Plunder: the scandal of private equity

A little over two years ago, I wrote a short piece on this blog about the dangerously precarious funding of residential care.  At the time, I didn’t realise how pervasive the financial model had become.  I’ve recently read an account from the USA by Brendan Ballou, called Plunder (PublicAffairs, New York, 2023), which discusses just these problems.  (Full disclosure – I was given a signed copy of the book, by way of the author’s sister. )  Private equity firms have developed a business model which battens on to, and ultimately destroys, profitable businesses – and, when they get the opportunity, privatised public services.  Examples in the UK include not just residential care, but the water companies, rail franchises, energy and health care.

The methods adopted by these companies include

  • Leveraged purchases: firms and assets are acquired by borrowed money, and it becomes the responsibility of the firm that has been taken over to repay the debt.
  • Further debt. Beyond the cost of purchase, firms are then put into further debt in order to increase the rate of return to the controlling financiers.
  • Leaseback.  The assets of firms are transferred to other companies and the firms are then required to pay rent in order to use the facilities they used to own.
  • Fee structures.  Firms are required to pay further liabilities for services provider by their purhaser, typically including fees for transactions, management, consultancy, ICT and payroll management
  • Tax avoidance.  The returns from this milking machine are diverted through tax havens. If they are submitted to taxation, it is done through the most advantageous tax regime, such as the limited taxes on capital gains rather than taxes on income.
  • Pension funds.  Some firms have raided their pension funds directly – it is a common element in bankruptcy proceedings – but it is also done by directing the  investments made by pension funds towards support for the firm.
  • Nested firms.  It has become common for firms to be owned by other firms.  These structures are opaque.  The effect of separating out each function within a business is to make it possible to cook the books, so that profits disappear through cross-charging.
  • Limited liability.  Many firms which have been drained through these procedures go bankrupt.  The construction of laws relating to bankruptcy and limited liability  mean that those responsible can avoid all liability to meet their debts or obligations.  make it legally possible for subordinate businesses to become bankrupt without leaving any liability to the parent firm.
  • Aggressive – and effective – lobbying.  Ballou makes the point that these firms have bought extensive influence without incurring the duties of transparency and reporting that public firms have to meet.

Most of the options that Ballou considers for reining this in are geared to the pecularities of the American legal system, such as anti-trust legislation; I think they have a very limited potential in the UK.   It seems to me that  we need to consider a number of changes in the law:

  • preventing beneficial owners from claiming limited liability for default.  If the subordinate firm goes bankrupt, the beneficial owner should either be fully liable or themselves go bankrupt.
  • taxing firms on turnover rather than profit.
  • equalising capital gains tax with the rates of income tax.
  • treating pension funds not as a liability, but as something in the unqualified ownership of the beneficiaries.  If you leave your shoes for repair and the repairer goes bankrupt, the repairer is a bailee, and you can get your shoes back. Beneficiaries have to be treated not as creditors but as owners, and the firm as a bailee of those beneficiaries.

I know this falls some way short of dealing with a major, endemic problem, one which has come to threaten not just the public services but, by Ballou’s account, the whole structure of the market economy.  I’d be grateful for further suggestions – I’d be happy to revise this blog, or to return to the subject with better ideas.

This is not the way to develop social care

I was listening this morning to a thoroughly depressing discussion on social care.  A major part of the way the issue has been framed is, apparently, to encourage migration so that migrants can fill the roles that need to be provided.  The other was to point to the supposedly five and a half million people receiving ‘out of work’ benefits, a figure that includes, as far as I can tell, four million people who are either too sick to work, in work on low pay or who already have caring responsibilities, and demand that they provide social care on a minimum wage.  The underlying message seems to be that care is unskilled, and anyone can do it.

If we look at the way that social care is being provided, the picture is very mixed.  The delivery of services has been shaped to match the criteria of commercial markets: individuated services, priced distinctly by activity.  So we get tick-box lists of what needs to be done, masquerading as an assessment: dressing people, cutting their fingernails, brushing their teeth and so on.  Some of the activities are paid for, and counted as nursing care; others are based on reported needs  that, in their nature, are typically out of date.  I’ve argued, in How to Fix the Welfare State, for a different (and admittedly rather more expensive) approach: providing teams of professionals who are paid for blocks of time, rather than specifically costed activities, who within that time can identify and negotiate services with the people who receive them.  To do that, social care needs a professional structure – including training and qualification – and a pay structure that is commensurate with the skills that are required.  We have a long way to go before we get there.

