As the ambitious Welfare Reform Bill approaches its second reading in the House of Commons, the polarised debate ignited by its weak points risks distracting attention from some of its key benefits, acknowledged by most experts in this area.
Among these, we should broadly welcome the return of Beveridge welfare state principles of rights and responsibilities. The 1970s and 1980s saw a gradual erosion of those principles, in particular the separation among working-age people of the receipt of benefits on the one hand from the requirement for job-search on the other.
Towards the end of the of the Thatcher government there was a gradual recognition that this separation might be a mistake, at least as far as the unemployed are concerned, and the following 25 years have seen concerted attempts to move in the other direction – under all governments. Despite the political heat this topic attracts, the underlying principles are common to all mainstream political parties, and most informed commentators.
Turning to the numbers on sickness and disability benefits, this, by any measure, is a major problem. When Mrs Thatcher took power in 1979, there were ‘only’ 700,000 people on sickness and disability benefits. Under the Tory governments between from 1979-1997, the numbers grew nearly fourfold (to over 2.5 million).
There is no reason to believe that the underlying incidence of sickness and disability in the working-age population increased by a factor of four over an 18 year period. No, the main reason for this dramatic increase was the shameless use by the authorities of Invalidity Benefit (as it then was) as a repository for the unemployed (especially those in the declining industrial areas) to stop them adding to the visible headline figures of unemployment.
We are still living with the consequences of this misguided policy. The only thing that might be said in its defence is that this kind of thing was a fairly common response to the 1980s recession across Europe: namely reducing the labour supply when economic demand was low. Some countries used early retirement schemes to do this, others like the UK and the Netherlands relied on disability benefits.
Since 1997, there has been a welcome sea change in thinking, a recognition that many of this group want to work and are able to work, and that, for many, work is good for their health rather than bad for it. Despite this, there has been little real success in tackling the problem. The Labour government, with all its ‘New Deals’, ‘Pathways to Work’ and the like, managed simply to stabilise these numbers, but didn’t significantly reduce them, even when the economy was booming. There are still 2.5 million or more people on disability benefits.
The current government’s approach is largely an intensification of that started by Labour, with the main extra ingredient in the new Welfare Reform Bill being the Universal Credit, which is a (mainly welcome) simplification of the complex system of out-of-work benefits.
So far, so good. The big question, however, is whether this approach stands a chance of success, at a time when the labour market is still suffering from the impact of recession. Most forecasters believe that the next few years offer at best a prospect of jobless growth, with sluggish private sector hiring insufficient to mop up the jobs shed from the public sector as a result of the cuts.
My view is that the reforms are largely necessary, but by no means sufficient. Further ‘activation’ of the unemployed and (some of) the ‘economically inactive’ by making benefit receipt conditional on looking actively for work, and giving them some intensive help and support in looking for work (through the new Work Programme), is clearly a good idea.
Or at least it is, as long as the assessment of who, among those who are genuinely ill or disabled, is really ‘fit for work’ is done fairly and sensitively (some of the evidence on the government’s Work Capability Assessment, administered by private medical contractors, raises real concerns on this front).
Equally, it’s a good idea to make the benefit system simpler and transparent, so that people can easily see that they will be better off in work (and if they’re not better off, because the work is so low-paid, letting them keep some of the benefit, so that they will be).
The reason it’s not sufficient, however, is that it assumes that the main or only problem is one of incentives, and that workless people either do not have sufficient financial incentive to work (because benefits are too high relative to wages, or too complex to understand), or sufficient ‘moral’ incentive (because they are not really expected to look for work in order to receive their benefits).
These assumptions may be true for a small minority, but I have seen no evidence that they are true for most or all of those on out-of-work benefits, despite the hysterical stereotypes in the tabloid press about fraudsters, shirkers and the 'culture of worklessness'.
The main challenge is that there is a genuine lack of demand in the labour market, particularly in certain regions of the country. The largest concentrations of people on inactive benefits are still found in those areas where heavy industry collapsed in the 1980s, and these are also the areas most reliant on public sector employment and which will be most vulnerable to the wave of redundancies from local authorities and other public bodies.
It is sheer fantasy to believe that simplifying the benefits system and putting a bit more pressure on workless people in these areas will cause the scales to fall from their eyes, and that they will magically rush into jobs which aren’t there. It’s true that this approach may reduce the numbers on benefits and the benefits bill, but unless there is an increase in the number of jobs for them to go to, many may end up not in work but in other forms of poverty and social exclusion or, indeed, criminal activity.
There are two missing ingredients in all of this, one short-term and one medium-term. The first is the lack of any kind of interim stimulus to labour demand for these groups: in this light, it was probably a mistake to ditch the Future Jobs Fund and other temporary ‘make-work’ schemes established in the dying days of the Labour government.
The second, as the CBI and other business leaders have been highlighting, is the lack of any real underlying strategy to promote growth (particularly employment-rich growth in the depressed regions of the UK): tinkering with employment legislation and other unfashionable ‘regulation’ will not make the difference here.
Nigel Meager is director of the Institute for Employment Studies
