Anglo-Irish 'Third Ways'

Ireland and especially the United Kingdom (UK) are considered the closest European approximations of a liberal regime-type, characterized by modest levels of social protection, a predilection for targeted provisions, and a constrained role for the state (Esping-Andersen, 1990). This view is partly exaggerated. In fact, aggregate social spending in the UK is close to the EU average. The Beveridgean conditional-universal National Health Service is a solid institution that caters to the needs of the entire population and offers a wide range of provisions. Unemployment insurance benefits, however, are meagre and of short duration (the means-tested part of unemployment benefit is open- ended); wage dispersion is high; labour markets are largely deregulated. Social assistance is widespread, perhaps because income support is less stigmatized than in other European welfare states where it is more common to receive social insurance transfers. For some target groups, levels of social assistance are comparable to Continental welfare states. Because corporate, income, and payroll taxes are also relatively low, together these 'liberal market economy' features have an immediate impact on the institutional logic of the Anglo- Irish welfare model (Hall and Soskice, 2001). Although Ireland and the UK have historically shared many of the above characteristics, recent developments show both countries taking new and different approaches.

In Britain, Conservative governments embraced a fairly orthodox market- liberal approach to welfare reform from 1979 to 1997. During her period as Prime Minister, Margaret Thatcher abandoned the Keynesian macroeconomic commitment to full employment in favour of a monetarist policy paradigm. Her government engaged in large-scale privatization, dismantled trade union power, dissolved Britain's weak corporatist structures, and down-sized most welfare state programmes. The long-term result was a growing economy, but one, as was to be expected, that was burdened by greater income polarization between households and mounting skill and productivity deficits. The flat- rate nature of 'Beveridgean' welfare benefits, together with a Westminster- style political system (giving the governing party with a significant majority decisionmaking powers) allowed Conservative Thatcher and Major governments during the 1980s and 1990s to speed up the creeping residualization of social security (King, 1995; Rhodes, 2000). Benefits eroded relative to average wages, as they were merely indexed in line with inflation. Increasingly, the middle classes were encouraged to opt out into non-public forms of insurance in pensions and healthcare. As the costs of targeted, means-tested benefits started to soar despite a tightening of eligibility rules inspired by the new 'workfare' philosophy, a stricter benefit regime further contained spending by reducing the number of claimants. This helped restore public finances, but inequality and poverty (especially in-work poverty) markedly increased (Rhodes, 2000).

After 1997 the Blair government embarked on a broad strategy of 'Third Way' reform, fine-tuning benefit rules to neutralize the 'traps' created by welfare-to-work schemes, and launching a fight against poverty and social exclusion by increasing minimum wage and income guarantees, reforming the tax code, introducing new targeted programmes, and launching a campaign against child poverty. Much like the Conservatives before them, New Labour's approach has been to minimize regulatory burdens on the labour market, but its 'welfare-to-work' strategy differed substantially from its predecessor's workfare policies. New Labour developed the idea of an 'enabling' welfare state with a deliberate policy choice of making welfare provisions more contingent upon paid employment (Clasen, 2005). The first Blair government set out a long-term strategy under the heading 'Opportunity for All'. The central feature of Third Way egalitarianism is its strong reliance on employment and employability to address poverty, disadvantage, and social exclusion. Ideologically, the Third Way largely rejects pursuit of greater equality through interventionist policies of income redistribution on moral grounds. For Tony Blair social disadvantage was about 'equality of opportunities'. New Labour seemed to accept greater inequality in outcomes if this was necessary for raising standards of living at the bottom. New Labour's recalibration agenda has boiled down to a radical calibration of 'rights and obligations' in such a way that social policy is used as a 'trampoline' rather than a 'hammock' by attaching conditions to benefits, requiring the unemployed actively to seek work and training, matched by more generous in-work benefits for those who take low-paid jobs, a policy now underpinned by a minimum wage (Schmidt, 2002). Rather than providing a generous safety net for the unemployed, New Labour saw the state's role as enabling their re-entry into the labour market, which is seen as the sphere of social integration par excellence.

