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Social Market Foundation | Newsletter May 2011 | Page 1

Newsletter May 2011 Welcome to this edition of the SMF newsletter

In this edition Welcome to this edition

1

Director’s note: open and shut public services

3

More banks won’t solve failure in the retail market

4

Party conferences 2011

5

Just how autonomous are universities?

6

Job Opportunity: Deputy Director

8

Events, publications and the SMF Business Forum

9

Almost exactly one year ago David Cameron and Nick Clegg stood together in the Downing Street rose garden and memorably outlined their joint vision for government. Fast forward one year and the Coalition seems less cosy. With the results of the bitterly fought campaign on electoral reform out this weekend, the coalition will enter its second year with some big questions left unanswered: how can economic growth be achieved in the context of rising inflation and public spending cuts? How can the Government’s bold and largely welcome vision for public services be realised amid political wrangling? What will the fallout be from the raised cap on university tuition fees? In the context of these significant challenges, the SMF is well placed to provide clear and lucid analysis of the implications for public policy. Our post budget briefing, distributed to over 4,000 people within hours of George Osborne’s budget statement in March, offered brief commentary on some of the major announcements, including the “Firstbuy” housing scheme, the Green Investment Bank and the top rate tax review. In addition to our own newsletters and briefings, SMF articles and comment have appeared in a wide range of print and online media, giving us the opportunity to spread our recommendations and insights to new audiences. Since the last newsletter

*Job opportunity at the SMF * Deputy Director - up to £55k

our research team have contributed comment pieces to the Sunday Times, Telegraph, New Statesman, the Independent and Money Marketing as well, of course, as Ian Mulheirn’s frequent postings on the Public Finance blog. We have contributed to debate on public service reform, flexible working, welfare reform, and financial services.

Closes on Monday 9 May

We are looking for a highly intelligent and proactive individual to join our dynamic team in producing radical policy prescriptions and topical political events. See page 8 for details

If the shaky economy has dominated the Coalition’s first year in office, then their reform agenda on public services and the impact of public spending cuts may well dominate their second. As we await details of the delayed White Paper “Open Public Services”, Director Ian Mulheirn reflects on why private sector involvement in public service delivery is so crucial for the voluntary and community sector on page 3. The economic situation is, of course, inextricably linked with the financial crisis and bank bailout in the minds of politicians and taxpayers alike. We will shortly be publishing a major new report into consumer trust in the financial services industry

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Social Market Foundation | Newsletter May 2011 | Page 2

The Social Market Foundation is an independent public policy think-tank, developing and advancing innovative solutions across a broad range of economic and social policy. We publish original research, hold seminars and debates in Westminster and beyond, and run a diverse programme of events at the three

looking at what impact, if any, the crisis has had on trust, why low trust in financial services should matter to policymakers and what they can do about it. John Springford, the SMF’s senior researcher and author of the report, reflects on the issue of competition in the retail banking market and how to restore trust on page 4. In the last newsletter, SMF researcher Ryan Shorthouse predicted a clustering of tuition fees at the top level of £9000 and outlined why students should be angry with universities. With his predictions looking increasing prescient, Ryan revisits the issue on page 6, looking at how much autonomy universities actually have and whether they should compromise this autonomy for social ends.

main party conferences. Since its foundation in 1989, the work of the SMF has been principally devoted to promoting the social market philosophy, which seeks to marry markets and social justice. It

This newsletter also contains details of a new job at the SMF. We are currently looking for a dynamic and intelligent individual to take up the post of Deputy Director. More information and details of how to apply are on page 8, but be quick - the deadline for applications is Monday 9th May.

principles: first, a positive preference for market mechanisms, while

Finally, we are delighted to be welcoming Rt Hon David Willetts MP to the SMF to give a keynote address on the subject of prosperity and equity between the generations. The address will coincide with the publication in paperback of Mr Willetts’s book The Pinch. The event will take place on Monday 23 May and more information on this is on page 9.

recognising that a truly pro-market approach is often not a free-market

Recent publications

neither sees the market as a necessary evil nor as an end in itself but as a means to improve people’s lives. It is underpinned by adherence to two key

one; and second, a belief that a sustainable market economy rests on social and political foundations that

More with Less: rethinking public service delivery

are widely regarded as fair.

