UK Politics

Labour Party: Protecting better, demanding more: Labour’s approach to welfare and work

News   •   Nov 09, 2010 10:23 GMT

Douglas Alexander MP, Labour's Shadow Work and Pensions Secretary, speaking today at the IPPR, said:

In the coming days, we are expecting that the government will publish its much trailed white paper on reforming the benefits system.

I expect it will pursue the laudable goals of improving incentives to work, and simplifying benefits. 

We can expect an array of graphs showing shifts in disregards and taper rates that will no doubt be a crowd pleaser among the social policy anoraks here at the ippr.

I’m broadly supportive of a system that could be easier for people to understand and offer better rewards to work. 

When the government proposes measures that achieve these things they will have Labour’s support. 

But the argume nt I want to advance today extends beyond the operation of our system of benefits.

I want to suggest that it is the partial nature of the Conservatives understanding of the challenges facing people looking for work that is leading the government to put such faith in an important but partial prescription. 

The Conservative contention is that the central problem is a failure of the benefits system to reward work. By contrast, for Labour the central and most pressing problem is the inadequate provision of work itself. Put simply, welfare to work requires there to be work. 

This week the Chartered Institute of Personnel and Development has suggested 1.6 million jobs will be lost in the coming years. A fortnight ago the Treasury itself confirmed a reduction in public sector jobs by 490,000. The week previously PwC suggested a million jobs could be lost over the coming years. 

And these repeated warnings represent a very real risk.

On Wednesday we saw the political impact of what has come to be called “the jobless recovery in America”. If anything similar were repeated over here, even worthwhile benefit reform would be at risk of looking inadequate and being overwhelmed.

So, I believe the balance of Iain Duncan Smith’s efforts is wrong. A welcome but too exclusive focus on the promise of a simpler benefit system tomorrow, marginalises the most pressing priority which is work today. 

And this genuine difference of approach is why I fear the universal credit is being asked to do far more than it will be capable of achieving. 

Such misplaced confidence in a necessary but partial response to present circumstances would, in and of itself, carry real risks while the pursuit of the universal credit is already exacting a very real cost. 

Securing the support of the Chancellor for this approach has required the rushed acceptance by Iain Duncan Smith of £18 billion of benefit cuts which hit working peo ple and directly undermine the arguments he advances for the universal credit.

Sadly the spending review owed much much more to the ambitions of George Osborne than to Iain Duncan Smith. The Chancellor seems much more interested in cutting welfare than reforming it. 

Long term reforms are already being overwhelmed by short term cuts. And my fear is that this Government, like previous Conservative Governments, will prove much better at cutting benefits than getting people into work. 

At the root of the Government’s deficit reduction strategy is a contradiction that should worry all of us that want to see borrowing brought down. Their strategy puts all its eggs in the basket of reducing the welfare bill, at the same time as it risks increasing the dole queue. 

And we’ve been here before. Failing to understand this relationship between the length of the dole queue and the size of the welfare bill contributed to a threefold rise in the number of people rel iant on out of work benefits, which in turn led to a doubling of social security expenditure as a share of GDP between 1979 and the mid 1990’s. 

Even if the Government were correct and work incentives are a more pressing issue than insufficient demand, they have already adopted policies that contradict their claim. The measures in the July budget meant 20,000 more people paying marginal rates of over ninety percent. Cutting Working Tax Credit will further damage work incentives. Localising Council Tax Benefit will increase complexity. 

And to illustrate the real choices that underpin these differences in focus, we should remember that the £2 billion allocated for set up costs for the universal credit could have been used to not only to retain but to extend Labour’s job guarantee; and the protection it provided against the demoralisation and waste of long term unemployment.

The job guarantee was real welfare reform; providing work for young people and requiri ng them to take it up. 

By scrapping it the Conservatives have walked away from both sides of that bargain – not tough enough, not supportive enough.

Let me be clear: increasing disregards, lowering taper rates and simplifying benefits are all good things to do. Indeed it is what we did in government: tackling poverty traps and making work pay. 

But will their impact be enough – when implemented from the end of the Parliament – to make up for austerity job losses, the equivalent of 18 million people losing £1,000 each, and the scrapping of Labour’s job guarantee? 

And is reducing barriers to work and simplifying the system as powerful a lever of change as guaranteeing work and obliging people to take it? 

I believe that work is what works. Indeed the core task of the welfare state is to provide security and work. This is the argument I want to explore today and debate with the government over the coming months.