In part, New Labour reforms were inspired by the active labour market policy tradition of the Nordic countries. From 1997, the Blair government introduced a series of New Deals that targeted different sectors of the inactive population (Clegg, 2010). The emphasis on paid work, skills, and compulsory job search, aimed to move especially young workers (but also later lone mothers and those on disability and sickness payments) from public benefits into employment (Clasen, 2005). Central to New Labour's ideas of the importance of activation is the emphasis on individual responsibility to seek gainful employment (Daly, 2010b). The New Deal envisioned new labour market policy institutions that would offer the unemployed efficient job centres, more personalized support services, and core skills training such as literacy, numeracy, and self-presentation (Weishaupt, 2011a). It offered education and training programmes and jobs to 250,000 young people aged between 18 and 24 years, including subsidized employment in the private sector and temporary work in the voluntary sector. The option of passively living on benefits was suspended and failure to comply with New Deal rules would ultimately lead to a loss of benefit rights. After 1997, New Deal programmes were extended to additional target groups, including single parents, chronically disabled persons, workless partners of claimants, and older workers. In addition to these New Deals, the Blair government initiated a series of supplementary policies in an effort to curb hardship and promote employment. A national minimum wage was introduced from 1999, set at different levels for different age groups, and has been regularly raised since (Weishaupt, 2011a). Perhaps the master trend over the past decade is that New Labour, across a long sequence of policy changes, has steered towards eradicating many differences between different types of out-of-work support (e.g. unemployment, social assistance, disability) for working-age people in the benefit system, both in terms of benefit levels and the expectation of efforts to return to work. Jochen Clasen and Daniel have coined this tendency 'risk recategorization' (Clasen and Clegg, 2011). UK activation and benefit policy has come to focus very much on working-age people as a whole, rather than discrete groups (the unemployed, the disabled, single parents, etc.), which resulted in significant benefit simplification (Clasen, 2011).

Another plank of New Labour's 'make work pay' strategy was the replacement of the previous administration's Family Credit with a more generous Working Families Tax Credit (WFTC) in October 1999. Rewarding those in work through an almost tenfold increase in tax credits, this programme skyrocketed from ?1.4 billion in 1999 to ?11.5 in 2004 (Nachtwey and Heise, 2006: 6). It was subsequently extended to adults without children, disabled persons, and pensioners. In combination, the tax credits and the minimum wage ensured that anyone working at least thirty hours a week was to receive an income above the poverty line (Brucker and Konle-Seidl, 2006: 5). An important associated effect of the New Labour's New Deal programmes has been a strong 'fiscalization' of British social security and, as consequence, a more prominent role of Her Majesty's Treasury at the expense of the Department for Work and Pensions (DWP). On the other hand, as tax credits are run through the tax system, the stigma of applying for benefit was avoided, while the direct link with wages clearly drives home the message of the relative advantage of work over welfare (Glyn and Wood, 2001).

As part and parcel of its 'work first' approach, in terms of institutional recalibration, the Blair government also removed the administrative division between the Employment Services (ES) and Benefit Administration (BA) agencies. In 2002, the new British PES system, JobCentre Plus (JCP) offices combined benefit payout and personalized job search and placement services. Hereby, the Labour government created a customer-friendly 'one-stop shop' and work-focused gateway for 'capable' persons, while further streamlining income replacement benefits and employment services (Weishaupt, 2011a).

