Introduction

Governments use their tax systems in various ways to incentivise and disincentivise certain types of behaviour, reward or penalise particular individuals or groups, as part of broader macro-economic policy and to fund social and public policies. Taxation is not simply about raising revenues; it can also be about distributing favours and picking winners. Decisions on taxation rates, incidence and exemptions are taken in the round, alongside spending decisions and after taking into account benefits such as grants, subsidies and state services. What has become increasingly clear is that many of the rewards of the tax system over the past few decades have been distributed disproportionately to big business, coinciding with increases in other types of corporate welfare (government policies that are designed to meet the needs and/or demands of private businesses, Farnsworth, 2012).

Despite its importance, corporation tax is rarely examined as a social policy issue. It tends to be viewed in legalistic and accountancy terms. Yet, questions of where, when and how corporations pay tax are important if we are to address broader questions of economic inequality. Various tax benefits are also important – distributing resources to recipients through the tax system. Tax decisions also influence prevailing business and investment models, which, in turn, have huge implications for the direction and redistribution of public resources and the positive or negative impact of business activities on employees, communities and consumers. This chapter focuses on the issue of corporate taxation, but it also looks at how tax shares and tax benefits are distributed unevenly, not just between citizens and corporations but also between different types of business. It examines how governments have used the tax system to incentivise predatory corporate behaviour and it looks at the implications of the corporate tax environment on the future shape of the welfare state.

Corporate taxes are complex and contested

Compared with other taxes, those levied on businesses tend to be more complex, more contested and more unique. To begin with, corporate taxes have not been around as long as land, expenditure and other income taxes.

Introduction

As welfare states have evolved, so their size, complexity, aims and functions have grown. Political systems and economies have similarly evolved and morphed into different forms so that it is increasingly difficult to capture what constitutes the welfare state and its interrelated forms without looking beyond the traditional social policy lens. In this chapter, it is maintained that we need to consider the complex ways in which a whole range of public and social policies and non-state provision (including, among other things, wages, taxation, regulations and private, occupational, third sector and informal welfare) come together and, in some cases, collide to shape and reshape the overall welfare mix. In addition, we need to examine how welfare funding, service provision and welfare receipts by one party within the welfare mix sit alongside other public policies and private (including citizens’) provision, much of which does not appear on the social policy radar. In short, the focus of social policy needs to be broadened, going beyond the mixed economy towards a whole economy of welfare approach.

The structure of the chapter proceeds as follows. The first section examines the relevant literature that helps to shed light on the way in which social policy has been theorised, explored and explained. Existing literature is argued to be too narrow in focus and scope. The second section sets out and maps the whole economy of welfare approach advocated here. The third section draws on data in order to explore how different configurations of taxation, provision and regulation are distributed within different welfare states.

Section one: Pushing at the boundaries of the welfare state: considering the mixed economy of welfare

As is customary in work that seeks to look beyond the narrow frame of social welfare, our starting point is Richard's Titmuss (1958) conceptualisation of the social division of welfare approach. In carving out the emergent subject in the 1960s and 1970s, Titmuss perceived of social policy in a more radical, wide-ranging and less constrained way than many who have followed him. His social division of welfare approach recognised the important distinction between the different ways of funding and providing welfare and the implications that flow from this. In 1958, he mapped out what would later come to be known as the mixed economy of welfare or welfare pluralist approach, a typology that continues to have traction to this day.

Introduction

Periods of economic crisis inevitably increase the tensions between social policy and the economy. Public expenditure is underpinned by strong economic performance and, in the face of financial crisis, social policies can offer some effective short-term gains by boosting consumer demand and maintaining political legitimacy. However, slowing economic growth and recessions risk precipitating fiscal crises, where revenues fall and public sector debt rises. Thus, economic crises often lead to welfare state crises, and the post-2008 financial crisis was no exception to this.

As governments within the wealthiest economies grappled for solutions to the emerging global financial crisis and the ensuing ‘Great Recession’, they distanced themselves from dominant neoliberal ideas and, for a short period at least, Keynes was revived. Gordon Brown announced in 2009 that:

The IMF announced in the same year the end of structural adjustment programmes for any (developed) economy that might need its assistance. Five years later, however, it was Keynes that was on the defensive. Although we have argued that ‘the’ global economic crisis is actually better understood as a distinct number of national crises linked to both the immediate events of 2008 and the subsequent economic fall-out effects, some common patterns emerged across the global economy and in policy responses (Farnsworth and Irving, 2011b; 2012). Social policies have come under increasing attack and there are signs that neoliberal economics has been strengthened, not weakened, in the post-2008 era (Seymour, 2014; Streeck, 2014; Jessop, 2015). Two key questions at the heart of the political economy of welfare have nevertheless remained constant: what is the proper role of the state versus the market; and what is the effect of the welfare state on economic competitiveness? Periods of crisis test these two questions to their limits.

