Protecting welfare spending is not the lesson from IDS’s resignation

23 September 2016

I was sitting in the Department for Work and Pensions (DWP) when, back in 2010, we were told that our contribution to the Emergency Budget needed to include a 20 per cent cut to working-age Disability Living Allowance (DLA). (DLA is designed to contribute to the extra costs incurred by someone with a long-term disability.) In 2009-10 the working-age DLA bill was over £7 billion, meaning the Department had to save in the region of £1.5 billion – by 2015.

Fast forward six years, and my former boss, Iain Duncan Smith (IDS), resigned as Work and Pensions Secretary as a result of a Treasury and Number 10 request to cut the cost of Personal Independence Payment (PIP) – DLA’s successor benefit. It was this that triggered the announcement that there would be no further welfare cuts this Parliament – something that the new Secretary of State for Work and Pensions, Damian Green, confirmed on Sunday.

Both stances are completely void of any strategic vision for the welfare state. Social security policy is first and foremost about people, people who are in need of help, but whose behaviour will be influenced by its design. Reducing or increasing the generosity of benefits, extending or narrowing eligibility, and altering levels of conditionality will all have behavioural consequences.

Cuts, therefore, may be an appropriate lever to use – the original benefit cap, for example, increased the number of families in work. But they may also be counterproductive, like the cuts to Universal Credit (UC) which are expected to reduce the likelihood of some people moving into work.

The starting point for any welfare reform must be an identified problem and a clear objective. UC, for all its implementation challenges, reflected this. The benefits system was unnecessarily complicated and work for too many people was seen as high risk and low reward. UC folds six benefits into one, introduces a single withdrawal rate and uses real-time information to increase or decrease the UC payment depending on a claimant’s earnings that month. Investment in delivering it has been high (and is ongoing), but the longer-term savings of moving more people into work and using a lower-cost digital platform – alongside the non-financial benefits of fewer workless households – will be worth it. It is a strategic way to reduce costs and deliver better outcomes.

DLA should have been approached in the same way. The 20 per cent cut demanded by the Treasury bore no relation to a policy vision. There is no denying that DLA was not fit for purpose. And indeed, this was reflected in the spiralling costs – in the decade up to 2009-10 the bill ballooned by 42 per cent, with two-thirds of the caseload on indefinite awards (meaning no set reassessments). As the consultation paper on the proposed reforms implied, with positive advances in medicine, aids and adaptations, and attitudes, a caseload increase of 45 per cent in a decade appeared surprising. Reform was needed, but the starting point should never have been an arbitrary 20 per cent cut.

Had the question been ‘how best can people with a long-term disability that results in significant extra costs be supported?’, the policy solution would likely have looked different. The pertinent question – whether extra costs support is best delivered by DWP or in fact better rolled into social care – would have been asked. If the budget has been folded into social care provision (probably the right answer), the thorny issue of whether aids and adaptations are actually a good proxy for additional costs (certainly not in all cases) would have been a moot point. IDS may not have resigned in protest at the continuing demand for financial savings.

As it stands, much more reform of disability-related benefits is needed – which is why the promise of no further cuts is unhelpful. Expenditure on working-age PIP is now forecast to be almost £3 billion more, in real terms, at the end of this Parliament than DLA cost in 2009-10, but most importantly, separating this funding from social care continues to make little sense. Expenditure on out-of-work incapacity-related benefits is forecast to be almost £14 billion in 2020-21. Which might be OK if the outcomes Government seeks were being met – but they are not. Analysis by Reform has found that less than 1 per cent of claimants in either the Work Related Activity Group or Support Group of Employment and Support Allowance leave the benefit a month. So whilst the Government has pledged to halve the disability employment gap, its welfare system is trapping people on benefits. As Reform has argued: “Achieving the radically different employment outcomes desired by the Government demands a radically different approach”, and that may mean some people’s benefits are reduced.

The political expediency of promising no more cuts is obvious – the same motivation lies behind the triple lock on pensions – but it is wrong. The welfare state must be fair, sustainable and designed to deliver the best possible outcomes. Social security policy should be driven by this vision, not arbitrary expenditure targets (be that budget protections or cuts). The new Secretary of State has a huge opportunity to change lives for the better – he should decide how best to do that before cornering himself with budgetary promises.

Charlotte Pickles, Deputy Director and Head of Research, Reform 

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