A core New Labour policy objective was to 'provide the best possible start in life for all children' through early education, childcare, and health and family services. This led to a neighbourhood-based series of initiatives that sought to improve the quantity of and reorganize service provision to families in the poorest neighbourhoods. In 1999, New Labour gave a high-profile commitment to eradicating child poverty in twenty years and halving it in ten. These targets were not met—child poverty was reduced by 5 per cent between 1999 and 2004, which adds up to about 700,000 fewer children in poverty. Although the main focus of New Labour social policy agenda was directed towards anti-poverty and pro-employment policy priorities, it also enacted an impressive range of family policy measures, addressing children's early education and care, financial support for families and children, services to improve the quality of family relations in low-income urban areas, parental employment, and greater flexibility in work and family life (Daly, 2010b). As mentioned, the WFTC featured additional subsidies to cover childcare expenses. Through the tax credits mentioned earlier, New Labour transferred payment for couples from the earner to the main carer from 2004 onwards. With respect to family servicing, the Sure Start programme, introduced in 1997, introduced an integrated platform for child- and family- centred services, locally available in poor areas. Sure Start was originally conceived as a one-stop shop for disadvantages 0- to 3-year old children and their families. In 2004, Sure Start was redirected towards the expansion of universal provision through 3,500 childcare service centres (trebling the 2006 provision) by 2010 (Daly, 2010b). The National Childcare Strategy combined the establishment of nursery places with subsidies for pre- and post-school childcare to promote measures that enable parents to balance paid work with the needs of their children and improve access to childcare. Childcare expenses are tax- deductible for lone parents and there is a means-tested benefit for childcare costs (Clasen, 2005). In this respect, reconciling work and family life became an element of New Labour's agenda of functional recalibration. Early initiatives on family policy were more about addressing household poverty and intergenerational social exclusion. In addition, the Employment Act of 2002 introduced both paid paternity and adoption leave, while extending paid maternity leave from eighteen to twenty-six weeks. Also the right to flexible working arrangements for parents with young or disabled children was granted. This right was in 2007 extended to carers of frail adults. The Work and Families Act of 2006 further extended paid maternity leave to thirty-nine weeks. Prior to the outbreak of the global financial crisis in 2008, the Gordon Brown Labour government even planned to extend paid maternal to fifty-two weeks and to introduce a complementary paid paternal leave scheme of maximum six months at a wage replacement rate of a maximum 90 per cent. Mary Daly (2010b) underlines how many of the 'new' family policy measures remained anchored in the classical design of the British welfare state. New Labour deepened the marketization of childcare provision, while relying heavily on tax credits and vouchers. More affluent dual-earner families continued to purchase high-quality childcare in the market.

With respect to pensions, in terms of distributive recalibration, in 2000 the government introduced a means-tested minimum income guarantee. In 2004, the Blair government established a pension protection fund to protect members of occupational pension schemes if employers become insolvent or pension funds became underfunded. In 2006, the New Labour government decided to raise the retirement age to 68 by 2044, complemented by more generous qualifying rules through a reduction in the number of years of work required to receive a basic state pension and the introduction of weekly credits to recognize and reward caring years. The new 2008 Pensions Act makes it necessary for employees to opt out of occupational pensions, rather than opt in as before. It also created a non-profit trust (National Employment Savings Trust—NEST) for those working in companies who do not offer occupation pensions (Bridgen and Meyer, 2011). In addition, private pensions have been regulated to ensure coverage for those without access to occupational pensions, including tax relief and obligatory employer contributions (Schulze and Moran, 2007b).

Just as in the UK, Irish policymakers have also focused on the promotion of a well-educated workforce, complemented by economic and welfare reforms. Since the early years of rapid economic growth, i.e. from the early 1990s on, Ireland gradually implemented several changes that together constitute a major break with its Anglo-Irish heritage. Some of these reforms, intended to upgrade skills, involved immense financial efforts, especially in the tertiary sector (Clancy, 2005: 104). Because policymakers feared that economic growth would not translate into job growth during the early years of what came to be known as the 'Celtic Tiger', ALMPs were expanded, making it possible for the long-term unemployed to gain work experience on community projects (Fitzgerald, 2005: 129). Those returning to work were allowed to retain 75 per cent of their unemployment benefits for the first year, 50 per cent for the second and 25 per cent for the third and final year, making virtually any low-paid job for the long-term unemployed over the age of 23 more attractive than remaining on unemployment benefits (Tansey, 1998; Taylor, 2005: 65). With the dramatic drop in unemployment during the late 1990s, many of these financial advantages for the long-term unemployed were later retrenched with more emphasis placed on the development of skills, including a new initiative to advance in-firm training (Weishaupt, 2011a: 210).