Introduction

In 2009, following the meeting in London of the G20 heads of state, the then British Prime Minister Gordon Brown (http://news.bbc.co.uk/1/hi/in_depth/business/2009/g20/7979746.stm) heralded the beginning of a ‘new world order’ – a more progressive and more citizen-oriented era, less bound by free market fundamentalism. Periods of major economic crisis, especially those on the scale of the 2007‒8 crisis, often bring such periods of reflection and have, in the past, driven paradigmatic shifts. In many ways, the Great Depression of the 1930s led to the emergence of the modern welfare state. The US at the time was a social policy pioneer rather than the laggard it subsequently became. The more recent crisis was different, however, and the lessons learned much more quickly forgotten. Any hope that the evolution of progressive social policies would be possible in a less hostile political and economic environment were quickly dashed. The kind of social solidarities within and between states that helped to boost social policies across Europe have been tested to destruction.

If it was questionable before, there is no longer any doubt that the needs of national capitals or, to paraphrase the discourse of international organisations, the needs of the global economy, have come to eclipse the needs of people. Social policy commitments are being stripped back and, in a world in which national economies have failed, alternative justifications for the more marginally productive functions of the welfare state – greater equality, emancipation, anti-poverty – are disparaged as ideas of a settlement inimical to the contemporary conditions of shrinking economies. The post-2008 high levels of national and consumer debt, growing employment instability and low consumption clearly present a challenge to welfare capitalism, but the ascension of austerity as the solution is a challenge in itself. The strategy of austerity, as a means by which governments can cut their way to growth, is undoubtedly leading to perverse economic outcomes and as such is a failing experiment. In the war of position on the welfare state, however, austerity appears to have achieved much greater success, cementing divisions between the secure and the unentitled, reimagining the size and activity of the state and solidifying in policy reform, the privilege of assets.

Prior to 2008, the idea of austerity in popular discourse was captured in its cultural–political association with post-war lives – frugality and the ‘make do and mend’ approach to consumption, that contrasts sharply with the waste and disposability that characterise advanced economies in the twenty-first century. With more specific reference to social policy, the work of Paul Pierson (1998; 2001, pp 411–13) on ‘coping with permanent austerity’ provided a new perspective on the nature of the fiscal stress that afflicted advanced economies from the 1970s. In this he argued that in addition to the brake applied by institutions to radical change, such was the strength of political mobilisation in support of the welfare state that its continuing presence was basically secure. What the chapters in this book have shown is that this basic security is now threatened in ways hitherto not foreseen.

Since 2008, austerity has taken on far greater significance as the logic driving fiscal decisions, but also as an ideological tool with which the state can be whittled away. Despite its significance for public policies and welfare states however, as pointed out in the introduction to this volume, austerity in the ‘new age’ is not in reality so easy to define or measure. The ambiguities deriving from its role as both economic and political strategy are its strengths. In economic terms, it is difficult to mount a credible intellectual challenge to an idea that is so modest – captured in Mr Micawber's happiness–misery adage in Michael Hill's chapter – and yet so fantastical – the notion of ‘expansionary fiscal contraction’ professed by modern day proponents. In political terms, it is also difficult to challenge policies that are pre-packaged as essential medicine that is ‘harmful if swallowed’. As Bob Jessop notes, the politics of austerity is ‘crafty’ and electorates have mainly voted for harm. The difference between this age and the past lies in this successful framing of austerity as the only way forward, its transposition from an underlying condition of governmental constraint to an active governmental strategy, and the various ways in which sources of opposition have been blocked.

The chapters in this volume have addressed questions emerging from four broad themes that we consider essential to a better understanding of austerity in the post-2008 context.

Introduction

Austerity defines the shape, conditions and ambitions of the post-2008 welfare state. But despite its currency within social policy debate, ‘austerity’ itself remains under-scrutinised and under-theorised. We argue here that austerity is about more than spending cuts and deficit reduction. It concerns the transformation of welfare states in the face of structural economic weakness and antithetical politics that exist within, but also go beyond, nation states. It is about the unwillingness or inability of citizens and policy makers to defend the welfare state in the face of ongoing economic, political and social crises. It is also about the underlying structural weaknesses of contemporary capitalist economies, the delegitimisation of government, the ineffectiveness of governance and the fact that successive welfare state reforms have both steered social policies in less progressive directions and have rendered social policy less, rather than more, compatible with post-crisis economies. The precise impact on developed welfare states is, as we have argued previously (Farnsworth and Irving, 2011, 2012), uneven and variable, but most are encountering austerity in one form or another and many of those that have not so far imposed deep expenditure cuts plan to do so over the next decade. Some welfare states are simply being retrenched, others are undergoing a process of restructuring, and still others are experiencing wholesale reconfiguration. However austerity is manifested, the prognosis for welfare states is not good.

