Last week, Reform published its 2011 scorecard
of the coalition government’s public service reform programme. Yesterday, Thomas Cawston explained how the coalition can get NHS reforms back on track. Today, Patrick Nolan, Chief
Economist at Reform, discusses why the government’s welfare reforms scraped through with a pass.
The government’s welfare reforms are significant. The 2010 Emergency Budget and Spending Review announced cuts of
£18 billion to benefits, so the DWP had to respond with a radical agenda. The Work
Programme aims to incentivise providers to deliver better outcomes from welfare to work services and the Universal Credit promises to create a simpler system where “work always pays.” Also,
the Government has broken the principle of universality of the Child Benefit.
The Universal Credit is the flagship reform; it aims to make the welfare system simpler and easier to administer. It is hoped that combining out-of-work and in-work benefits into a single Universal
Credit will ensure “work always pays.” It is also hoped that take-up and levels of error and fraud under the new system will be improved. However, the Universal Credit is not a silver
bullet and involves significant trade-offs and costs. Too little thought has been given to how
the Universal Credit will actually work in practice and whether the proposed IT system will
deliver. The fiascos of the Child Support and National Health System IT projects give grounds for concern.
One of the first initiatives that the government announced was a new Work Programme to outsource all welfare to work services. The Work Programme builds on the Flexible New Deal, but now covers all
welfare to work services. The new commissioning framework will give providers longer and larger contracts, greater freedom and will fund welfare to work services through the savings made in
reductions in benefit expenditure.
The government has also attempted to address middle class welfare by scrapping the Child Trust Fund, targeting Child Tax Credits and means-testing Child Benefit. Yet the wrong approach to
means-testing the Child Benefit has been taken. Withdrawing the Child Benefit for households with a high rate taxpayer is unfair and difficult to implement, and could bring the whole idea of means-testing benefits into
disrepute. The government needs to avoid doing the right things in the wrong way.
The government has also failed to assess adequately the rising cost of pension benefits and protected low value pension “gimmicks” such as the Winter Fuel Allowance. Bringing forward
the increase in the retirement age is the right thing to do. While previous governments recognised that the system is unaffordable, a lack of political will meant that changes were pushed too far
into the future. But the savings from this change will be swamped by the rising costs of pensions due to the decision to link the basic state pension
to wages not prices. Increasing the costs of pensions will exceed other savings made in benefits in the long term.
The government’s welfare reforms are in danger of promising too much and delivering too little. Iain Duncan Smith’s Universal Credit is untested, expensive and will be hard to
implement. The Work Programme is positive and efforts to reduce the (fiscal and social) cost of out-of-work benefits are right. The government has also been right to start means-testing middle
class welfare, but it needs to go further on this and to think again about the long-term cost of pensions.