State of the Nation 2014

The Chair of the Commission's statement on the launch of the 'State of the Nation 2014' report

The Rt Hon Alan Milburn

This morning the second annual State of the Nation report was laid before Parliament. I would like to thank my fellow Commissioners and our dedicated Commission staff for their endeavours in compiling it.

Our central conclusion is Britain is on the brink of becoming a permanently divided nation and that the next Government will have to adopt radical new approaches if poverty is to be beaten and mobility improved. We define that as the 2020 challenge.

We come to this conclusion because while the economy has bounced back strongly, record numbers of people are in work and promising school and welfare reforms are underway, the economic recovery is not being matched by a social recovery. 600,000 more children are in absolute poverty after housing costs than in 2010. For families in the middle – those on average earnings - it will be at least 2018 before their wages are back to where they were before the recession. The gap between the haves and the have-nots is growing. Between young and old. North and South. Rich and poor.

It would be tempting to think that a social recovery lies around the corner. We have concluded that is not the case. A series of profound changes affecting the labour and housing markets will have a long-term negative impact on both poverty and mobility. In the labour market too many of the jobs that are being created are low income and high insecurity. They are a dead-end not a road to social progress. Only one in five low paid workers in 2002 had managed to escape low pay by 2012. The emergence of a two-tier labour market is making it harder than ever to climb the social ladder. It is no coincidence that whereas a decade ago most poor children were in workless households, today two in three children who are officially classified as poor live in a household where at least one parent is in work. Poverty has become a problem for working people rather than simply the workless or the workshy.

Recent developments in the housing market are equally harmful to long-term prospects for improved social mobility. Home ownership – the principal means by which asset-based wealth for the majority of citizens can pass between generations - is in decline. The home ownership rate among 25 year olds has halved over 20 years.

The risk is very real that this generation of young people – from low income families especially - will simply not have the same opportunities to progress as their parents’ generation.

The prospects for the next generation of poor children seem no better. Despite welcome policies like the Pupil Premium and greater focus on the early years, there has been disappointingly slow progress in closing the educational attainment gap between the poorest children and their better-off peers. While the attainment of poor children has improved over the last decade, most are not school ready at age 5, one-third are not competent in reading, writing or maths at age 11 and two-thirds fail to get good exam results at age 16.

Limited progress at the bottom is mirrored in little movement at the top. The Commission’s study of the 4,000 most influential people in public life and business found that Britain is still deeply elitist and that Sir John Major was right to conclude that there is a closed shop at the top of British society.

Unfortunately, we see little prospect of the immediate future promising more progress than the recent past. The impact of welfare cuts and entrenched low pay will bite between now and 2020. Half of the reductions in public spending announced in this Parliament will not take effect until the next Parliament. Each of the main political parties are committed to eye-wateringly tight cuts. None of them have made much effort to reconcile the social ends they say they want with the fiscal means to which each of them are committed. In particular, plans to cut in-work support in real terms in the next Parliament can only make the working poor worse off, not better off.

So a series of fundamental changes are putting at risk the cherished notion that has glued British society together for a century or more: that the next generation will progress more than the last. The labour market has changed and with it the housing market. The state of poverty has changed and the state of the public finances has changed beyond recognition. The risk is these changes coalesce to make Britain a permanently divided nation. If we do not act, 2020 will mark a watershed between an era when rising living standards were shared by all and a future in which rising living standards by-pass too many in our society.

We share the view of those experts who predict that 2020 will mark not the eradication of child poverty but the end of the first decade since records began in which absolute child poverty increased. We have come to the relucant conclusion that there is no realistic hope of the statutory child poverty targets being met in 2020 None of the main political parties have been willing to speak this uncomfortable truth. They are all guilty in our view of being less than frank with the public. It is vital that the next Government comes clean. We look to it to supplement the existing targets with new measures to give a more rounded picture of poverty and to amend existing child poverty legislation to provide a new timescale for achieving them.