But, for Labour, effec tive opposition will never be enough. We cannot and should not be a party that is simply against doing things. Regaining people’s trust and support means showing we have an alternative approach than that proposed by the government. 

That renewal is underway but it won’t happen overnight. We will take time to listen and learn from our defeat. And apply our thinking afresh to the challenges of the future. 

Already Ed Miliband has made it clear that we will oppose arbitrary and unfair changes like the removal of Child Benefit from middle income families across the country. 

I want to suggest today where I see the new political and intellectual terrain for the centre-Left on the fundamental questions of welfare and work.

There are big debates to be had about how we make sure our welfare state and our economy work again for working people. 

And this debate must be informed by an honest account of Labour’s record in government and the lessons fro m it. And so I want to begin by addressing that issue head on.

It is striking that much of the Conservatives’ rationale for reform is based on their critique of Labour’s record. 

In opposition they made a number of claims about how the welfare system was broken and how spending was out of control.

The hyperbole of many of these claims helps to explain, I think, why they are now –optimistically – placing so much faith in the transformational potential of the universal credit. 

So let’s look at the claims they make. 

One – they talk regularly about the number of people on out of work benefits but fail to mention that between 1997 and 2008 the number didn’t rise – it fell by a million; rising thereafter simply because of the recession. 

And let us not forget that at the end of the early 1990s recession the number stood at six million – including an extra million on Incapacity Benefit. 

The Conservatives allowed unemplo yment to top three million twice, while the numbers on Incapacity Benefit trebled. Labour halved the unemployment before the recession and got the number of people on Incapacity Benefit falling. 

Two – they talk regularly about the number of children in Britain who grow up in workless families, but again fail to mention that number fell during Labour’s time in office. The proportion fell from 19 per cent in 1997 and over 20 per cent in the early 1990s to 16 percent today. So progress was made.

Three – They say that for too many work still doesn’t pay, but in almost every case it does and under Labour the number facing the very highest withdrawal rates – of over 80 and 90 per cent – fell significantly, progress the current government has already undermined with 20,000 more people paying marginal rates of over ninety percent. 

Finally, four – they point out regularly that welfare spending has risen in the last two years. But this is because when the welfare state played its vital role in protecting people’s jobs and homes and supporting the economy during recession.

But even despite this, welfare spending as a proportion of GDP is now only very slightly higher than in 1996/7 from which it had been reduced to under eleven percent by 2006/7.

This was during a time when Labour deliberately increased spending to tackle child poverty. The figure topped fourteen percent in 1993/4 when the Conservatives were spending billions more on the costs of unemployment and billions less on supporting families. 

So the lesson is clear – it is by getting people into and keeping people in work that you can keep costs down. 

So it’s not that the Conservative claims are wholly wrong; it’s that they are all highly partial. And as with their attitude to debt and the deficit, they simply ignore the fact that Britain has been through the deepest recession since the War. 

In truth, the Conservatives appro ach to welfare is in many ways a reflection of a wider debate about the appropriate role of the market and state that has arisen following the global financial crisis. 

For the Right – long attached to market fundamentalism – the greatest market failure in sixty years should have represented an ideological crisis. 

Instead, with determination they resolved to turn it into a political opportunity by seeking to characterise it as a failure of government and then to get on with their objective of shrinking the state. 

On the issue of welfare, the Right are still as philosophically ill equipped as ever to embrace intervention in the labour market to provide work or intervention to keep people in work. 

And so despite the accumulating evidence that approaches like the Future Jobs Fund which helped deliver the job guarantee for young people did make a difference, the Conservatives are left claiming that the central problem is failure of government in the fo rm of the welfare system, rather than also recognising the fault of the market in the form of the absence of work. 

In its place, I want to offer a more honest and balanced judgement on Labour’s time in government.

On the plus side, employment hit record highs, the claimant count halved and poverty fell. 

Despite all the benefit traps the Conservatives now bemoan, the lone parent employment rate rose by 11 percentage points. Youth and long term unemployment tumbled.

A growing economy helped. But reforms that increased support and conditions played their part too. 

The New Deal and back to work support where there had been virtually none. Tax credits to make work pay. More and better childcare. Increasing obligations for those on benefits to take steps towards work.

And a recession response that was different in almost every way from those of the 80s and 90s. 

