Social security in a changing labour market (I): big challenges, big opportunities

17 November 2016

The scale of welfare reform over the past six years was dramatic. Universal Credit (UC) was designed to transform social security for working age people – as the 2010 white paper stated, to “remove the distortions” and “create a leaner but fairer system” in which “work always pays”. At the same an array of caps, time limits, freezes and eligibility changes were introduced. And for many of the changes, the impacts are not yet understood.

The system inherited by the new Government therefore looks very different to that in 2010. But the need for continued reform is no less urgent because of it.

The challenge of delivering a fair, affordable welfare system remains (working-age expenditure is forecast to cost around £75 billion in 2020-21). But it is a transitioning economy and labour market that the new ministerial team must turn their attention to. The welfare state was not designed with irregular working patterns and fluctuating earnings in mind, nor for self-employment at the scale now seen. UC makes significant strides towards a more flexible benefit system, enabled by real time information, but is far from sufficient. The recently announced Taylor Review will examine the employment regulation implications of the new ‘gig’ economy, but a similar analysis is needed to understand its interaction with social security.

At the same time, automation and machine learning is predicted to replace many roles. The largest job growth is in high skill roles, yet a CBI survey found that 69 per cent of companies are not confident they will be able to fill the higher skilled jobs they create. Progression is key to tackling in-work poverty, but narrowing the skills gap has proved stubbornly difficult.

Overlay these underlying shifts with the yet unknown consequences of Brexit – with its knock-on impact on jobs and skills – and the new ministerial team face the daunting task of ensuring the benefit system truly is fit for the 21st century. But the prize of making the welfare state work for all is just as great.

Charlotte Pickles, Deputy Director and Head of Research, Reform



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