Iain Duncan Smith's 'belief' that a cap on benefits gets more people into work is an evidence-free statement. He'd be better off using well-established nudge theory to guide his welfare policies
Most of us are familiar with ‘nudge’ - the idea of encouraging or persuading people to do something by working with the grain of human impulses (eg our inability to plan ahead) rather than coercion. For many years this approach has been applied to a variety of government policies - often through the contribution of the behavioural insights team in the Cabinet Office - to maximise the impact of a policy or legislation in encouraging positive or healthy behaviours.
Many people think this is the preserve of public health awareness campaigns, but it's actually used much more widely. Indeed, more people using seat belts in the 80s thanks to legislation and a huge awareness campaign is seen as one of the first examples of government using nudge theory successfully (commercial marketing folk started at least 50 years earlier).
The reason we have frightening pictures on packets of cigarettes and everyone's heard of ’5 a day‘ is thanks to behavioural theory, but equally, the reason TV licensing ads moved from threatening to cajoling in tone was also down to behavioural wisdom. The government's Money Advice Service is another example of how messages about financial capability (it's the sensible thing to do, everyone's doing it) strive to be non-stigmatising and non-guilt inducing for those binging on credit cards. They've taken on board the lesson from behavioural economics which states that 1) people won't take advice if you make them feel they've failed and 2) people tend to emulate others to create social norms.
With the government now having mastered the application of the finer points of behavioural economics in policy contexts, it is all the more unbelievable that welfare reform - a system ripe for nudges - seems to be a black hole of behavioural learning.
I write this as IDS is being widely criticised for his Radio 4 comment that he ‘believes’ the cap on benefits encourages people back to work. His sincerity is beside the point. The fact he can't say he ’knows’ this policy will encourage people into work is the most telling and worrying issue here. Surely policies with such huge financial implications for families need to have their objectives tested before implementation?
Is the benefit cap the most effective (and cost effective) method of getting people into work? How many people are already looking for employment, and not needing further incentives? Government data would suggest this is already as high as 71%, but these questions are tricky to answer.
Behavioural insights experts have to consider whether reducing income encourages people to work, or to turn to crime; whether the effects of poverty or poor mental health associated with a reduction in income reduce the positive impact of increases in work; and whether exogenous factors, such as an absence of higher paid jobs or childcare issues, prevent people finding work even when highly motivated through penalties. These are the sorts of bread and butter questions behavioural economists tackle before a policy to reduce smoking, or encourage recycling, is implemented.
Does anyone really believe that capping benefits to the level of average earnings is the most effective way of getting people into work, if that truly is one’s objective? Scepticism over the use of financial penalties is the same reason why no one thought that raising the price of cigarettes alone stopped people smoking.
The Bedroom Tax is another good example of a policy in need of some nudge wisdom. In this case, the government claimed a financial penalty would encourage both people to downsize, and to work more to make up the shortfall. Inconvenient exogenous factors (such as how much people would need to work to achieve this, the fact that many affected are unemployed and disabled, a critical shortage of smaller properties etc) combined with people's emotional attachment to their homes (irrational decision making is lesson 101 in behavioural economics) meant this policy looked to be entirely ineffectual from the outset.
But I have purposely ignored the elephant in the room, assuming that the government’s priority for welfare reform is to encourage positive working and independence behaviours. In fact, a very high – perhaps the top – priority is to reduce benefit spending. And in this regard, welfare reform has been hugely effective. It has cut massive sums of money from DWP's budget. In some instances, the government hasn't been coy about this goal. Its bedroom tax impact assessment states first and foremost that the policy is designed to reduce housing benefit spending.
But there is a question of balancing priorities. The design of policies such as the benefit cap (set at a symbolic average salary, rather than a sum informed by evidence regarding how much of a reduction people would need to motivate them to work); the time limit of ESA (set at an arbitrary one year, rather than the average time it takes ESA claimants to find work); or the 1% uprating of benefits (a flat and round number, rather than say a proportion of CPI) suggests the objective to cut spending – and to be seen to be doing so in a symbolic way to be ‘fair to taxpayers’ – trumps all other goals about actually changing behaviours.
The fact is, a welfare reform programme designed to get more people into work, and informed by behavioural economics, would look very different to what we have now. It would include some financial penalties of course, but would be supplemented by more nuanced information, support and rewards systems to tap into natural human behaviours. Over the longer term, it would also save money. But perhaps in the short term, it wouldn’t look like a policy from a party that was ’tough on scroungers‘, standing up for ’hard working families‘ and with a very large deficit to cut as quickly as possible.
My objection is less that the Conservatives want to appeal to their voters with a very specific world-view regarding benefits claimants with bold, blunt and harsh welfare cuts, but rather that they aren’t honest about it.
Most welfare reforms are highly effective at reducing spending - cost shunting to local authorities or the NHS is another matter - but are entirely unproven regarding their capacity to change behaviours, whether that be to move house, find a better paying job, or have fewer children. Simply a ’belief‘ that this is the case – when other departments are using highly sophisticated behavioural studies to know what works – just doesn’t cut it.