Contrast this with the early post-financial crisis period: initial indications were that a progressive politics of welfare expansion could emerge. The financial crisis, unprecedented in terms of its depth and international reach, exposed the inadequacies of the prevailing neoliberal experiment and held the promise of a Keynesian revival. UK Prime Minister Gordon Brown, speaking after a world summit on the crisis in 2009, pronounced the old Washington Consensus ‘dead’, and, although unspecific about what had been put in its place, it seemed clear that the recovery would be state led and state funded. But this revival of the state was short-lived. The rhetoric may have changed, but five years on the strange non-death of neoliberalism described by Colin Crouch (2011) is a clear reality – the anticipated demise deflected through the dissociation of politics and economics in a new ‘age of austerity’.

The global financial crisis of 2008 was unprecedented in living memory. From the height of the very first wave of the crisis – the collapse of Lehman Brothers in the US – to the ongoing instability of the Eurozone, the economic and social impact has been world-changing (see Farnsworth and Irving, 2012). The period since 2008 has exposed the weaknesses of neoliberal economics and the role played by large-scale social policy interventions in mediating its effects. At the very least, the financial crises illustrated that markets were not infallible. Yet, nearly a decade on, it is the welfare state that is on the defensive. The transformation in global capitalism has paved the way for a new age in the global economy, but this new age – the age of austerity – presents perhaps the biggest challenge yet to the future of welfare states.

This book begins from the premise that the post-2008 global economic circumstance is best understood as a variety of crises proceeding in several waves, with differential impacts cross-nationally, world-regionally and internationally. Although there are differences in the journeys taken by nation states, the end result is transformed capitalisms and a fundamental resettlement of welfare. The idea that the world has entered a ‘new age of austerity’ is deeply embedded in both policy and popular discourse and is based on the assumption that there has been an irreversible change in the economic and political conditions that underpin systems of welfare. To say that the idea of ‘austerity’ has become ubiquitous in early twenty-first century social policy debate is, in fact, somewhat of an understatement, and although perhaps more explicitly so in Europe than in any other region, austerity is nevertheless the driving force in global welfare development. This is because it is shaping the welfare states in the most powerful economies and redrawing the terms of development in the less powerful ones.

Towards the end of the twentieth century, social policy debate attended to the emergence of the ‘middle’ or ‘third’ way in Europe, but ultimately the hegemonic ideas of neoliberalism since the 1980s have transcended all borders, infused policy discourse and influenced the development of welfare in all the major economies, albeit to different degrees of magnitude.

Part One: The British welfare state

This first part of Social Policy Review traditionally examines annual transformation in British social policy, usually focused on the ‘five giants’. This year the approach is slightly different. Each of the chapters presented in this part focuses on broader themes, many of which tend to be neglected in social policy analysis.

In Chapter One, Tracey Warren focuses on the changing nature of the work–life balance in the light of the economic crisis. While much of the focus of social policy analysis in the past has been on the impact on family life of ever-longer working hours (for those in work), Warren argues that we need to consider also the impact of the post-2008 economic crisis on work-time underemployment and on economic security. Most importantly, she offers insights into the class dimensions of the work–life balance debate, arguing that there is a clear difference between how the middle and working classes experience and manage the work life in the UK.

Liam Foster, in Chapter Two, examines the changing nature of pensions policy in the UK with a particular focus on the gendered dimensions of retirement incomes. Here the focus is on the implications of the Coalition government's policies on pensioners, and especially on women, with a particular focus on changes to private as well as public pensions, and both in the short and longer terms. Foster considers whether, set against rising life expectancies, retirement futures are likely to be more or less stable, equitable and well funded. On each of these questions, the Coalition government's policies are found wanting.

In Chapter Three, Ross Fergusson takes a critical look at the impact of government policy on young people – namely, school leavers. Fergusson’s chapter is an engaging and enlightening examination of this relatively under-researched area in social policy. He presents the issues of school leaving age and training for young people in an interesting historical and political economy framework which allows us to see the key links between the economy, social instability and social control and the school leaving age. As he also makes clear, the politics of the school leaving age are also complex and surprising.