Jess Prestidge is Deputy Policy Director at the Centre for Social Justice.
When it comes to reducing the size of government, work is a good place to start. Employment is strongly correlated with a wide range of positive outcomes beyond simply generating taxes. People in work are happier, healthier and less costly to the state. Children of parents in work tend to do better at school. Adults in work are likely to enjoy better health for longer. Ex-offenders who work are less likely to re-offend. In short, work is the best way for most of us to avoid calling on the state.
The introduction of Universal Credit recognised this. It was designed to simplify the highly complex and confusing benefits system that preceded it and incentivise the path into employment by making work pay.
But despite there being over a million vacancies in the economy, over five million people are in receipt of taxpayer-funded employment benefits. The Department of Work and Pensions (DWP) is forecasting that working age benefit expenditure will exceed £120 billion by 2027. Welfare spending is always a hot political topic, but in the current fiscal environment, it represents a huge opportunity cost. Chronic labour market shortages, record levels of immigration and growing speculation about the potential impact of Artificial Intelligence turn the heat up further.
How have we got into this position? What should we do about it?
Universal Credit has been one of the major policy successes of the last decade. Its inbuilt work incentives have helped to push up employment rates while its digital design enabled the Department of Work and Pensions (DWP) to successfully process some three million claims at a moment’s notice during the early days of the pandemic.
But today, the challenge is different. The fastest growing and stickiest out of work group are those “not required to look for work”. Three years on from the first national lockdown, policy makers are only now starting to face up to a pandemic legacy which has seen the number of people in this group rise to 3.7 million.
That is an increase of nearly half a million since before the pandemic, and is explained primarily by a rise in ill-health. As the group we’re talking about is legally exempt from work-search requirements, the usual sticks in the system just won’t work.
The Chancellor’s back-to-work-Budget earlier this year was the clearest expression to date that the Government recognises the changing composition of the welfare state. Jeremy Hunt set out welcome plans to rewire health and disability benefits to better incentivise work.
But implementing these proposals will be a slow and complex process, requiring primary legislation which will not take effect until long after the next election. If we are to put the state – and the welfare safety net – back onto a sustainable footing, we need to take bold action now. Anything less risks robbing a generation of the well- evidenced and wide-ranging benefits of work while embedding dependency for generations to come.
The size of the welfare prize
The stereotype of the benefits scrounger – invoked so effectively by George Osborne in 2012 – looms large in the public psyche. Most people have a story about someone ‘gaming the system’. While public polling suggests that attitudes towards welfare spending softened in the years prior to the pandemic, mass exposure to the benefits system during lockdown failed to accelerate this trend.
As people’s material circumstances deteriorate, and with public services continuing to struggle, attitudes are only likely to harden. Within this context, DWP’s budget represents an uncomfortable political reality for an administration determined to align itself with the aspirational grafters of the Red Wall.
Government must, some would argue, bear down on a profligate system that has made life on welfare a little ‘too comfortable’, as the Chief Secretary to the Treasury put it last month. While there are vacancies out there – and there are many – what justification is there for paying people to stay at home?
A false economy
But while I strongly agree that every effort should be made to get people who can work into work, it would be a mistake to see a more punitive welfare system as the answer. There is a role for both carrots and sticks, but tightening eligibility criteria, reducing generosity or policing the system more aggressively would be counterproductive.
This is particularly true of health and disability benefits. Far from rolling back the state, a more punitive approach would increase bureaucracy, invite legal challenge and encourage claimants to circumvent a system they rightly identify as looking to catch them out.
DWP’s back catalogue is littered with evidence that short-term measures to cut costs can do the reverse.
The introduction of Personal Independent Payment (PIP), which focused support more tightly on those facing ‘the greatest barriers’ to independent living, was expected to reduce costs by 20 per cent. A litany of legal challenges and an explosion of mental health claims mean that by 2018 it was costing around 20 per cent more.