The claimant count reaching 1.5 million compared to over three million. Inactivity broadly flat rather than ballooning. This was possible because Labour increased investment to improve support and maintain the focus on getting people back into work - investment which David Cameron opposed. 

The result? Unemployment is almost one million lower than predicted in spring 2009; saving well over £10 billion on benefits over the next five years. 

So Labour did not leave a broken system or a spiralling welfare bill. And, crucially, our progress came when we got both economic and welfare policies right.

In fact I think it is reasonable to argue that Labour did more to reform welfare than any post war government. We inherited a system with little support and limited conditions. And we made real progress on both. 

But election defeat is an instruction to face up to weaknesses as well as strengths. Given the priority attached to tackling unemployment, the reform of Incapacity Benefit come later in our time in government. 

While work incentives improved through the minimum wage and Working Tax Credit, we should have done more to address the reality of low pay job insecurity and poor quality of work at the bottom end of the labour market. 

And we asked Housing Benefit to take too much of the strain for generation long failures in the wider housing market, principally the lack of affordable homes to rent and buy. 

Understanding these issues is essential for Labour to renew. But it’s also important because I fear the Conservatives may not be learning from our lessons, nor avoiding our mistakes. 

So let me address directly the issue of the changes to Housing Benefit that have hit the headlines in recent days and that have caused so much concern within the sector.

My starting point is that the issue of housing benefit cannot and should not be detached from broader issues of housing provision – the need for more affordable social housing, the level of rent charged in the pri vate sector, and the real difficulty people have in securing a foot on the property ladder. 

But let me also be clear - we are in favour of reforming housing benefit. Let's look at the main measures that are currently on the table. 

One of the proposals likely to have the biggest impact is an immediate and unprecedented cut in the Local Housing Allowance implemented in just one year. 

Despite all the publicity that the government has deliberately sought for the cap - it is this move to the 30th percentile that will mean 700,000 of the poorest people – in work and out of work - are on average £9 a week on average worse off. 

If the Government produce a proposal for a staged and more limited percentile reduction over a number of years – that could avoid the risks of higher homelessness and additional costs inherent in the present proposals – then this is something we would consider.

Rushing the present proposals through at speed means it is harder for people to find alternative accommodation and more difficult for small landlords to absorb such changes in one go.

The measure that the government want to spend all their time taking about - the cap - actually only achieves quite modest savings – indeed just three per cent of the planned savings from Housing Benefit. 

But in order to try to establish a political dividing line the Conservatives have sought to focus all the attention on this individual measure that contributes £65 million to a £2 billion package. 

The Government have proposed a national cap implemented on a six month timetable which would risk higher homelessness and contribute to additional costs for temporary accommodation which Shelter are now estimating could run to £120 million. 

Let me be clear, we are not against caps in the Housing Benefit system and indeed it was Labour that introduced the Local Housing Allowance and further measures to address this issue in the Marc h budget.

So, while we oppose the sudden imposition of a national cap on an arbitrary and accelerated timetable, in a way that would risk higher homelessness and incur significant additional costs, we remain prepared to consider a staged approach and the case for a system of regional caps that would better reflect regional variations. 

On a number of the other measures such as non-dependent deductions, shared room rate for under 35 year olds - we do not object to the principle but we are again concerned about the speed these changes are being introduced and the lack of impact assessments produced resulting in unintended consequences and potentially higher costs. 

The Shadow Chancellor Alan Johnson has been clear that we would be willing to consider some time limited temporary changes to the up-rating of benefits, but we will resist the proposed approach that puts people on a permanently lower path. 

The Government haven’t yet set out how the change s to social sector entitlement for working age households will be implemented, but many social housing tenants will be deeply concerned at the prospect of being forced to move due to this kind of cut. 

But let me give you an example of where the government have got it flat wrong. Their proposal for a 10% cut in housing benefit for people unable to find work for 12 months is both unfair and the wrong approach. 

If someone is trying their very best to find work – going to interviews, sending off applications, turning up at the Jobcentre – then taking 10 per cent of the money they need to pay the rent is just unfair. 

That’s punishing people for not having a job, not helping them get a job. 

That is just one example of how short term cuts are already overwhelming long term reforms.

On their broader reforms, we don’t yet have all the details, but the key elements of the government’s approach to welfare reform seems clear; with two core elem ents to the package. 

A universal credit – from the unification of many benefits and tax credits into a single payment, with various elements reflecting household circumstances, withdrawn on a single taper as earned income rises.