In praise of the triple lock

The ‘triple lock’ is the name given to a commitment to maintain and improve the value of state pensions.  The table comes from a recent report by the Institute for Fiscal Studies.

Table 1. Triple lock indexation since its introduction

In the course of the last twelve years, this has meant that pensions have increased by a nominal 60%, while if they had only increased by inflation, they would be up 42%. Putting that  another way, pensions have risen by 12.7% over inflation (that is, 160/142), which in real terms is 1% a year.

One might suppose that ratcheting pensions up, however slowly, was a praiseworthy thing to do, but the principle has come under fire from those who claim that it represents an unsustainable commitment. The criticism has been fed by the IFS report, which argues that it creates ‘uncertainty’ about the future value of state pensions, and that if it is left in place till 2050, it will increase the value of the state Pension from about 25% of median earnings to something between 26% and 32%.

The first of these arguments is, frankly, codswallop.  The benefits  system is in a parlous state: the main ‘uncertainty’ it is creating is whether or not people will be able to eat.  Improving the value of the pension does not increase uncertainty; it reduces it.   If we are genuinely concerned about the narrower problem of how people plan their pensions for the future, the main ‘uncertainties’ come from the govenment’s eccentric reliance on means-testing and the desperate problem of paying for social care.

The second argument invites the obvious retort – so what?  A modest increase in the value of pensions, relative to the median wage, is surely a good thing.  The UK’s treatment of pensioners is, by international statndards, parsimonious.  Consider this graph from the OECD.  It puts the percentage of GDP spent on pensions in the UK at 5.1%.  The Office for Budget Responsibility, which works on a slightly different set of definitions and takes into account a few extra benefits,  estimates that this year, the percentage will be – try not to be too shocked – 5.3%.

The  State Pension provides, at best, a modest basic income.  The (somewhat limited) success of the triple lock is something to applaud, not to denigrate.  One might wish that the the same approach could be taken for the painfully inadequate benefits offered to people of working age.

Coping with inequalities in wealth

There has been some interest recently in wealth inequalities, for example in work by the Fairness Foundation.  Much of this focuses on the wealth of the very rich.  In recent correspondence, I’ve been struck by the extent to which others considering the issue have focused, not so much on the implications of inequalities in wealth, but on fair taxation and inequalities of income – problems relating to benefits and low wages.  I’m sceptical that either focus can address wealth inequalities in a meaningful way.

Any conceivable redistribution of income will not (by definition) touch the established holdings of people who hold assets as wealth – typically in the form of real property or financial products.  There may have been an argument in the 1950s and 60s for heavy taxation of income (the flow) to prevent the accumulation of wealth (the stock), but the genie is out of the bottle; the wealth has been already been accumulated. Income taxation now can slow further accumulation, but that does not begin to address the issue.

That may seem to some to constitute an argument for wealth taxes, such as property taxes, inheritance tax or taxes on capital transfer.  That makes sense in terms of fairness – subjecting wealthy to the same criteria as others – but it can only ever have a limited effect on the distribution of assets, because they are based on a proportion of wealth at best.

What we need to do, instead, is to reconsider how the problems created by unequal wealth might be addressed.  Wealth inequalities may have seemed harmless to Tony Blair, who said he was “intensely relaxed about people getting filthy rich”, but they have implications for people who don’t share in that wealth.  In particular, they create obstacles to access to land, housing and, to the extent that people have become rich by using their assets to extract money from people who aren’t rich, they make for problems relating to rent, poverty and debt.

I think there are two main directions to go in.  The first is to consider the problems, not of the rich few, but of the many poor – in these terms, those who do not have assets. More income will help deal with issues of poverty, debt and manutrition; and regulations to cover those circumstances, such as protection related to financial services or limiting the interest that any  creditor can receive,  would have direct benefits.  However, in important fields of life – especially rent and residential care  – the main beneficiaries of greater income support will be those who hold the assets on which those services are based.  Supporting income is not enough.

The second direction is to establish a base of assets that will be available to people regardless of their financial circumstances.When the National Health Service was introduced, it had a major effect on the resources available to the poor – an effect that is largely concealed by the way we choose to keep public accounts.  Part of this can be seen as an implicit income: everyone in Britain has, whether they use the service or not, a financial gain equivalent to the value of health insurance. Part, however, is the equivalent of a savings fund: the protection of assets that in other circumstances would be exhausted.  When people have access to social housing, libraries, museums and parks they have gained command over resources – if not quite as good as ownership, something pretty close.   And when those resources are withdrawn from people, they feel the loss.

