. If government pursues policies which simply restore levels of growth, salaries and property prices to the levels they were until recent times, it will in my view have failed. If we restore rampant consumerism, materialism, and obscenely unequal salaries, we will be doing no favours for the long-term sustainability of the economy and our environment. If we encourage people to believe that collective action only needs to tae place at times of crisis, and do nothing to engage people in the political process, then we will do nothing to create to kind of co-operation which needs to guide our future.

This will must mean a role for the state, because government is one of the methods by which people come together to tackle their shared problems. But the state as it currently exists is deeply flawed and we must take the opportunity to recast what we mean by ‘the state’. I think those who can articulate a coherent and resonant view of the state, can shape debate for a generation to come.

How do I approach this? Well, I am a Liberal Democrat parliamentary candidate, vice-chair of the party’s national policy committee, and a former Director of Policy of the party, as well as having written as an academic on aspects of liberalism. More specifically, I should say that I approach this question from a social liberal perspective. To explain how that might differ from other liberal perspectives, I want to bring in some history, which will no doubt be familiar to many but worth recounting.

There was a decisive change within liberalism around the turn of the last century. Prior to that point, the liberal view of the state had been quite limited. It rested on John Stuart Mill’s view, published in 1859, that ‘The sole end for which mankind are warranted, individually or collectively, in interfering with the liberty of action of any of their number, is self-protection.’ In practical politics, the liberal approach to the state as practised by Gladstone was focused on political rights. It involved expanding the rights defined by law, and much of that flowed by a belief that in so far as at the state had affected individuals, it has been a largely negative influence, at times tyrannical. There is a clear line between the arguments of the radicals of the English Republic and liberal beliefs in the nineteenth century. This line involved circumscribing the powers of the state – so that it could do less rather than more. For nineteenth century Liberals, the state was more often an enemy than a friend.

That is not to say that Liberals were averse to collective action. Far from it. Liberals pioneered a local government role to tackle problems like poor housing and public health. Joseph Chamberlain’s Birmingham in the 1860s and 1870s was the radical centre of this – Chamberlain himself used the phrase ‘municipal socialism’.

Yet the Liberal Party nationally was divided over the extent to which such measures should translate to national politics. This might have split the party, but it was instead split by Irish Home Rule in 1886. This drove Chamberlain into the arms of the Conservatives. It is ironic that it was the Conservatives, not the Liberals, who established county councils, long a radical Liberal demand as a way of expanding collective methods of tackling shared problems. It is hard now to think of county councils as a radical triumph, but they represented a significant stride in the 1890s, and allowed education to be publicly run in a way that was unimaginable without a uniform local government structure.

Despite the loss of many radicals over Home Rule, the Liberal Party radicalised at the turn of the century. It was the Liberal Party, between 1906 and 1914 which laid the foundations of the modern welfare state, and a new philosophical framework was provided by L.T. Hobhouse in his 1911 text, Liberalism.

Two sections sum up his approach. The first relates to the shared ground between the pursuit of freedom – the cause of all liberals – and the pursuit of greater equality. Hobhouse argued:

… 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 on the same lines.¹

Hobhouse was right in his prediction for this approach led social liberals to advance the cause of public services throughout the twentieth century.

Meanwhile, in Hobhouse’s struggle for both liberty and equality, the state was a weapon. He did not believe it was the only source of collective action and described it as ‘one form of association among others’. But he had little to say about the other forms of association, and was clear that it was on attitudes to the state that New Liberals ‘stand furthest from the older Liberalism’. He argued:

… that the “positive” conception of the State which we have now reached not only involves no conflict with the true principle of personal liberty, but is necessary to its effective realization.²

Although Hobhouse believed that the concerns of classical liberalism should inevitably lead to endorsement of the state, his own overt statement of distance between ‘new’ and ‘old’ liberalism showed how far Liberals had travelled from the days of Gladstone to those of Asquith and Lloyd George. This conception of the state has underpinned key developments in Liberal thought since 1911: the contemporary work of the Asquith government; Beveridge’s proposal of social insurance; and Liberal Democrat enthusiasm for public services, especially education.

