02 February 2007
'Thinking the unthinkable' is a term synonymous with New Labour's rather self-aggrandising approach to policy reform – yet the reality is that some ministers have been marginalised for obliging with radical proposals.
Just ask former welfare reform minister Frank Field, whose 1998 pension plans were famously dumped. So it is perhaps wise that the Department for Work and Pensions is coy, at least publicly, over a potential reform that could surpass Field's radicalism.
Jim Murphy, the benefits reform minister, last week told Public Finance that the DWP was 'committed in principle' to the idea of a single benefit paid to people of working age who are genuinely able to work.
The DWP's plans are embryonic at best. Work and Pensions Secretary John Hutton has initially opted to tinker with the current system. This week he floated the idea of reducing the cut-off point for child benefit payments to encourage single parents into work.
But Hutton has pitched the concept of a single core benefit – it appeared in the small print of his 2006 green paper, A new deal for welfare – and experts agree that this would be the most radical overhaul of welfare income for decades.
As the green paper acknowledged, the present system – through which the DWP alone pays out £120bn annually – is just too confusing. It pays income replacement according to the reason why a person cannot work. So, for example, it provides jobseekers allowance and incapacity benefit payments.
Other payments are made according to extra needs: carers allowance, child benefits and disability living allowance, etc.
And herein lies the problem. 'The many different [eligibility and qualification] rules make sense in isolation but together make for a confusing and incoherent picture,' Hutton's green paper concludes.
MPs, finance experts and pressure groups have long called for reform. The Public Accounts Committee, for example, revisited the issue last week when MPs lambasted the 'confusing' and often 'inaccurate' information underpinning the system.
Chair Edward Leigh said this leads to poor take-up by vulnerable social groups. Around £7bn of benefits are unclaimed annually. The PAC reported that poor information also leads to extra administration costs and an increased likelihood of errors.
Roy Sainsbury, assistant director at the University of York's social policy unit, says a single working-age benefit – or Swab – could be the answer. At a conference in London last week, he floated the idea of one benefit to replace all payments in the government's first tier.
His argument is increasingly finding favour across Whitehall – and not just for financial reasons. Sainsbury claims that the current system 'does not complement the government's active welfare-to-work policy' – the idea that the right to benefits is accompanied by a responsibility to seek work if an individual is capable.
Sainsbury argues that the benefits framework creates barriers to work because some claimants have no incentive to seek work and others are uncertain whether they should.
For example, around 40% of long-term incapacity benefit claimants have mental health problems but are uncertain whether they can't work or merely shouldn't. Consequently, people whose health levels vary move between IB and the lower JSA payment via short periods of work.
As a result, hundreds of thousands of benefits recipients are moved into, and out of, adequate job training and support networks. They become stuck in the welfare system, with access to neither long-term employment nor an adequate health care support programme.
Many live below the formal poverty threshold – a situation exacerbated by complex 'linking' rules that prevent former IB claimants from going straight back on to that benefit once they have experimented with work.
Sainsbury claims that the new employment support allowance, which will replace IB and attach extra 'conditions and sanctions' to benefits claims, will not eradicate disincentives to work.
A Swab could partially tackle the problem, by ensuring that all recipients receive a flat-rate payment, with simple qualification rules. Especially if, as Sainsbury says, eligibility is based on two 'gateway' questions: 'Do you think you'll be able to work at any time in the future?' and: 'Do you want to work at some time in the future?'
'If claimants answer “yes” and “yes”… you're dealing with the bulk of benefit claimants and you're meeting the government's “work first – benefits later” criteria,' Sainsbury claims.
A Swab could also reduce the stigma attached to some payments, which contributes to low take-up. Its simplicity could also reduce the DWP's high administration costs. 'It's non-discriminatory, there is no stigma and it starts from a positive base: that people want to work and can work,' Sainsbury concludes.
But Kate Green, chief executive of the Child Poverty Action Group, says that people who cannot work, and individuals or families with specific financial requirements would still need extra payments.
'In addition to the standard income replacement benefit, we do have to ensure that help with childcare, housing and disabilities – and the additional cost of certain family structures – are properly met,' Green warns.
There are, of course, many technical hurdles to be overcome – not least the problematic merger or reorganisation of the IT systems underpinning the current regime. Whether payments would be linked to National Insurance contributions or means-tested is an even bigger question.
One man charged with assessing a Swab's plausibility is David Freud, the chief executive of the Portland Trust economic think-tank, who was recently asked by Hutton to review welfare arrangements.
Freud last week indicated that a Swab could be used as the core of a benefits system around which the specialised payments and support would be provided by the private and voluntary sectors.
He said: 'We're looking at a way to ensure that people who need lots of intensive support switch to a different system. So that the state system provides for the mass of people for, say, up to one year… but after that you put people into a private and voluntary sector system that spends a lot of money on them in a sustainable way.'
He is considering offering private and voluntary organisations three-year budgets to provide specialist services for people with disabilities, for example, arguing that this would finance 'a big attack' on the people who are stuck in the benefit system. 'Jobcentre Plus could then work on a much simplified front end of the [state] system,' Freud concludes.
Crucially though, Green warns that the long-term merger of different benefit streams should not be used as an opportunity to 'level down' payments. The amount of any future Swab will be critical: Treasury sources last week told PF that their potential support would rely heavily on its immediate, as well as long-term, affordability.
Freud jokes that he 'can't simply destroy the national budget' by proposing an expensive and politically unappealing system. Hutton and Murphy might be thinking the unthinkable, but they have many hurdles to overcome before they can achieve it.
PFfeb2007