A wide range of basic services could be treated in this way.  They include, for example, funeral plots, free transport, legal aid, university education, wi-fi, child care, basic banking services and mailboxes.  Provided publicly, these things allow people to act as if they had the assets themselves.  That would have a much great effect than any focus on the assets of billionaires.

Social Policy: a subject still in trouble

I’ve just read a review of the state of Social Policy teaching in UK universities.  Twenty years ago, I made the case that the subject was in ‘deep trouble’.  At the beginning, this report cites me saying that,  but the tone of the report is more positive, claiming that Social Policy is still threaded through a wide range of courses.  I’d hold to my initial position.  It isn’t just that ‘social sciences’ are ‘under attack’: Social Policy has fared particularly badly.  There are only 18 single honours courses in the UK, and 25 institutions offering joint honours.   A sizeable clutch of universities have closed their courses.

There are two points of particular concern.  The first is the hopelessly inadequate description of Social Policy, taken from the Higher Education Statistics Authority,  as “the study of the policies of institutions which are designed to modify the balance of sociological factors”.  There is a common confusion in the idea that Social Policy is about policy for society.  Some social policies are – Ferge called them ‘societal’ or ‘structural’ policies.  Many are not; they’re about economics, or politics, or service delivery.    If the description had only talked about ‘the balance of economic, social and political factors’, I probably wouldn’t have kicked about it, but it still doesn’t cover the ground. The assumption, that Social Policy is about issues in Sociology, is quite misleading.  Yes, Social Policy does draw on Sociology – but it draws on much, much more.  That ‘more’ includes Economics,  Law, History, Psychology, Management, Philosophy and Politics – and if it doesn’t, it’s not being taught very well.

The second big problem is the relegation of practical and professional issues to the sidelines.  Students of Social Policy need to know about policy analysis and social administration – issues such as planning, partnerships, voice, empowerment,  quasi-markets, incentives, targeting, access to services and so on.  And I was disturbed to see, in a long list of cognate subjects in Table 2.3, no reference to Housing Policy, Social Care or Social Work.


A comment from Stewart Lansley:

I really agree with this. I have two concerns about social science teaching and research today – one is the failure to incorporate an economic perspective in examining on social policy. The other, in part because of this, social scientists have effectively lost much of the influence they enjoyed in the post-war era ( all in the case of the Tories ).

There’s some discussion of this in Policy Press | The Richer, The Poorer – How Britain Enriched the Few and Failed the Poor. A 200-Year History, By Stewart Lansley ( which is in part an attempt to merge economic and social analysis.

75 years of the NHS

The NHS – and the British Welfare State -are 75 years old today.  I’m not going to try to cover all the issues here, but I did offer a potted summary in my book, How to Fix the Welfare State (Policy Press, 2022).  Here are two of the summaries from that book, for the chapters on the NHS and Social Care.




Key points  

  • The NHS offers a form of insurance, providing medical care to anyone.
  • Despite the dominance of hospitals, general practice is at the heart of what the NHS does.
  • The need for public health has been highlighted by recent experience.
Positive developments  

  • The NHS has moved away from long-stay institutions and focused on medical care.
  • General practice has been greatly improved.
Where policy has gone wrong  

  • Private markets cannot fill the gaps. They depend on producers having choices, and that leads to exclusion.
  • Health is public as well as individual. Reducing everything to the personal level compromises the aims of health services.
What to do instead The health service has to provide different levels of service: decentralised general services, more specialised work for larger areas, and highly specialised centralised provision.

Social care

Key points  

  • The shift from health care has left services that are fragmentary, insecure and often expensive.
  • Residential care has grown because it is an effective way of providing intensive services, but not all residents need that.
  • Domiciliary care has been based in a flawed model of ‘personalisation’ – and a catastrophic assumption that it won’t be sustainable.
  • Care in any setting depends on continuing personal relationships.
Positive developments  

  • This service did not exist when the welfare state was founded.
  • It was created as part of the movement away from long-stay institutions. It has its failings, but at least it has made it possible for some people to continue to live in their own homes.
Where policy has gone wrong  

  • Personalisation has never lived up to its promise; it only works for some.
  • Creating something like a market in social care is no guarantee of choice.
  • Markets offer commodities; people who need care need something different.
What to do instead The clients of social care need people with time and skills, not a shopping list of the tasks that workers will fulfil. Both residential and domiciliary care will need teams of carers who can offer a personal service to clients.

