Does much of mainland Europe need to break up its "social model" welfare state in favour of an "Anglo-Saxon" model along UK and US
lines?
The fundamental dispute will be at the heart of next week's summit of the European Union at Hampton Court, heated by fears in France, Germany and other EU countries that their generous jobless and pensions systems, whose benefits are often pegged to wages, could be slashed if replaced by far less beneficial pay-outs in the US and the
UK.
To critics' eyes, the UK model is seen to have produced high levels of poverty and inequality, along with draconian welfare-to-work policies. Recent private pension scandals in the UK also have been grist for their
mill. UK politicians look at high rates of unemployment in the rest of Europe, and at pension systems that still need reform and much higher public spending, and
wince.
But painting a stark contrast between the so-called "Anglo-Saxon" model and the European "social model" is to miss the point, according to Richard Layard, an employment economist at the London School of
Economics.
"The real distinction is between those countries that have had effective active labour policies, and those that have
not. "Thus, he argues many of the Nordic countries have high levels of public expenditure and social protection but also high levels of employment thanks to policies that ensure those out of work are actively seeking to return to
it.
The UK's approach has been built around a "rights and responsibilities" agenda that attaches conditions to benefits, requiring the unemployed to actively seek work or training. That has been matched, however, by more generous in-work benefits for those who take low-paid jobs, a policy now underpinned by a minimum
wage.
Even in the UK, this model is seen as being drawn from the
US. But John Hills, director of the Centre for the Analysis of Social Exclusion (Case) at the London School of Economics, says that "while much of the rhetoric and the jargon match that of the United States, many of the reforms have involved much more carrot and much less stick than in the
US.
"In some cases they have produced as good, if not better, results.
"In practice, the UK reforms were also partly derived from the active labour market policies that countries such as Denmark and the Netherlands had started to pursue ahead of the UK. And Mr Layard argues that it is similar programmes that have helped Ireland and now Spain and others produce dramatic falls in
unemployment.
Amid fierce controversy, both France and Germany have taken steps down this road, although rather more dramatically in Germany than
France. The picture of the "Anglo Saxon model" producing high levels of inequality was certainly true in the UK from the mid-1970s to the mid-1990s. Income inequality rose dramatically, further and faster than in almost any country in the
world.
Since the mid-1990s, however, that trend has halted. And since 1997 higher employment and a range of new tax credits has meant that "the UK has made a significant step on the road to bringing child poverty down towards average EU levels", according to a recent analysis by
Case.
That has happened "at a time when other high poverty countries within Europe have seen child poverty
rise". It is true that the UK's welfare-to-work policies have seen the financial position of childless adults who remain out of work
worsen.
But against that, the number of poorer pensioners has been cut by a quarter since 1997. Using standard measures, according to Kitty Stewart of Case, the UK's overall poverty rate for the population as a whole now compares well with the rest of Europe. But while inequality has ceased to get worse, the Labour government's policies have yet to reduce
it.
The picture is, however, complex. In recent years the poor have seen their position improve relative to the middle of the income distribution and even to much of the top of the income range, some of that improvement having come directly from its welfare-to-work programmes. What has not changed is that the very rich - those in the top 0.5-1 per cent of the income distribution, have continued to accelerate away from everyone
else.
In healthcare the UK government in 2000 suddenly and spectacularly acknowledged that the National Health Service had suffered from years of under-investment and began dramatically to increase spending. In many other countries the battle in recent years has been to contain health
spending.
In the UK, by contrast, there is a sustained and record level of investment under way - with the fastest growth in health spending certainly anywhere in Europe and probably in the world - aimed at bringing UK health spending up to the EU average by 2008.Such growth will, however, slow markedly after 2008, and it remains an open question whether the additional spending will have produced a commensurate improvement in the service.