Ian Mulheirn and Barney Gough

Our work aims to elucidate these ideas

Download More with Less

and to explain why the social market is a fruitful source of solutions to public policy problems. For further information please contact Leonora Merry - lmerry@smf.co.uk

Manufacturing prosperity: Diversifying UK economic growth

Social Market Foundation

Steve Coulter

11 Tufton Street

Download Manufacturing prosperity

Westminster London SW1P 3QB 020 7222 7060

The Class of 2010 Edited by Ryan Shorthouse

Download The Class of 2010

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Social Market Foundation | Newsletter May 2011 | Page 3

Director’s Note: Open and shut public services It looks increasingly like the momentum of the Coalition’s reform agenda has been lost. With flagship health reforms in the midst of their “pause for reflection”, other signs also indicate that the Coalition’s blitzkrieg of reform has become bogged-down, possibly to go into reverse. That would be unfortunate, since there is much to like about the plans for market-based reform in policy areas as diverse as criminal justice and education. But nothing seems to illustrate the Government drawing in its reforming horns better than the messages around the long-awaited - and further delayed - public service reform White Paper. The Prime Minister’s orphan Telegraph article on the issue, back in February, seemed pretty gung-ho about the role of private capital in delivering public services. It rightly promised a new ‘presumption that public services should be open to a range of providers competing to offer a better service’.

Ian Mulheirn, Director, SMF

“ Cooperatives, mutuals and charities may be cuddlier than Serco, Capita and G4S, and indeed they offer more potential for innovation. But they cannot succeed alone.”

But Francis Maude now appears to be playing a different tune, if his statements in a leaked memo this week are to be believed: “wholesale outsourcing” to the private sector is, according to Mr Maude “politically unpalatable”. Instead of the nasty private sector, employee-cooperatives, social enterprises and voluntary sector organisations will be at the front of the queue. Who could possibly object to all those lovely people being put in charge of our public services? Unfortunately, the shift in tone to emphasise the voluntary and community sector (VCS) creates three risks to the whole agenda and the VCS itself. First, freezing out the private sector will make it impossible to transfer delivery risk onto non-state providers. VCS organisations typically do not have deep enough pockets to bear the financial risks involved with market-based delivery. This is especially true in payment-by-results models, where substantial up-front investment is required before payments start to come. But if the VCS can’t handle it, the Government will ultimately have to bear the financial risks of delivery. That points to a return to central control of public services. As in the past, where Government bears the risks, Whitehall calls the shots. Unable to transfer risk to providers, the Prime Minister’s promise to ‘restore the discretion of professionals’ would involve an unsustainable accountability deficit. Ministers cannot allow professionals to control the purse strings if those same professionals face none of the consequences of service failure or financial incontinence. The aim of devolving autonomy to the frontline would be replaced by centrally designed processes, albeit ones delivered by non-state providers: back to command and control - of the VCS. Finally, keeping out the private sector will lead to more dreaded postcode lotteries. Local variation in service performance is inevitable in a pluralist system. But by limiting private sector involvement in delivery, that variation is likely to be unacceptably large. Even where the best VCS organisations operate, scaling-up their delivery will be impossible without substantial amounts of investment that the private sector can bring. Cooperatives, mutuals and charities may be cuddlier than Serco, Capita and G4S, and indeed they offer more potential for innovation. But they cannot succeed alone, and the VCS risks being captured and directed by Whitehall if it tries. Partnership - in which private capital facilitates risk-bearing and scale, and the VCS brings innovation and local knowledge - is essential. The Government’s excessive attention to the cosmetics of reform risk dooming the whole agenda to failure. In our current fiscal predicament, that is more than something of party political concern.

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Social Market Foundation | Newsletter May 2011 | Page 4

More banks won’t solve failure in the retail market The debate on banking, which started with such high aspirations, has ended up in a ‘boosting competition’ cul-de-sac. Last month Sir John Vickers’ Independent Commission on Banking suggested further branch sales by Lloyds to reduce the group’s market advantage. A week earlier, a Treasury Select Committee report on retail banking suggested that getting consumers to switch more often (a policy goal for many years) would boost competition. But this fixation with competition is misdirected - competition alone will not solve the problem, and could actually make it worse without other policies to make banks compete on quality. The banking market is in fact highly competitive – so much so that banks will now pay you to join them. For example, Santander is currently offering consumers £100 for a new current account. Students are routinely offered vast interest-free overdrafts to sign up.

John Springford, Senior Researcher, SMF

“Instead of obsessing about market consolidation, the FSA should make firms compete on transparent and fair financial products that don’t rip consumers off when they’re not looking.”

