The cost of not listening series: Invest in social development for a positive economic future

22 August 2022

The cost of not listening series: Invest in social development for a positive economic future

While coverage of the cost of living crisis repeatedly remarks upon its global nature and its immediate triggers; the UK experience of the consequences of rising costs is arguably a continuation and amplification of pre-existing trends.

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Governments across the world have always struggled to balance the prudent management of public finances with the ever-changing needs of their citizens.

In the UK, the net effect of successive ‘shocks’, alongside public service and welfare reforms, appears to have been growing inequalities with a cumulative erosion of societal (and potentially economic) resilience – particularly amongst the more deprived and/or vulnerable segments of society.

While we have been touting low unemployment figures for many years, there has been far less in the way of policy responses to the growing phenomenon of the ‘working poor’.

It has also been apparent for some time that the UK’s productivity has been stagnating, and there are significant and persistent productivity gaps between London and other regions.

With job vacancies at a 20-year high, officials have lauded this as a sign that the job creation strategy has succeeded. Yet, others have argued that this demonstrates the worrying mismatch between the jobs people want and the ones that are available.

Output and activity measures routinely receive greater prominence than the outcomes resulting from different aspects of economic activity. Indicators used to celebrate our economic robustness may be seen, from a different perspective, as indicators of deep structural problems.

Counting the costs

While ‘shocks’ such as the COVID-19 pandemic and the current cost of living crisis have exacerbated inequalities, they do not explain the differential experiences. The fact that COVID-19 has affected poorer areas more than wealthy ones in the UK has been well recorded by the Office for National Statistics (ONS).

Deprivation and poverty overlap with and compound differences arising from (or associated with) ethnicity, geography, age, disability and other socio-demographic characteristics. This has been amply demonstrated in the differential impact of COVID-19 on different ethnic groups, occupations, household-types, etc.

Indicators used to celebrate our economic robustness may be seen, from a different perspective, as indicators of deep structural problems.

These characteristics similarly play a role in the uneven impact of the current cost of living crisis. The emotive debates currently raging on around crippling energy bills, coupled with the decision by Ofgem – the energy regulator – to change the price cap every three months instead of six, have centred around apocalyptic predictions that household energy bills may hit £4,266 by January 2023

As the Joseph Rowntree Foundation noted, the burden of higher energy bills is experienced unevenly. These amount to 6% of the average income of a middle-income family but 18% for a low-income family. This rises to 25% for lone parents and couples without children, while single-adult households on low incomes could be forced to spend 54% of their income on gas and electricity.

Children digging allotment.jpegThe latest analysis released by the Institute for Fiscal Studies indicated that the inflation rate the poorest quintile will experience is expected to rise to an eye-watering 18% in October 2022, compared to 11% for the richest quintile.

The UK, like many other high-income countries with welfarist orientations, has been grappling with the challenge of managing public expenditure while reconfiguring state–society relationships. It is fascinating seeing some of these tensions being played out in the Conservative Party leadership race.

Since the 2010 General Election, the UK has seen a prolonged and deep period of public spending cuts. The narrative of ‘unsustainable’ public spending goes alongside the exhortation of other players to step forward and ‘do more’.

For example, the UK Government embarked on significant programmes aimed at ‘unleashing the capacity’ of the third sector, and also attempted to reframe state-society relations through the clarion call for ‘Big Society’ over ‘big government’.

While the terminology may have changed since 2010, these twin agendas persist. In response to the COVID-19 pandemic, the UK Government has sought to “unleash the power of civil society”.

While Traverse’s work in this area recognizes the value of asset-based approaches and how meaningful partnership can bring about transformative change, we nonetheless note that much of the rhetoric reveals a simplistic assumption that ‘capacity’ is a pre-existing condition awaiting the right key to be ‘unlocked’.

Yet, as a HM Treasury review demonstrated, the ability of the third sector to contribute in the ways outlined in Government aspirations is hampered by a lack of capacity. Capacity has to be built and invested in, as our own work for the National Audit Office (NAO) demonstrated.

At the community and individual levels, relying on existing capacity for community improvement and self-help means that the gap between those with higher and lower levels of capacity will grow. This has been demonstrated convincingly through indicators such as the differential levels of volunteering, strength of local community networks, and others.

Hence community capacity building, particularly targeting the poorest and the most disadvantaged, is vital.

In the haste to move away from the perceived pitfalls of a ‘social protection’ and ‘social welfare’ approach, described in terms of the ‘unsustainable burden’ on Government, have we simply prioritised a retrenchment of the state and the rolling back of public services over the patient investment into human and social capital? Have we simply assumed that other players can and will fill the void, and quickly enough? These assumptions permeate much of the Tory leadership contenders’ assertions and intended policies but have yet to receive the scrutiny they deserve.

Surely, rolling back from social protection and social welfare should not be the end goal in and of itself. Achieving the ambitions of collaboration and activation require a proactive and sustained social investment approach.

