Stephen McKay

Levels of Financial Capability in the UK

This article presents a new way of looking at and measuring financial literacy. Financial education work to date has focused on managing money, yet the survey described here shows that this is the area where levels of capability are highest. At least half of the UK population needs reminding that it is dangerous to live for the day and make no provision for changes in circumstance, unexpected expenditure, or retirement. In addition, with the low levels of financial capability identified by the survey, it is likely that mis-selling of financial products will continue in the UK. The authors conclude with policy priorities for the government.

The Consistency of RAE Outcomes in the Social Sciences: A Quantitative Comparison of Social Policy and Cognate Subjects in the RAE 2001

In the RAE 2001, widely differing proportions of staff were judged internationally excellent in different academic subjects. This has important financial and other implications, and in 2008 a hierarchical structure will aim to increase consistency. We look at those subjects that will be part of a super-unit with social policy in 2008, and consider what objective rationale may explain the wide differences in ratings in 2001. A quantitative analysis found no such rationale, indeed some variations appear perverse. This highlights the need for greater consistency of judgements, perhaps steered by a ‘super-panel’.

The Aims of Social Security

This chapter outlines what is meant by social security, and the main aims that it is generally regarded as trying to achieve. It also draws attention to other mechanisms, both state and private, that may meet similar ends. This forms essential background to the rest of the book.

Closing the Savings Gap? The Role of the Saving Gateway

The 2001 election manifesto committed Labour to introducing two innovative policies designed to increase savings and assets among future generations, and the low-income families of today. The Child Trust Fund aims to provide all children with an endowment of assets when they reach the age of 18. Child Trust Fund accounts became available in April 2005 to all children born from 1 September 2002. The Saving Gateway offers a new savings account for lower-income families, designed to encourage savings. The first Saving Gateway pilot took place between 2002 and 2004; a second, larger pilot is currently underway. This article outlines the key findings from the evaluation of the first Saving Gateway pilot.1 Overall, the results are positive—the scheme has encouraged participants to save, and to save regularly. In addition, it seems to have resulted in positive psychological and attitudinal changes among a significant proportion of participants.

Benefits to Meet Specific Costs of Living

This chapter considers the benefits designed to meet the costs that are not met (or not expected to be met) out of the basic social security benefits. These extra-cost benefits include those which are designed to help meet the costs of housing and local taxes, and those which provide assistance with meeting special or exceptional needs. Before looking at each area, we consider some of the issues surrounding the balance of provision between paying money and meeting certain costs at source, and the appropriate means of meeting special needs. Although the Disability Living Allowance is designed to provide extra support for some disabled people, we considered it in the previous chapter rather than here because there is no link between the potential costs that Disability Living Allowance might be used to meet and its value. It is also only available to disabled people whereas the other benefits mentioned in this chapter are available to all types of claimant.

The British System Today

The current social security system has grown up in a piecemeal fashion, and any attempt to provide an overview of the system may give a false impression of some generally agreed principles or overarching structures that form its foundations. It is therefore important to bear in mind that a labyrinth of complexity exists underneath any simple description of social security today. As Roll has noted (1991: 21), ‘almost any generalisation about it can be refuted’. It is also important to note that the social security system ‘today’ is likely to be different ‘tomorrow’ as governments are continually engaged in a process of reforming it. The description of the system in this chapter aims to be general, but the precise names of benefits and rules are based on information available up to August 1998.

The Historical Context

Some people have a fascination for history for its own sake — they are simply interested in how things were in the past. But history is also important in enabling us to understand the present. This is particularly true in relation to the social security system. If policy-makers today could begin with a blank sheet of paper and design a social security system to meet current social and economic needs, it is unlikely that their newly designed system would resemble the one we have today. Attempts are made, of course, to update the system and adapt it to social and economic change, but the system generally lags behind such change because major reforms affect the lives of virtually all citizens — because they are either benefit recipients or tax-payers (or both). Such major reforms are thus rare except in unusual circumstances such as the aftermath of the Second World War. The system we have is, therefore, heavily based, and inevitably so, on the structures and assumptions inherited from the past.

The International Context

Social security systems are a central feature of most modern, industrialised countries, but even countries at a similar level of economic development adopt quite different approaches to their social security policies. In the course of this chapter, we focus on a number of these differences. According to Hirsch (1997), social security systems in Europe differ from those in the UK such that: n n nSocial security is designed to include everyone, not just a poor minority n n nContributions to National Insurance are viewed differently from taxation n n nSocial security is about ‘solidarity’. n n n nWhile some of these features have echoes in the UK, it is argued that, in Europe, they form a strong part of the social security system.

The Effects of Social Security

One of the most important debates about social security provision concerns its effects on people’s behaviour: does it cause them to act in particular ways? There are several different areas in which there may be effects. The most often talked about are: n n nThe effect of benefits on people’s willingness to take paid work or to work longer hours n n nThe effect of benefits on the types of family that people form, in particular whether they are more likely to become lone parents or to have more children n n nThe effect of pensions and some other benefits on people’s willingness to provide for themselves, such as through saving.

Social Security Reform

In this chapter, we look at the main challenges currently faced by the social security system in Britain today, radical ways of addressing some of those problems, and the developing policy agenda of the New Labour government elected in 1997.