To some extent these views of the state dominated the politics of the post-war era. So when that system collapsed, I think that one of the problems the Liberal-SDP Alliance had was, as it has been said before, that it simply promised a better yesterday. Essentially, the party was offering the same state system but run better.

Yet the dominant view of the state in British politics, at least dominant for the last twenty years is the neo-liberal state. On the fundamental issues, Labour has not challenged the basic tenets of Thatcherism about the role of the state in the economy. Indeed, at the core of the Clinton-Blair-Schröder ‘Third Way’ was an acceptance of them. That is not to say, that Labour has failed to use the state with some success in public services. It has done that in one way: without challenging the framework, it has invested massively in health and education. There are some who say that this has made little difference, but I am not one of those. Admittedly, some of the money has been swallowed up by higher salaries, but many public servants were relatively low-paid, and simply improving morale among them is significant. On other issues, you only have to look at hospital waiting lists to know how much change there has been.

But those successes are also accompanied by huge public dissatisfaction over their lack of voice in public services, and that boils down to failure of the central state. The experience of many individuals and local communities is one of being completely unable to influence the big decisions on public services. That is something that I have seen at close-hand in my local area where despite the extra investment, we are steadily losing hospital facilities as they are shifted to hospitals elsewhere. Meanwhile, the standard narrative of many public servants is of being weighed down by bureaucracy.

What do we do about that?

Within the Liberal Democrats, there are broadly two approaches. A minority view, that sees little reflection in party policy, but which has attracted much media attention, is the school of thought associated with the Orange Book, published in 2004. It is a view which suggests that we need to emphasise ‘choice’ in public services, tends to see the state as ‘nannying’ and believes that the way forward is to treat individuals as consumers and offer them choice through insurance schemes.

Less eye-catching to the media is the social liberal approach, which tends to influence party policy much more.

What does a social liberal state look like?

It starts from view that the state has the ability to advance individual freedom. It takes the view that such freedom is often best advanced by collective action. The state should not only step in where markets fail, but that there are areas where markets will always fail to deliver progressive social goals.

However, and this is the crucial difference between the social liberal approach and the Labour approach, it is impractical for state to be so centralised, and also risks thew intrusions about which liberals are concerned.

I think there are three priorities for greater state action: the environment; equality and redistribution, and public services.

I want to focus today on public services, particularly the NHS, and use an example from another country, of how things could be done differently: Denmark.

Why Denmark? Principally because it has high levels of satisfaction from the public.

There are some crucial differences between the Danish and UK health services.

They spend more than us – both per head and as a percentage of GDP, and they have done for many years.

They also have a recent innovation whereby if state cannot deliver within one month, then the state pays for them to go private, although the system is currently suspended due to pay disputes

But their system is also radically devolved.

Since 2007, the governance of the health service has focused on five regions, ranging in population from about 600,000 to 1.6 million, thus making them analogous in size to English cities or counties rather than regions. There are also municipalities below that – 98 of them.

Regions are responsible for:

• Hospitals;
• Psychiatry; and
• General practitioners.

Municipalities are responsible for:

• Preventive treatment, and non-hospital care and rehabilitation; and
• Treatment of alcohol and drug abuse.

The State is responsible for:

• Planning for specialist treatment; and
• Follow-up on quality, efficiency and IT usage.

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. The rest is essentially from variable local taxes.

I think we need this kind of radical democratic decentralisation 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 cities or counties, which are historic units of England, and many of which encourage strong feelings of local identity. Moreover, the last thing the public wants is another level of government, as was discovered in the north-east in the referendum on a regional assembly.

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 Primary Care Trust and Strategic Health Authority commissioning powers to existing city/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 city/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 city/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 city/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 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.

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 an NHS Contribution, based on National Insurance, and distributed using current formulae.

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. 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 to create the real voice and real choice which market-oriented alternatives cannot provide.

1. L.T. Hobhouse, Liberalism, (first published 1911; New York: Galaxy Press, 1964 edition), p. 21.
2. Hobhouse, p. 71.