The hidden consensus on welfare reform

17 June 2015

The political agenda is dominated by how to deliver the Conservative’s manifesto pledge to cut £12 billion from welfare, but this hides a consensus that has helped deliver a jobs miracle. And a consensus about the challenges ahead – even if there isn’t one about how to tackle them.

Britain’s jobs miracle

Reform rightly set out the challenges the Coalition Government faced in 2010. This included continuing to deal with the aftermath of recession; a (smaller than expected) rise in unemployment; and a long-term crisis of legitimacy, including a rise in worries about a “something for nothing” culture.

The growth of employment in the last five years is a genuine achievement. While the flipside has been a productivity crisis, this was infinitely preferable to the alternative. The Coalition also enacted a range of measures, from the benefit cap to freezing and time-limiting benefits. These have surely contributed to jobs growth and reducing the benefits bill.

However, Britain’s jobs miracle is really the result of a 25 year consensus on welfare reform. It was John Major’s government that introduced Jobseeker’s Allowance (JSA) in 1993, requiring greater action to find work by the unemployed, and it was the Labour Government that tightened and widened these conditions to other groups such as lone parents.

The result is that today fewer than one in ten people spend more than a year on JSA, compared to around one in three in the early 1990s.

Iain Duncan Smith’s much-heralded (and delayed) Universal Credit continues this theme, requiring greater action by claimants to find work, enshrined in a Claimant Commitment, and ensuring every hour worked pays more than welfare.

In this way, Universal Credit builds on the principles of Labour’s Tax Credits and, before that, Family Credit. Indeed, various measures to “make work pay” were a staple of Gordon Brown’s Budget statements. So for most, if not all, people working already paid more than welfare. Universal Credit smoothes these incentives and give people greater certainty that they will be better off. It is sensible, but not a complete break from the past that is sometimes portrayed.

So the Coalition clearly made progress – rightly recognised by Reform. But it is important that both sides of the political divide recognise this is a continuation of a long-term consensus that helped deliver Britain’s jobs miracle.

Trouble ahead?

So where next? Cutting a further £12 billion from the benefit budget, while protecting pensioner benefits and Child Benefit, will be extremely tough – impossible to do painlessly.

Nonetheless, Reform rightly identify a number of areas where the short-term budget challenge and long-term reform challenges intersect.

The first are Tax Credits which cost £30 billion a year. Simply cutting these alone will weaken incentives to work (unless out-of-work benefits are cut too) and, the IFS estimate, increase child poverty by 300,000.

The long-term solution is to move Britain toward a more high skill economy that will raise wages. This has been one of Britain’s key challenges for at least a century! Reform advocate that government adopts as an objective a reduction in low pay. The answer is productivity – something the Chancellor has recognised. NIACE argues for a universal Career Advancement Service, giving low paid workers access to a Career Coach and personal budget. This fits well with the introduction of Universal Credit, alongside sustainable real terms rises in the National Minimum Wage.

The second are disability-related benefits which cost £13 billion a year. In a competition for worst-designed benefit, Incapacity Benefit would be a front runner: to get on it you had to prove what you couldn’t do (not what you could), it was paid at a higher rate (so there was an incentive to be on it), and once you were on it very little help, support or contact was offered. Its replacement by Employment and Support Allowance (ESA) was meant to resolve these problems, but has ended up in many ways replicating them, as well as being poorly implemented and delivered.

Reform has a number of sensible proposals, including reducing the rate to that of JSA (sensible I would argue only if the savings are reinvested in Personal Independence Payment so that people don’t lose support needed for the additional cost of living with a disability, but that this is not tied to an out-of-work benefit). The extension of greater conditionality to this group has to be part of the solution – perhaps mirroring the path for lone parents, where mandatory Work Focused Interviews (hearing about the help available) were the first step. The experience of ESA and the Work Capability Assessment shows the devil lies in the detail, so it is important to proceed with (radical) caution.

The third is Housing Benefit, running at £24 billion a year. Housing Benefit is incredibly complicated (part of the problem). Reform’s solution could perhaps be summarised as: Build More Houses! It is at least 40 years since housing supply met demand in this country. Subsidising demand (through Housing Benefit) rather than supply (through investing in housebuilding) has clearly not worked. So shifting to invest in supply has got to be right, though the transition would be challenging.

Welfare reform is complex. Cutting in one place can increase pressures elsewhere. And cuts alone don’t deliver better outcomes for people. But Britain’s jobs miracle shows what can be achieved and Reform show where the next debate lies.

Stephen Evans, Deputy Chief Executive, NIACE

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