The removal of the Work Related Activity component in Employment Support Allowance (ESA) was expected to save around £450 million a year by removing disincentives to take steps towards work. In reality, it raised costs by pushing more claimants into the Support Group – a designation that confers a higher rate of benefit without requiring claimants to take any steps towards work.
And while Osborne looked to Universal Credit (and briefly, to tax credits) to plug the deficit, much of the money taken out of the system in 2015 has since been restored, with recent Chancellors – including the current Prime Minister – recognising that features such as the work allowance and taper rate incentivise and facilitate work.
So how do we shrink the state?
DWP’s job is to get people into to work, increasing tax receipts while reducing demand on a wide range of public services. Win-win. But trust in the system is critical to realising these benefits.
The DWP is viewed with near-universal suspicion by claimants. And yet, as a SpAd in the department, I was struck by officials’ commitment to those they serve. Taxpayer-funded benefits must be protected from abuse, but anyone in genuine need should feel confident the system is on their side. The DWP’s Health and Disability white paper is right to identify trust as fundamental to unleashing the welfare system’s potential as an enabler of work.
That is why the Centre for Social Justice is calling for the national roll out of Universal Support combined with an Into Work Guarantee. We know that 700,000 people currently in receipt of health, disability and care benefits want to work, and believe they could, with the right support.
But under current rules they’re not entitled to the help they need. Universal Support – a tried and tested intervention that provides personalised assistance via a key worker – would enable those facing complex barriers to start, stay and succeed in work.
The new Universal Support scheme announced by Government in March is therefore a critical first step – but there is more to do. An Into Work Guarantee, meanwhile, is essential to give people the confidence to accept this help, safe in the knowledge that benefits will still be there should the job fall through.
Salami-slicing the welfare budget in pursuit of short-term savings would be a false economy with long term consequences. Our economy is crying out for labour and our public services are at breaking point. Reforming employment support can rescue Covid’s lost generation of workers and curb welfare spending, without weakening the welfare safety net.
Jess Prestidge is Deputy Policy Director at the Centre for Social Justice.
When it comes to reducing the size of government, work is a good place to start. Employment is strongly correlated with a wide range of positive outcomes beyond simply generating taxes. People in work are happier, healthier and less costly to the state. Children of parents in work tend to do better at school. Adults in work are likely to enjoy better health for longer. Ex-offenders who work are less likely to re-offend. In short, work is the best way for most of us to avoid calling on the state.
The introduction of Universal Credit recognised this. It was designed to simplify the highly complex and confusing benefits system that preceded it and incentivise the path into employment by making work pay.
But despite there being over a million vacancies in the economy, over five million people are in receipt of taxpayer-funded employment benefits. The Department of Work and Pensions (DWP) is forecasting that working age benefit expenditure will exceed £120 billion by 2027. Welfare spending is always a hot political topic, but in the current fiscal environment, it represents a huge opportunity cost. Chronic labour market shortages, record levels of immigration and growing speculation about the potential impact of Artificial Intelligence turn the heat up further.
How have we got into this position? What should we do about it?
Universal Credit has been one of the major policy successes of the last decade. Its inbuilt work incentives have helped to push up employment rates while its digital design enabled the Department of Work and Pensions (DWP) to successfully process some three million claims at a moment’s notice during the early days of the pandemic.
But today, the challenge is different. The fastest growing and stickiest out of work group are those “not required to look for work”. Three years on from the first national lockdown, policy makers are only now starting to face up to a pandemic legacy which has seen the number of people in this group rise to 3.7 million.
That is an increase of nearly half a million since before the pandemic, and is explained primarily by a rise in ill-health. As the group we’re talking about is legally exempt from work-search requirements, the usual sticks in the system just won’t work.
The Chancellor’s back-to-work-Budget earlier this year was the clearest expression to date that the Government recognises the changing composition of the welfare state. Jeremy Hunt set out welcome plans to rewire health and disability benefits to better incentivise work.