Optimise human capital

Here, social investment has a broader meaning than the conventional financial usage of the term, which tends to refer to repayable financing aimed at achieving both social and financial returns.

This financing approach can play a role in supporting the shift away from social welfare while helping to maintain a focus on social outcomes. This social financing aspect will be examined in a companion piece to this article.

By social investment, we refer to the investment in the conditions that optimize human capital; activating citizens and civil society organizations into engaged and proactive contributors to economic and social development.

This approach emphasizes human capital productivity as critical to economic growth. It critiques the compartmentalisation of social development as being separate from economic development. Indeed, naïve representations of economic growth can often posit investment into social development as being in competition for scarce resources that should have been prioritised for economic development.

Yet this polarisation is not only arbitrary but is also dangerous. The roots of economic growth are often social. Social issues are often the key determinants of current and future economic growth. By not investing in social development, we are robbing ourselves of a positive economic future.

Ageing populations, growing intolerance of immigration, flat-lining productivity, mismatch between skills and job market requirements, and more, have already been identified compellingly as significant threats to long-term prosperity. There needs to be a concerted, and sustained, effort at recognizing and addressing social development as a vital component of laying solid foundations for long-term economic growth.

The roots of economic growth are often social. Social issues are often the key determinants of current and future economic growth. By not investing in social development, we are robbing ourselves of a positive economic future.

Social investment involves the entire life course of citizens. It requires maintenance and renewal and does not lend itself to expedience. It is not a one-shot solution and requires us to deal with root causes of social issues rather than simply manage the symptoms of social problems.

Older woman is helped with tablet .jpeg

Early intervention

While policy rhetoric often extols the virtues of ‘early intervention’ and ‘prevention’, this does not always translate into sustained investment in relevant services. The Local Government Association reported that the public health grant for local authorities to promote healthier lifestyles and minimize risks to people’s health from their local environments was cut by £531 million in cash terms between 2015-16 and 2019-2020.

This disinvestment is true even for services proven to make a real difference. Sure Start – a key Government initiative launched in 1998 aimed at giving children the best possible start in life through improvement of childcare, early education, health and family support – was found to reduce hospital admissions and health inequalities, and also improved the mental health of mothers and the functioning of families.

Teenagers sitting on a wall.jpegYet, the Institute for Fiscal Studies, the Sutton Trust, and others have lamented that these benefits are being eroded by spending cuts. Children’s centre budgets were reduced by two-thirds nationally between 2011 and 2017, and more than 1,000 children’s centres had to shut.

It is ironic that the recently published independent review of children’s social care, commissioned by the UK Government, called for a clear commitment to early intervention, warning that tens of thousands more children could end up in care without radical changes to children’s services. The number of children in care is already at record level, and struggling families urgently require early intervention to ensure they do not reach crisis point.

Just as the evidence has exposed the contradictions between reality and rhetoric when it comes to early intervention, a key pillar of meaningful social investment; equally we know that policy and practice that do not consider existing structural inequalities can often unwittingly exacerbate inequalities even when there has been ostensibly ‘equal treatment’.

While the spending cuts and significant shrinkage of funding for local authorities have been comprehensively documented by the NAO, we know that the burden of cuts have fallen disproportionately on the north and on inner cities within the UK.

Poorer areas and demographics have taken a bigger hit as funding arrangements have failed to recognise that public services can often incur higher cost in more disadvantaged areas (for example, poorer health, more children taken into care, more reliance on public transport).

Town centre.jpg

Social investment as z tool for levelling up

It is, perhaps, understandable therefore that many have been cynical about the Government rhetoric around ‘levelling up’. While it is never easy to be definitive about cause and effect in public policy, it is nonetheless clear that input and activity can often be used as proxies of Government commitment to various social priorities whereas the evidencing and improvement of outcomes have not always been accorded the unwavering focus they deserve.

This has to change urgently. Without a meaningful and long-term social investment approach, the rolling back of social protection and social welfare exposes us to greater inequality where the more disadvantaged and vulnerable bear the brunt of these reforms, leading to the erosion of resilience and social capital over time.

There are already warning signs. For instance, the ONS has been tracking social capital in the UK and its most recent update reported that indicators of social capital across the four domains of personal relationships, social network support, civic engagement, and trust and cooperative norms, have shown a fall since 2011-12.

We cannot assume that that social capital and capacity are fixed pre-existing conditions that will simply flourish on their own. While they are key drivers for economic growth and future prosperity, they have not benefitted from a cohesive set of policies that commit to and sustain the focus on social investment.

Seen through the lens of social investment, we can better understand why and how the current cost of living crisis is having differential impact on various social groupings and geographic locations.

This cannot be explained purely as the consequence of external shocks, nor can it be understood solely as the result of current conditions.

Instead, the uneven and unequal impact of rising costs lay bare the pre-existing, and growing, structural inequalities resulting from the chronic absence of any meaningful and sustained effort at investing in the conditions that contribute to our collective current and future prosperity.

Get in touch

Dr Chih Hoong Sin

Head of Innovation and Social Investment

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