A place for anti-poverty strategies

One of the difficulties faced by old-timers in the field of social policy – and I have reluctantly to admit that that description applies to me – is that the same ideas, good or bad, will always come round again.  I was mildly intrigued then, rather than deeply excited, to see a report from LSE about local anti-poverty strategies.  It’s nearly 25 years since I prepared an anti-poverty strategy for Dundee Council, their first.  Some of the lessons that the LSE report draws were evident in that exercise: the importance of ensuring that local actors buy in to the strategy, the need for an action plan, and the necessity of having some means of monitoring implementation and outcomes.

There are, however, some other lessons that it’s important not to lose sight of.  The first was to produce a plan for everyone in poverty, not just those living in deprived areas.  The second was the need to be inclusive – to let people with different ideas about needs and priorities have their say – and not to impose my own definitions or understandings on people.  The third was to allow people in poverty to identify their own priorities.  Before I did this work, for example, I hadn’t understood how important pets were to people’s lives.  That’s the great advantage of open-ended, qualitative research – it gives people scope to say what matters most to them.

I also found, in three successive focus group interviews,  although I’d come to talk about poverty, they all wanted (quite independently of each other!) to talk about deafness.  It wasn’t right for me to tell them that they were off the subject – far too many people in poverty have their concerns overridden by well-meaning academics.  Poverty is a much broader topic than managing on low incomes. The first thing any researcher or planner needs to do is to listen.



The welfare state: a communitarian perspective

Today I gave a plenary paper to a conference of  the Wales Institute of Social and Economic Research and Data, under the title of The welfare state: a communitarian perspective.  The conference brought together Welsh academics and researchers with practitioners from the voluntary sector.  Here is the abstract:

Communitarianism is not, as some critics imagine, an argument for the dominance of the community over the individual. It begins from the view that our rights, responsibilities and moral understandings are rooted in the society of which we are part; these phenomena are socially constructed, relative, contingent and particular. A society is not a single ‘thing’: it is a network of networks, depending on a mesh of interactions, exchanges and obligations. Welfare provision has developed from the networks, duties and conventions which bind a society together.
       The welfare state is commonly understood in three ways: as provision by government, as a complex set of systems for social protection, and as a normative ideal. This presentation will argue for a fourth understanding. The welfare state is a way of describing a set of normative aspirations. These aspirations are sometimes thought of as universal, but all welfare states apply principles of ‘bounded solidarity’; the terms of the welfare state depend, like ideas of equality, social justice, or democracy, on the context of the society in which they are applied. The ‘welfare state’ is a direction of travel, not a destination.

The paper is online here, on my access page.

Asking an artificial intelligence to write an essay on social policy

I wanted to see what ChatGPT would make of a social policy essay, so I asked a starter question:

What is a welfare state, and is Britain one?

A welfare state is a government that provides a range of social services and benefits to its citizens, including healthcare, education, social security, and other forms of assistance, in order to ensure that they have a basic standard of living and access to basic necessities. The idea behind a welfare state is to create a safety net for individuals who may not be able to provide for themselves due to age, disability, unemployment, or other factors.

Britain is generally considered to be a welfare state, as it has a long history of providing a range of social services and benefits to its citizens. The British welfare state was created after World War II, with the introduction of the National Health Service (NHS) in 1948 and the creation of the welfare state in 1949. Since then, Britain has continued to expand its welfare state, with the introduction of additional social services and benefits over time.

However, the level of support provided by the British welfare state has been subject to some controversy in recent years, with some arguing that it is too generous and discourages people from seeking work, while others argue that it is not generous enough and leaves vulnerable people without adequate support.

There are some mistakes in this.

  1.  Provision in many welfare states isn’t  made by the government.
  2. Just about every country in the world provides some health care and some education.  More than 150 countries now have some kind of national scheme for cash support.
  3. The welfare state needs more than a ‘safety net’.  Safety net provision, or ‘residual’ welfare, was the model for the Poor Laws centuries before the welfare state was thought of.  That also reflects on the comment that Britain has a ‘long history’ of this – it does, but the welfare state was founded after the second world war.
  4. The NHS Act was in 1946, and the welfare state was introduced formally on 7th July 1948.

Steve Mckay, from the University of Lincoln, got ChatGPT to refine the answer.

A welfare state is a political and economic system that prioritizes the provision of social welfare programs and services to its citizens. These programs and services aim to ensure that all individuals have access to basic necessities, such as healthcare, education, housing, and income support, regardless of their socioeconomic status. The welfare state is often seen as a means of promoting social equality, reducing poverty, and promoting economic stability.

Britain has a long history of welfare state provision, beginning with the introduction of the National Insurance Act in 1911. However, it was not until the post-World War II period that the British welfare state took its modern form. During this period, the Labour government introduced a range of social welfare programs, including the National Health Service (NHS), social housing, and a comprehensive system of social security benefits.