But while they bribe you first, the banks pick your pocket later. Current accounts are ‘free’ because banks use an array of hidden charges to make profits – the now infamous overdraft charges, and the miniscule interest rates that banks offer on positive balances (they can lend this cash out at much higher rates). In the ISA market, banks slash the initial ‘teaser rates’ after a year. Banks know that a large proportion of consumers think it’s a hassle to switch provider, don’t pay attention or manage their finances very well. So, they intensely compete for people who are signing up to a particular product for the first time, knowing that when they’ve got it, they’ll probably stick with it. The vast majority of people don’t want to spend their lives on Moneysupermarket.com. More competition just drives visible prices even further down and hidden charges even further up. Adding more banks to the mix merely increases this particular form of competition. Instead of obsessing about market consolidation, the FSA should make firms compete on transparent and fair financial products that don’t rip consumers off when they’re not looking. They should create a kite-mark for ‘fair products’. For current accounts, this would mean no overdraft charges and increasing interest rates as positive balances increase. For ISAs, it would mean that the interest rate on the product would be 1%, say, over the Bank of England’s base rate. This would mean banks couldn’t change rates to take advantage of consumer inertia, but only if their cost base changed. None of this would entail coercive regulation: firms could carry on selling their other products, which would have ‘buyer beware’ warnings. In setting standards – but not price caps – for such products, they would encourage firms to compete on transparent and fair financial products that are fairly priced, even if they don’t always appear to be the cheapest. This would make banks compete on a fair playing field. If consumers still go for the apparently cheap, but unfair product, that’s their look-out. This is an edited version of an article that appeared in the Telegraph online The SMF’s report on restoring trust in financial services will be out this summer

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Social Market Foundation | Newsletter May 2011 | Page 5

Party Conferences 2011 Work with the SMF at this year’s party conferences

“As a leading Westminster think tank, we combine the experience of running hundreds of party conference events with our firstrate policy credentials.”

The party conference season will soon be upon us. This is your opportunity to put your brand at the heart of the debate, and help to shape the policies and ideas that will determine what the UK looks like in the years ahead. But planning an event at party conference is a big undertaking. Knowing how to approach the right speakers, liaise with the parties, get the right venue and ensure you get a good turnout makes organising a fringe event time consuming and difficult. Along with the headache of navigating the multitude of different deadlines for each stage of the process, it is a full-time job. And that's where the Social Market Foundation comes in. As a leading Westminster think tank, we combine the experience of running hundreds of party conference events with our first-rate policy credentials. This means that SMF events are highly respected, well attended and are known in policy and parliamentary circles for their innovative and high profile contribution to the policy debate. We are currently looking for sponsors for an exciting range of party conference fringe events and this email outlines how we can take the hassle out of party conference events for you this year. What does sponsoring the SMF mean? We provide a bespoke party conference fringe service to sponsoring organisations wishing to take part in the fringe programme at this year's conferences. This means that our dedicated conference team will project-manage the entire event on your behalf, including:

• • • • • • •

identifying, booking and managing suitable political speakers; securing the venue - either within or outside the conference secure zone; organising catering - from coffee and pastries to a sit-down dinner dependent on your needs; all event logistics, including provision of audio-visual equipment and transporting your equipment to and from the venue; event marketing, including design and printing of flyers, publicity in the parties' fringe listings and promotion through our extensive contact database; PR support, including live tweeting, media relations and promotion through our own website; and additional support to make the event go further, including podcasts, filming, live voting and more!

We will liaise with you over the speaker choice and event focus, and your organisation will get a place on the panel for a speaker if appropriate. Our conference team will also give you regular progress updates and pre-event briefings. Interested? Contact Rachel Baker (rbaker@smf.co.uk or 0207 227 4404), our dedicated conference manager, to discuss further or arrange a meeting. But hurry! The best slots for fringe events fill up fast so contact us today.

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Social Market Foundation | Newsletter May 2011 | Page 6

Just how autonomous are universities? Listen to them squeal: “b*llocks”, one scholar said; another said it was “a nonsense”. Such was the response of universities to Nick Clegg’s insistence that they can only charge above £6,000 a year if “they dramatically increase the numbers from poorer and disadvantaged backgrounds” attending. Ministers have asked the Office for Fair Access (OFFA) to approve the fee levels charged based on access agreements drawn up by universities. All, predictably, want to charge above £6,000 and most the maximum £9,000. But despite Clegg’s rhetoric, OFFA’s current chair Sir Martin Harris professes he is powerless to stop universities from doing what they want.

