Learning from other countries

Learning from other countries

Funding

The ‘European Social Model’ of strong welfare states is based on promoting positive-sum solutions to what elsewhere (such as in the US) are considered to be unavoidable trade-offs between sustainable economic growth and social justice (and cohesion).

The budgets allocated to welfare states differ dramatically between countries. While social spending as a share of GDP has generally declined in OECD countries over the past ten years, France remains the country which is most generous in terms of its social benefits. In 2019, the equivalent of almost a third of French GDP was spent on social services by the government. Finland had the next highest rate at 29%, while Denmark, Sweden and Norway spent more than 25%. Spain, Italy, Germany and Belgium were also above average. The UK spent 20.6%, just above the OECD average of 20%.

Three models

Welfare states are also qualitatively very different in how they organize and finance their systems of social protection and how they design and how they spend their social budgets. There are broadly three models of welfare state in Europe:

  • Liberal (as in the UK), which is market-oriented (other than the NHS), with public provisions for income maintenance and relief mainly catering to the poor; benefits are low and tax-financed, with access restricted by means testing, and private social insurance is encouraged via tax exemptions and allowances, which favour the middle class and the rich.
  • Social democratic (as in the Nordic countries), which grounds social rights in citizenship or residence and so largely does away with status differentials; benefits are tax-financed, but are much more generous; access to them is more open and universal, with no strict qualifying conditions, while the role of the market in service and benefit provision is played down.
  • Conservative (as in Germany and Austria), which provides social insurance programmes that depend on occupation and status, with qualification for benefits linked to contributions paid by employees to social insurance funds, and the level of benefits related to earnings and contribution period; these systems tend to magnify rather than moderate existing differences in status and income, protecting the employed well while leaving those without a strong attachment to the labour market as outsiders whose social protection depends on their family.

Redistribution

Many welfare systems are not designed to redistribute income (even though they all do to some extent). In conservative welfare states, income redistribution is a secondary goal and a side-effect. It only happens to a large extent in social democratic universalist welfare states, where income is redistributed not only to the poor, but also to the middle class. But all welfare states offer protection against social risks (old age, unemployment, disability and so on) and provide income maintenance. Most income redistribution is horizontal (intrapersonal over the life course and within income groups) rather than vertical (from the rich to the poor). Even in liberal welfare states like that of the UK, where many of the social provisions exclusively cater to the poor, more than half of income redistribution is intrapersonal and over the life course: people put money into the piggy bank during their active working life and smash it when they are in need later in life.

Public support

Attempts in the UK to talk about Scandinavian countries as role models for welfare tend to fall flat because it is easy to argue that those systems rely on much higher taxes. However, the evidence from countries such as Denmark is that people are much more willing to pay higher taxes when the benefits that they receive in return are generous and universal. The counter-argument can also be made that welfare provision in Britain could be improved significantly without requiring huge tax increases, for example by improving efficiencies, reducing tax avoidance and removing subsidies to the wealthy that are either already unnecessary (such as many tax reliefs) or could be made so through other reforms (such as housing benefit that subsidises private landlords, which could be hugely reduced by a programme of social housing that lowered demand for private rented accommodation).

Reciprocity

Other European welfare systems can also provide useful lessons for the UK. For example, both France and Germany provide unemployment benefits at a level that are much closer to average earnings, thus reducing the shock when someone loses their job, and supporting them to re-enter the labour market much more quickly. These reciprocal systems, based on contributions, enjoy popular support because people understand that they pay in when times are good and will be supported when they need help. They are ‘lumpy’, in that they give rise to temporary differences in the level of support provided to individuals, but in the long term these differences even out, and the systems as a whole are both fairer and more effective, because they prevent people from falling into poverty and having to be supported over a longer period and at greater expense in the long term. By contrast, the obsession in the UK with ensuring that everyone receives the same level of benefits through means-testing might create a ‘smoother’ system, but it is inefficient and fails to protect people from poverty.