The government came to office in 2010 with the promise of revolutionising the welfare state as we have known it. It set out to curtail the cost to taxpayers of working-age welfare, move more people into work and reduce dependence on benefits, while also protecting the living standards of the poor. How much success has this strategy had?
Ministers can justifiably claim credit for adding considerably to the numbers of people in work. The government’s welfare-to-work strategy has helped reduce worklessness to its lowest level in two decades. Likewise the government has successfully cut the overall working-age welfare budget, not only as a proportion of national income but also in real terms – a feat that eluded even Mrs Thatcher’s government.
The flipside of moving so many people into work, however, has been the meagre rewards offered by many of the jobs into which those coming off out-of-work benefit have been placed. 640,000 of the jobs that have been created since the government came to power pay less than £10,000 a year. Even with the welcome increases in the personal allowance, such earnings alone have not afforded strivers an adequate minimum. Many of yesterday’s workless poor drawing low benefit incomes therefore have become today’s working poor earning low wages.
Work has been incentivised mostly by making life on benefit that much more difficult and undesirable compared to the world of work. The strict enforcement of requirements that are attached to the receipt of benefit has been key. This is most evident in the record numbers of sanctions that have been applied since a tougher regime was introduced in 2012. But the missing piece of the welfare reform puzzle to date has been real earnings growth at the bottom. Work still does not guarantee a route out of poverty.
The tax credit system has taken much of the strain in protecting the living standards of this army of working poor. The bill for compensating for the ‘dis-welfare’ of the market totalled £30 billion at its peak in 2011, before a series of restrictions both to the generosity of, and entitlement to tax credits brought it back under control. Here, though, we are introduced to the dysfunctional relationship that exists between each of the government’s welfare objectives. In seeking to place a lid on tax credit expenditure, the government, perhaps unintentionally, found itself enacting cuts to grafters’ living standards.
Looking also at the Housing Benefit budget, several reforms were enacted to slow down its underlying growth rate, but they came at the expense of the poor’s living standards. Aside from the Benefit Cap, these reforms have had only a negligible impact on claimants’ motivation to look for work or increase their earnings. The failure to deliver the promised savings from incapacity and disability benefits, as well as Universal Credit, redoubled the need to find these savings in the tax credit and Housing Benefit budgets.
On what basis therefore should welfare reformers seek to build an agenda for 2020? The National Living Wage affords reformers a most significant chance to get onto the front foot. If the government can open up a new front that builds on this new, improved wage floor of £9 an hour by 2020, its overall strategy for revolutionising welfare will depend much less on the success or otherwise of Universal Credit.
A first move must be to develop a range of niche programmes that improve the job prospects of those claimants who have been left stranded on the welfare rolls by successive governments. Once people are helped into jobs, they should then be equipped with the tools they need not only to stay there, but to achieve higher earnings that, in time, will float them off tax credit eligibility. We believe entitlement to tax credits by 2020 should cease for those households earning more than twice the National Living Wage.
Our central proposal, however, is for the government to begin a programme helping raise productivity in lower paying firms so that higher wages become affordable without creating unemployment. Its revolutionary potential is to shift welfare reformers’ attention away from an exclusive concentration on the Department for Work and Pensions and its programmes to compensate for the dis-welfare of capitalism, to the Department for Business, Innovation and Skills where the responsibility of capitalism to its workforce is being renegotiated. A reform agenda along these lines will go some way towards mending the ‘broken Britain’ that the government inherited in 2010.