Ryan Shorthouse, Researcher, SMF

Legally, Harris is right. Universities get the autonomy to manage their own affairs through Royal Charters, statutes and acts of parliament. The 2004 Higher Education Act reinforced the freedom of universities to "to determine the criteria for the admission of students”. Seemingly then, universities have a high degree of autonomy, despite being heavily reliant on government for funding. This raises the question: just how much autonomy should universities have, and over what?

“Universities have a high degree of autonomy, despite being heavily reliant on government for funding. This raises the question: just how much autonomy should universities have, and over what?”

University autonomy is important to ensure academic neutrality, safeguarding free thought and trustworthy research from political motivation – critical for democracy and progress. As the first principle of the Bologna declaration of 1988, signed by the heads of most European Universities, makes clear: “research and teaching must be morally and intellectually independent of all political authority and economic power”. It is therefore worrying that, over the past few decades, autonomy over teaching and research has been eroded. The abolition of the University Grants Committees in 1988, which decided on the allocation of public funding in the HE sector and was staffed by academics, paved the way for the bossier Higher Education Funding Council and Research Councils. Funding is now much more subject to the demands of government: research funding is assigned according to centrally prescribed measures of performance and quality. The Quality Assurance Agency, created in 1997 and staffed by representatives from the public and private sector, helps determine degree standards and curriculum content, undermining academics autonomy over teaching. University bigwigs should be battling against this encroachment of their autonomy over research and teaching. But many now fixate on safeguarding the autonomy they have over admissions. As the historian Professor Robert Anderson argues, “British Universities have come to think that control of their own admissions is essential to university autonomy, but this is a local and recent peculiarity”. Indeed, in Europe and the US, access to many local universities is open to all who have the standard schoolleaving qualification. As demand for places outstripped supply in UK universities after

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Social Market Foundation | Newsletter May 2011 | Page 7

the Second World War, British universities began dictating who could and could not be admitted.

“Universities are a critical passport to private prosperity, as well as public prosperity; this is why the state guarantees extra funding for them. Surely it’s time they returned the favour and gave the state something back in return?”

Controlling admissions is an understandable attempt by universities to safeguard quality - and higher international reputations reap high economic returns for both university staff and the country as a whole. But universities are different beasts today, serving a different purpose to simply providing a liberal education to the so-called intellectual elite. They are critical for boosting the skills of our workforce, retaining our industrial and commercial competiveness, and improving social mobility. As a result, Government has encouraged mass participation and facilitated increased investment in the HE sector: there was a 75% increase in total revenue to universities between 2001 and 2008, mainly through a combination of funding council and research grants and tuition fees. Even in this period of fiscal retrenchment, this Coalition Government has designed a system which increases funding to the sector. Indisputably, universities have benefited from their newfound importance and impressive injection of cash. Academic pay has increased. Buildings in universities have greatly improved. If the Government removed its support through the subsidised student loans system, demand for HE would plummet, starving universities of revenue. The truth is, as government has enabled increased funding, universities are still very heavily dependent on the state, promoting the question of whether the state could have more say over university admissions. Surely, as the public purse has facilitated increased funding, it is only fair that we ask universities to contribute more to public policy goals? They could accept those from challenging circumstances with lower grades – the evidence suggests they tend to outperform their more affluent peers during their degree – or reserve places for high-fliers from the worst-performing schools. Quotas, currently illegal, could be an option. However, Wendy Piatt, the Director General of the Russell Group, says: “I would be very wary of targets, quotas and fines…it is beyond our problem to solve this problem, which is about under-achievement in schools”. She’s right on one thing: the reason for poor social representation in the very best universities is because of the poorer educational results of those from more deprived backgrounds. But she’s wrong that universities can’t and shouldn’t do anything about it. Universities are a critical passport to private prosperity, as well as public prosperity, this is why the state guarantees extra funding for them. Surely it’s time they returned the favour and gave the state something back in return?

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Social Market Foundation | Newsletter May 2011 | Page 8

Job Opportunity at the SMF Deputy Director We are looking for a highly intelligent and proactive individual to join our dynamic team in producing radical policy prescriptions and topical political events.

Applications by CV and covering letter, to lmerry@smf.co.uk by 9am Monday 9th May 2011.