As rapid economic growth was accompanied by strong job growth over the 1990s, Irish governments were able to expand the welfare state. Social insurance coverage was extended to the self-employed, farmers, part-time workers, and civil servants. In 2000, a new carer's benefit was introduced to facilitate short-term exit from the workforce to care for dependent ill or elderly adults (Daly and Yeates, 2003: 93). After the mid 1990s policy attention shifted to poverty reduction through the National Anti-Poverty Strategy (NAPS) introduced in 1997 and revised in 2002 and again in 2007. The strategy aimed to bring down the long-term poverty rate of the population from 15 to 10 and eventually 5 per cent. As Mary Daly and Nicola Yeates (2003: 91) point out, the NAPS was based on an encompassing understanding of social inclusion in that poverty has its roots in unemployment and educational, urban, and rural disadvantage. Social support for families with children also expanded dramatically. Generous improvements in social welfare occurred in tandem with spending increases, from €5.7 billion in 1997 to nearly €14 billion in 2006 (Irish Government, 2006: 1). During the 1990s child benefits most dramatically increased in value by over 300 per cent. Finally, like their British counterparts, Irish policymakers introduced a minimum wage: €5.59 in April 2000. Since then, the minimum wage has been repeatedly increased, in 2007 to €8.65, making it one of the most generous in Europe (Weishaupt, 2011a: 199).

The revitalization of the Irish economy is also based on increased investment in education, preventing early departure from formal education and training, and facilitating the transition from school to work, in particular for school- leavers with low qualifications (NESC, 2005). Because the pre-existing public childcare infrastructure was very limited, the government (prodded by the social partners) in 2000 made a pathbreaking effort in the area of the reconciliation of work and family life by improving both the quantity and quality of childcare centres in disadvantaged areas and generally investing hugely in subsidies for childcare. Moreover, paid maternity leave was extended by the late 1990s in response to the EU Directive on parental leave. Since then, it has been increased to 42 weeks of which 26 weeks are paid at 80 per cent of the former gross wage by the employer. Prior to the 2008 credit crunch, there were also plans to provide non-employed mothers with a generous lump sum subsidy, upon childbirth, of close to €250 per week.

The most critical difference between Ireland and the UK lies in their dissimilar approaches to institutional recalibration. Both countries followed a path of decentralized wage bargaining in the early 1980s, but Ireland returned to a concerted approach to wage setting and social reform after the mid 1980s. It comes as no surprise that the Blair government shied away from corporatist exchanges with the social partners over broad social and economic policymaking issues (Crouch, 2001). New Labour's approach to institutional recalibration was unilateral in keeping intervention burdens to a minimum in a well-functioning deregulated labour market.

Ireland followed a distinctly different road to institutional redesign and moved closer to mainland European patterns of social partnership cooperation through a series of successive 'social pacts'. After unemployment reached a level of 18 per cent, beginning with the National Recovery accord of 1987-91 cooperation with business and unions helped reform the economy and attract high levels of foreign direct investment, boosting Ireland's rates of output and employment growth. This set the pattern and was succeeded by a whole series of tripartite accords: the Economic and Social Progress agreement (1991-4), the Competitiveness and Work accord (1994-7), and finally, the Partnership 2000 agreement (1997-2000) (Hardiman, 2000). In order to qualify for EMU, Irish social partners agreed on a long-term strategy of wage moderation in exchange for tax cuts and keeping inflation under control. This strategy of 'competitive corporatism', together with Ireland's multinational corporation friendly tax, industrial policy, and regional development, seemed to bear fruit: rates of Irish output and employment growth have been the highest in the EU since before the onslaught of the global financial crisis, with healthy public finances (for a more detailed overview, see Weishaupt, 2011a). Through the provision of moderate wage increases and stable industrial relations—in exchange for tax cuts for businesses and workers alike—the Irish economy returned to practically full employment in 2001. Over time, the Irish social partnership approach broadened to include representatives of the community and voluntary sectors, alongside the traditional social partners of trade unions and employers (Daly and Yeates, 2003). Regional and local partnership thus compensated for weak local governments in new forms of joined-up social and economic policymaking arenas (Sabel, 2004).

Irish state pensions have remained the lowest in Western Europe (OECD, 2005b: 16). Addressing its shortcomings, a tripartite pension board was set up in 1990 to advise the social minister on pension matters. In 2000 the government established a national pension reserve fund, wherein the government invests 1 per cent of GDP annually in order to meet future pension liabilities. In 2002, the government made existing public pension schemes more generous by guaranteeing that entitlements would be adjusted with inflation by up to 4 per cent per year. Finally, basic pension benefits were raised in 2006 (NESC, 2005; Schulze and Moran, 2007a).