But implementing these proposals will be a slow and complex process, requiring primary legislation which will not take effect until long after the next election. If we are to put the state – and the welfare safety net – back onto a sustainable footing, we need to take bold action now. Anything less risks robbing a generation of the well- evidenced and wide-ranging benefits of work while embedding dependency for generations to come.
The size of the welfare prize
The stereotype of the benefits scrounger – invoked so effectively by George Osborne in 2012 – looms large in the public psyche. Most people have a story about someone ‘gaming the system’. While public polling suggests that attitudes towards welfare spending softened in the years prior to the pandemic, mass exposure to the benefits system during lockdown failed to accelerate this trend.
As people’s material circumstances deteriorate, and with public services continuing to struggle, attitudes are only likely to harden. Within this context, DWP’s budget represents an uncomfortable political reality for an administration determined to align itself with the aspirational grafters of the Red Wall.
Government must, some would argue, bear down on a profligate system that has made life on welfare a little ‘too comfortable’, as the Chief Secretary to the Treasury put it last month. While there are vacancies out there – and there are many – what justification is there for paying people to stay at home?
A false economy
But while I strongly agree that every effort should be made to get people who can work into work, it would be a mistake to see a more punitive welfare system as the answer. There is a role for both carrots and sticks, but tightening eligibility criteria, reducing generosity or policing the system more aggressively would be counterproductive.
This is particularly true of health and disability benefits. Far from rolling back the state, a more punitive approach would increase bureaucracy, invite legal challenge and encourage claimants to circumvent a system they rightly identify as looking to catch them out.
DWP’s back catalogue is littered with evidence that short-term measures to cut costs can do the reverse.
The introduction of Personal Independent Payment (PIP), which focused support more tightly on those facing ‘the greatest barriers’ to independent living, was expected to reduce costs by 20 per cent. A litany of legal challenges and an explosion of mental health claims mean that by 2018 it was costing around 20 per cent more.
The removal of the Work Related Activity component in Employment Support Allowance (ESA) was expected to save around £450 million a year by removing disincentives to take steps towards work. In reality, it raised costs by pushing more claimants into the Support Group – a designation that confers a higher rate of benefit without requiring claimants to take any steps towards work.
And while Osborne looked to Universal Credit (and briefly, to tax credits) to plug the deficit, much of the money taken out of the system in 2015 has since been restored, with recent Chancellors – including the current Prime Minister – recognising that features such as the work allowance and taper rate incentivise and facilitate work.
So how do we shrink the state?
DWP’s job is to get people into to work, increasing tax receipts while reducing demand on a wide range of public services. Win-win. But trust in the system is critical to realising these benefits.
The DWP is viewed with near-universal suspicion by claimants. And yet, as a SpAd in the department, I was struck by officials’ commitment to those they serve. Taxpayer-funded benefits must be protected from abuse, but anyone in genuine need should feel confident the system is on their side. The DWP’s Health and Disability white paper is right to identify trust as fundamental to unleashing the welfare system’s potential as an enabler of work.
That is why the Centre for Social Justice is calling for the national roll out of Universal Support combined with an Into Work Guarantee. We know that 700,000 people currently in receipt of health, disability and care benefits want to work, and believe they could, with the right support.
But under current rules they’re not entitled to the help they need. Universal Support – a tried and tested intervention that provides personalised assistance via a key worker – would enable those facing complex barriers to start, stay and succeed in work.
The new Universal Support scheme announced by Government in March is therefore a critical first step – but there is more to do. An Into Work Guarantee, meanwhile, is essential to give people the confidence to accept this help, safe in the knowledge that benefits will still be there should the job fall through.
Salami-slicing the welfare budget in pursuit of short-term savings would be a false economy with long term consequences. Our economy is crying out for labour and our public services are at breaking point. Reforming employment support can rescue Covid’s lost generation of workers and curb welfare spending, without weakening the welfare safety net.