The Deputy Director is a wide-ranging and exciting new role within the SMF. You will work closely with the Director to develop all aspects of the SMF’s work and will have a particular focus on overseeing production of the organisation’s rigorous and topical policy research reports. With a track record of excellent public policy development or research, you will also develop the strategic direction of the organisation in liaison with the Director and a high-profile board of trustees. You will take a lead in building new relationships to win sponsorship for the SMF’s work, and promote our work to senior politicians, journalists, and the wider public through excellent written and verbal communication. We are looking for someone with:

Significant experience of policy development or policy-focused research;

Advanced degree in a relevant social science discipline;

Excellent written and oral communication skills, with a track-record of producing rigorous and influential policy or research reports;

Specialism in at least one broad area of public policy;

Proven experience of producing high-quality work in short timeframes, excellent time management skills, attention to detail, strong analytical skills, excellent drafting skills and an enthusiastic, flexible approach to work;

The capacity to come up with innovative and practical policy prescriptions;

The versatility to get to grips with a wide range of policy issues quickly;

The political knowledge to identify, and the person-skills to market, the SMF to potential sponsors;

A sophisticated political sense and strong interest in policy and politics;

A commitment to the organisation’s vision for a pro-market approach to public policy issues and concern for social justice; and

The ability to think strategically.

For further information and a job description, visit: http://www.smf.co.uk/deputydirector1.html or call Leonora Merry on 0207 227 4401

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Social Market Foundation | Newsletter May 2011 | Page 9

Upcoming publications

Upcoming event How the Coalition Government is tackling intergenerational inequity A keynote speech by the Minister for Universities and Science, Rt Hon David Willetts MP

Restoring trust in Financial Services

Monday 23 May, 13:00 - 14:00 (refreshments will be served from 12:30) Venue: SMF, 11 Tufton St, Westminster, SW1P 3QB

John Springford The first comprehensive analysis of trust and financial behaviour since the banking crisis, this report examines whether consumer trust in finance is low and why it matters to policymakers.

The SMF at 21: Coming of Age To mark the 21st anniversary of the Social Market Foundation, important figures from the think tank’s past, present and future discuss the economic and political ramifications of the financial crisis and what it means for the social market. Includes contributions from Lord Skidelsky, Lord Owen, Dieter Helm, John Kay and Peter Lilley.

Before the General Election in 2010, David Willetts MP provoked lively debate with the publication of his book, The Pinch: how the baby boomers stole their children’s future. In it he argued that young people today are finding it more difficult than their parents to get on in life: house prices remain high; youth unemployment is at record levels; and social mobility appears to have stagnated. With the launch of the paperback version of his book, the Conservative cabinet minister will discuss the difficulties young people face today and what Government policy is doing to bridge the intergenerational divide. To book your place email events@smf.co.uk or telephone 0207 227 4412. Please be

Asset building? Financial behaviour in low income families

aware that places are limited

Jeff Masters

Join the SMF Business Forum

What are the saving habits of people on low incomes and how can policymakers support and cultivate a culture of saving? This analysis of the ONS Wealth and Assets survey aims to answer these questions and more.

For full details of the SMF’s publications, please visit our website at www.smf.co.uk

Critical to our ability to deliver the innovative and creative policy reports and events for which we are known is the close partnership we enjoy with organisations in the private sector through our Business Forum. SMF Business Forum partners benefit from the opportunity to deepen their understanding of the policy agenda and to help shape it through attendance at exclusive events and by being kept in regular touch with the SMF’s research programme. Particular benefits include: •

Places at our thrice-yearly Business Forum lunches where a guest speaker makes a short speech and those present have the opportunity to ask questions and exchange views. Ed Davey MP will be speaking on employment regulation at the next event on 24 May .

Institute of Education Conference Effective parenting and child wellbeing: understanding the evidence base

This bi-monthly e-newsletter and a new tailored Business Forum e-newsletter summarising recent research reports.

Copies of all our new research reports and policy essays.

Tuesday 21 June, 2011

The opportunity to request briefings from SMF staff on their areas of expertise.

A one day conference for researchers, policy makers and those working to support families and parents

Invitations to SMF events.

The opportunity to partner with us at the three annual party conferences at a reduced rate.

Contact: n.field@ioe.ac.uk

For more information or to join the Business Forum, contact Leonora Merry at lmerry@smf.co.uk or telephone 0207 227 4401.

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