All the main political parties share the ambition of a fairer, more open society in which people have an equal opportunity to realise their aspirations. Noble ambitions but ones, in our view, that simply will not be realised by their current agendas. The circumstances are so different, the challenges are so great that the old ways dominating public-policy making for decades will simply not pass muster. What worked in the past will not serve as an adequate guide for the future. A new agenda is needed if poverty is to fall and mobility is to rise. Our report sets out what we believe should be done. We look to each of the political parties to say how they would respond ahead of next year’s general election to our conclusions and recommendations.

First, we look to the next government to use macro-economic policy to recouple economic growth with earnings growth. For decades the belief has been that welfare to work policies would cure poverty. A job does remain the foundation for a life free of being poor and more is needed to get young people into employment. But work alone is not a cure for poverty. Even at the height of the boom in the 2000s earnings growth was lagging behind economic growth. Today too many people are simply not earning enough to escape poverty. Five million workers – mainly women – earn less than the Living Wage. The UK has one of the highest rates of low pay in the developed world. Moving people from welfare to work must continue but there should be a new and equal priority given to moving people from low pay to living pay. The next Government should commit to making Britain a Living Wage country by 2025 at the latest. By then no worker should be earning less than the Living Wage. Our Report sets out how this can be achieved.

The Commission is acutely aware that simply increasing pay cannot be done without improvements in skills and productivity. But the road has run out for the old approach of asking taxpayers to subsidise employers to pay low wages that do not cover living costs. In an age of austerity employers now have a bigger responsibility to pay living wages and parents have a bigger responsibility to work more hours.

Second, we look to the next government to ensure that its fiscal policy minimizes harm to child poverty and social mobility. The next Government will have to make many tough decisions. We know that and accept it. The job of getting Britain’s public finances out of the red, having started, will need to be completed. But there are choices about how fiscal consolidation is done.
We look to each of the political parties ahead of the election to set out clear and specific plans about what they will cut and what they will protect to avoid negative impacts on social mobility and child poverty. In the old approach such considerations were an afterthought. In the new approach they should be front of mind. We do not believe that reducing support for the poorest working families while protecting benefits for better-off pensioners is any longer credible. The next Government should give new priority to protecting the working poor from the impact of austerity and it should empower the Office of Budget Responsibility to assess whether each Budget actually does so.

Third, we look to the next government to ensure in its social policy that young people are not left behind as the adult labour market moves ahead. Urgent action is needed to prevent this generation of young people faring worse than their parents’ generation. A far more active labour market policy will be needed in the future than we have seen in the past. In our view ending long-term youth unemployment should be an objective for 2020. That will require a new focus on further education rather than, as has been the case in the past, simply prioritising higher education. We advocate that by 2020 half of all workplaces with more than ten staff should be providing quality apprenticeship opportunities for young people. The number of colleges and Apprenticeship training providers that are under-performing should have been halved and a new Day One intervention system should be in place to get young people who drop out of education or work immediately back on track.

Fourth, we look to the next government to ensure that its housing policy contributes to more social mobility and less child poverty. Changes in the housing market are damaging living standards today and young peoples’ prospects for mobility tomorrow. For decades housing policy has been treated as a second order issue. In the future it must be a top priority. It is welcome that all the main political parties recognise the need to better match housing supply with demand. To do so they will need to countenance radical solutions like shared equity if owner occupation is going to be brought within reach of future generations of the young. Even then, it seems highly unlikely that we are going to see an early return to record levels of home ownership and many more families will have to rent not buy. Here too public policy is living in the past. The current policy governing how the private rented sector works was developed in 1988, an entirely different era when renting privately was primarily a short-term option for young people without families. But in the last decade the number of young families relying on the private rented sector has more than doubled. Overhaul is long overdue to make longer-term tenancies the norm so that those families who are renting can enjoy security and stability just like those that are buying.

Fifth, we look to the next government to focus its education policy on closing the attainment gap between disadvantaged children and their better-off peers. For decades the priority in schools has been to raise standards for all children. That policy is working and must continue but on current trends it would be at least 30 years before the attainment gap at GCSE between pupils who are entitled to free school meals and their better-off classmates even halved. We do not believe that the next Government should settle for that. Much more needs to be done and far more quickly.

