Analysis highlights constraints on future privatisation of welfare services
Welfare services that are publicly-funded, but delivered by the private sector are likely to go on growing as the search continues for an efficient mix between public and private provision. But a research study published by the Joseph Rowntree Foundation warns that attempts to shift the balance between public and private finance for welfare would place heavy burdens on those least able to pay. These and other difficulties mean there is limited scope for relieving pressure on the tax system.
The report, by CASE, the Centre for Analysis of Social Exclusion at the London School of Economics, examines the development of private welfare and the role that it currently plays in education, health, housing, income maintenance and personal care. It finds that:
- Changes in the mix of public and private welfare provision have been slow. Despite the Conservative Government's commitment to 'roll back the frontiers of the state', the proportion of welfare spending on services with some private sector involvement grew by only three percentage points between 1979/80 to 1995/6 from 48 per cent to 51 per cent. Privately-provided services grew faster than privately-financed services.
- Average spending on private schooling, medical insurance and pension contributions by those who use them has nearly doubled in real terms since the 1970s. Even so, there is no sizeable 'private welfare class' that uses private services alone. One in nine adults pay for all three out of private housing, health cover and pensions, but only one in 20 pay for private housing, health and schools. Even fewer use all four private services
- Attitude surveys suggest that the increased use of private welfare has not been accompanied by a fall in public support for welfare services financed through taxation. Indeed, overall support for additional state spending on health and education is higher than during the early 1980s.
- Patterns of change vary between different areas of welfare. Owner-occupation - the main privately-financed and provided sector within housing - has continued to grow. However, the publicly-financed and provided sector in income maintenance (including social security) has also increased its share of spending. Publicly-financed and provided services remain dominant in health and education, but spending on medical care and schools that are privately-financed and provided has grown appreciably in the past 20 years.
The study concludes that support for using private welfare services is pragmatic, with individuals making choices within the limits of what they can afford. But it also shows how the current mix of public and private finance achieves a high level of redistribution between those most able to afford services and those least able to pay for them. For example, if funding for state schools was switched from taxation to a flat rate charge on parents, low income families might pay up to £3,500 a year more. Compensation through means-tested benefits would worsen the 'benefits trap' and work incentives.
Professor John Hills, co-author of the report, said: "Future partnerships between the public and private sectors will need to reflect the different circumstances in each area of welfare. In education, health and much of income maintenance, there may be some growth in the use of non-public providers and the purely private sector, but public finance will remain dominant. By contrast in housing, the role of public provision and even public finance may diminish. Private provision of pensions, meanwhile, looks set to go on growing, but subject to stronger public promotion and control."
He added: "These developments would continue trends that display a more pragmatic reaction to the relative strengths of the public and private sectors than political ideologues would once have predicted. But whereas switching from public to private sector provision is largely a matter of comparative efficiency, moves towards private finance for even small parts of the overall welfare package could have dramatically adverse effects for those least able to pay."