In an overall assessment of the recalibration agendas pursued in the UK and Ireland, we can conclude on a positive note, that the enlarged scope of 'welfare- to-work' strategies in the two countries has made their welfare systems more inclusive and unified. Activation policies have widely expanded, supported by a strong, 'individual responsibility' normative political discourse (especially in the UK). In the process, social insurance has been remodelled as a bridge to employment opportunities, based on stricter conditions and sanctions, with a much stronger emphasis on compulsion in Britain. Both countries have departed from neoliberal orthodoxy by developing a social liberal model of an 'enabling' (in Britain) or 'developmental' (in Ireland) welfare state, making most of public income and services supports contingent upon paid employment (Clasen, 2005). In terms of functional recalibration, both countries have, over the past two decades, improved the 'goodness of fit' between activating employability measures and improved passive, means-tested, income measures and inwork benefits, in support of the overriding normative objective of 'making work pay' with a greater focus on family functioning and with greater state responsibility for early childhood care and education and expanded parental leave, especially in the UK. In the process, the role of working women was normalized. Coming to redistributive recalibration, both countries have expanded in-work benefits and increased the minimum wage and income guarantees in order to mitigate the plight of the working poor. Also their explicit strategies to fight social exclusion implicate a distinct form of redistributive recalibration. Redistributive recalibration also applies to pensions, where multi-pillar schemes expanded together with public support of lower income groups with irregular employment patterns. With respect to institutional recalibration, Ireland and the UK have gone separate ways, with Ireland, as a prospective eurozone member, seeking the establishment of a 'developmental welfare state' through social partnership concertation. Politically, New Labour's policy success became possible only after the party had undergone a phase of drastic normative reorientation and a change in its preferred mix of policy instruments. This shifting orientation is aptly expressed in Tony Blair's commitment to provide 'work for those who can [and] security for those who cannot', a commitment embodied in a comprehensive welfare-to-work policy mix, a reorientation of family policy, the promotion of a state-regulated private pension pillar, and education policies to improve Britain's global competitiveness. New Labour concentrated its social investment turn primarily on antisocial inclusion policies by targeting poor neighbourhoods and within them families with young children, much of which remained embedded in a liberal economy with highly flexible labour markets, deregulated product markets, and a pluralist rather than corporatist political system. Relative income poverty has not decreased over the period from the mid 1990s to the mid 2000s, principally because transfers per recipient, although rising significantly in real terms, have lagged behind exceptionally large increases in average wages, as unemployment declined and employment opportunities improved for the better-skilled. Comparative research does reveal a marked decline in absolute poverty from 1994 onwards in the Anglo-Irish welfare regimes, in part due to the introduction of a wide range of new tax credits and, in the case of Ireland, ever more generous benefits (especially for families with children) (Nolan, O'Connell, and Whelan, 2000). Third Way ideology, it is true, tolerates greater relative inequality (Glyn and Wood, 2001). Its meritocratic bias, the emphasis on 'sticks' rather than 'carrots', implies that for those who remain for whatever reasons outside the reach of employment, activation measures, and tax credits, poverty-relative deprivation is an imminent threat (Clasen, 2005). The most vulnerable groups are the elderly poor without property, the disabled, single parents, and unskilled, often older, workers. Can Anglo-Irish welfare regimes succeed in reducing poverty and inequality while preserving the competitiveness of their economies, without raising their relatively low tax burdens? The primary political challenge for further recalibration probably lies in the resistance of the general public to paying higher taxes, despite their oft- recounted willingness to do so in opinion polls (Rhodes, 2000). Over the past decades, British and Irish policymakers have tried to solve this dilemma 'by stealth', i.e. by finding indirect and invisible ways of spending and taxing. It remains to be seen whether this strategy will continue to be politically feasible and—more importantly—whether it will prove adequate in tackling the challenges that lie ahead in the aftermath of the financial crisis.

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