The starting point should be parenting. Effective parenting has a bigger influence on a child’s life than wealth, class or education. Most parents do a great job but some do not and there has been a reluctance to call out bad parenting or to support more parents develop parenting skills. Existing public policy interventions here tend to be too timid or too targeted. We believe the time has come to end this equivocation. We look to the next Government to develop a national parenting programme to help more parents to parent well, funded by removing childcare tax breaks from families where at least one parent earns over £100,000 per year. Next we believe that early years services should be guided by a new ambition: to ensure poorer children are doing as well as better-off children by the time they start school. By 2020 we expect to see three quarters of the poorest children – and 85 per cent of all children - to be school-ready at age 5 as a staging post towards all children being school-ready by 2025.

In schools, it must become a national priority for the attainment of disadvantaged children to rise and the gap between them and their better-off peers to close. Just as previous governments have set targets to raise the bar in schools we look to the next government to set new targets to narrow the gap. It should aim to eradicate illiteracy and innumeracy among 11 year olds by 2025. And it should aim to halve the attainment gap between 16 year olds entitled to free school meals and their peers within a decade so that by 2020 at least 50% of children on free school meals achieve five good GCSEs. That is what London schools manage to do today. It is what schools in every part of Britain should be doing within the next five years.

What will make these stretching targets achievable is the quality of teaching that children receive. More needs to be done to get the best teachers to teach in the most challenging schools. Earlier this year the Commission surveyed over 1,000 teachers and found that better pay would be a powerful incentive to do so. For decades pay systems have rewarded teachers equally whether they teach in a wealthy leafy suburb or a depressed coastal town. Narrowing the attainment gap cannot happen unless we break from that old orthodoxy. On assuming office the next government should immediately commission the School Teachers’ Review Body to create new pay grades for the best teachers to work in challenging schools in the hardest to recruit areas. It should also pilot a Teachers Pay Premium, costing £20 million a year and funded from university widening participation budgets, to offer 2,000 of the best teachers a 25 per cent pay uplift if they agree to teach in a challenging school.

Sixth, we look to the next government to work with the institutions that open the way to the top in British society – our universities and professions – so they recruit from a far broader range of talent. The more open the top of our society can become the less divided our nation will be. The top universities and the top professions have been dominated by a social elite for decades. In the next five years they have the chance to break from that past. Both universities and professions will expand rapidly by 2020. By then there could be 100,000 more university places and 2 million more professional jobs. This expansion provides the potential for a big social mobility dividend if both universities and employers more actively diversify their intakes.

It is welcome that in the last year the Government has removed the cap on student numbers. It presents a unique opportunity for universities to recruit more students from under represented backgrounds. If, collectively, universities put their shoulders to the wheel we believe that by 2020 they could give over 5,000 more young people from the poorest backgrounds the chance to enter university each year with the Russell Group admitting 3,000 more state school pupils who have the grades but do not currently get the places. That will require universities to more actively build long-term relationships with state schools in poorer areas and to make greater use of contextual admission procedures.

The professions have a similar opportunity to make progress. An expansion of professional jobs provides space for employers to up their efforts to diversify their workforces. One way they can do so is by making internships openly advertised and fairly paid. Internships have become a new rung on the professional career ladder. Yet all too often they are recruited on the basis of who, not what, you know and many are unpaid. We believe the time has come to end those practices. If evidence is not forthcoming that progress is being made the next Government should legislate to end internships that are unpaid. In summary, we believe our country is at a crossroads. We see three roads open to the next government. One is to to continue with the current confusion where noble ambitions – lower poverty, higher mobility - are not complemented by consistent or clear enough policies. Muddling through, in our view, will not do when the mismatch between the challenge the country faces and the ability of current approaches to tackle it is already wide and set to widen.

So the next option is to accept that progress will not be made, that poverty will rise and that mobility will fall. We would hope that no incoming government would go down that road. Such a choice would be a signal of failure – economically as well as socially – for a country that remains the sixth wealthiest in the world.

The third road is the one we favour. To reset our ambitions as a nation in the light of the circumstances we find ourselves. To define clear objectives and timecales for first reducing – and then ending - child poverty and improving social mobility. To align resources and policies behind those objectives. To mobilise the whole of society to action behind radical new approaches to meeting the 2020 challenge.

We hope this is the road the next government chooses to travel. We believe it is the right one for Britain.

Published 14 November 2014