Since then, the British welfare state has undergone significant changes, reflecting broader economic and political shifts. The 1980s saw the rise of neoliberalism and a growing emphasis on market-oriented policies, which resulted in the privatization of some public services and the scaling back of certain welfare programs. In the 1990s and 2000s, the Labour government introduced a range of initiatives aimed at reducing poverty and social exclusion, such as the introduction of tax credits and the Sure Start program for early years education.

However, the 2008 financial crisis and subsequent period of austerity saw significant cuts to social welfare spending, resulting in reduced access to certain programs and services. This has been particularly felt by those who are most in need, such as disabled people and low-income families. Critics argue that this erosion of the welfare state has undermined social equality and resulted in growing levels of poverty and inequality.

Despite these challenges, Britain remains a welfare state, albeit one that is undergoing significant transformation. The provision of social welfare programs and services remains a central feature of British society, and there continues to be significant public support for the welfare state. However, the effectiveness of these programs and services in addressing issues such as poverty and inequality remains a matter of debate. Some argue that the welfare state is inadequate and requires significant reform, while others believe that it is a vital mechanism for promoting social justice and economic stability.

I’m not sure quite how he did it, but this version is a lot better than the one I asked for.  The welfare state is now described as a system; it’s tied to a range of principles, including citizenship, equality and being there for everyone; and it’s subject to key tests, including poverty, social justice and economic stability.

Despite that improvement, this still doesn’t add up to an undergraduate essay.  An essay in social science is primarily an exercise in processing information.   The first step is to select material, bringing together information.  At the most basic level, a piece which brings together information from several sources requires more skill (and more work) than one which takes all its information from one source.

The next step is to get the selected material in order.  Referencing is again crucial, because a student  who goes through the material by covering everything said in one book, followed by everything said in another, is showing less skill than someone who can take material from disparate sources and put it in order.

Third comes evaluation.  Again at the most basic level, commenting on the material which has been selected and ordered  is a way of showing one understands it.  But evaluation that is not based on evidence and argument  is nothing more than an opinion, and markers cannot legitimately mark a piece up or down just because they happen to like or dislike what has been said.   The test, yet again, is a test of skill in handling the material.

The AI falls short of this at every point, for two reasons.  The first is that it doesn’t sift and sort information in its own right: it gets words in order, but there is no material here to sort, and none to evaluate.  The second is that it has not provided any referenced material.   Referencing is a crucial part of the exercise, at every stage.  It reveals how much material has gone in to the selection; it distinguishes material that has been sifted and sorted by the student from ordering that is carted whole from a single source; and it distinguishes the student’s critical commentary and understanding from what came from the sources.  Without that evidence of understanding, there is nothing to mark.


News from Maine: a “welfare magnet”?

The state of Maine, in an article I’ve just read, has ‘an international reputation as a welfare magnet’, a claim that might surprise the European countries  which have taken in hundreds of thousands of people.   There were no fewer than – do sit down if you find you need air and smelling salts – 400 unauthorised migrants who came to Maine last month.  I don’t have comparable figures for January, but I do have them for December, from the EU’s Frontex agency.  Here they are, in a table reporting unauthorised crossings into the EU and the UK. They seem to be a little larger than Maine’s figures, despite its ‘international reputation’.

The article on Maine conveys the author’s sense of disapproval at the existence of the people it calls ‘illegals’.  (My own view on that term is here.) The writer tells us:

The 400 foreign nationals who crashed the southern border and headed for Maine last month include 63 families with an average of 2 children each, most of whom will soon be enrolled in local public schools if they aren’t already. In addition, another 151 of the border-crashers who arrived in January are individuals without spouses or children.

So one of the principal items of concern seems to be that people are travelling with children who will need schooling.  Even more daring, there is talk of providing free basic health care to people who have very low resources:

this radical proposal … would make Maine the first state to offer Medicaid benefits to all adult residents who are in the country illegally.

The Federal rules, under  Obamacare , are restrictive by European standards – it is difficult for migrants even to get access to the ‘marketplace’ for health insurance – but Minnesota explicitly exempts refugees from the 5-year waiting period that otherwise applies to non-citizens.

The proposal to extend basic health care, or ‘MaineCare’, is described here.   Maine already makes that provision for children, and California and New York have extended provision for older people.  The opponents of the proposal to extend basic health care have tabled legislation ‘to protect Maine taxpayers’. Perhaps they might like to consider the advantages of becoming a ‘magnet’ for the citizens of the future.