And a new Work Programme – building on the Flexible New Deal and Pathways to Work, using the private and voluntary sector to provide back to work support, with payment by results.

First the universal credit. From the little that we know, this is a sound proposal, the principle of which we can and will support, developing as it does, approaches measurers pioneered in Labour’s tax credits and reform of Incapacity Benefit. 

We will not oppose the principle of this change – nor progressive elements that improve work incentives and humanise the benefits system. 

The Work and Pensions secretary can count on Labour’s support when he pursues these goals; even when he can’t count on the Chancellor’s support. 

I look forward to studying the proposals in detail and will seek reassurances and clarifications on a number of points. For example:

How existing benefits – especially for disability and housing – will be integrated into the universal credit and entitlement to support established.

The costs and practicalities of the so-called ‘real time’ PAYE computer system that reports suggest HMRC are developing, given its dubious IT track record.

The ‘point of entry’ into the universal credit and the implications of this for the delivery and administration of Housing Benefit.

The marginal deduction rates that will apply and which households across the income distribution these will fall on.

The potential impact of removing the extra incentive and rewards in the current system for working 16 and 30 hours. 

How conditionality rules will apply in a system where the clear distinction between being in work and being on benefits is effectively bein g ended. 

The role of the contributory principle and support for carers within the universal credit.

I hope issues like these can be addressed through the same spirit of co-operation and consensus across party lines the characterised our work on pensions in the last Parliament.

And in passing, it is worth saying that while I’m focusing today on working age welfare, I welcome the decision to press ahead with auto-enrolment and Labour’s reforms to occupational pensions that were confirmed by Steve Webb last week. 

And my most immediate concern on the universal credit is much less the details which will emerge over time, than the big picture which I think I already clear. 

In short, whether it is compatible with the laundry list of cuts that George Osborne has inflicted on the vulnerable and the working poor – and the huge political price he has forced on Iain Duncan-Smith – as the cost for allowing it to happen. 

Iain Duncan Smith next week will no doubt try to present his universal credit as a standalone measure. But it is inextricably linked to the £18 billion of benefit cuts and labour market prospects of the next few years. 

The Institute for Fiscal Studies has already confirmed that the benefit changes are regressive; torpedoing the claim that the Conservatives will protect the poorest.

But they also risk fatally undermining the policy integrity of the universal credit before it has even been launched.

They hit the incomes of working people hard, which not only weakens work incentives but delivers a huge blow to the living standards of ordinary families. 

And by driving a coach and horses through the Housing and Council Tax Benefit system they are increasing complexity. 

Let me be clear. I agree that welfare must make its contribution to reducing the deficit. 

But as the spending review reminded us all, there is a world of difference between simply cutting the welfare system and reforming the welfare system. 

We will asses each of their proposals on its merits judging whether it is fair, proportionate and assists or hinders the transition into work. 

Proposals such as; reforming the DLA gateway, continuing the IB to ESA transition and continuing to drive down fraud all fall into this category. 

But many of the cuts simply fail this test; while some are just plain cruel. 

Cutting Housing Benefit by ten per cent for people who have been looking for work for a year. Cutting DLA for people in care homes. Ending the Child Trust Fund for kids in care. 

Where is the ‘reform’ in these measures? 

Ministers should remember that in the 1980s the Conservatives cut the generosity of welfare but still ended up paying out more in social security because the numbers dependent on benefits trebled. 

Labour reformed benefits and reduced dependency: the Conservatives cut benefits and increased depen dency. 

Sustainable savings require real welfare reform and a focus on low unemployment. 

The welfare white paper is also expected to create the Work Programme, constructed from the various existing schemes currently supporting people into employment.

From what we know, this appears to be another evolution of policy under Labour. More personal support; less prescription. A role for private and voluntary providers. Funding based on outcomes not processes. 

Again, this is a direction of travel Labour will support. Though in studying the detail I have three particular areas of concern:

First, that voluntary and specialist providers are not squeezed out by an instinct to favour big, established providers who can take on large risks and long term contracts. 

This is a big test of the Conservatives’ commitment to localism and their claims of supporting a Big Society.

Second, that so-called ‘black box’ contracting does not allow provid ers to ‘park’ those jobseekers with more complex needs. 

The payment structure must encourage time and resources being devoted to people with the most significant barrier to work. 

And third, that the cut in DWP’s budget – outside the universal credit – does not result in a reduction in the support provided to people looking for work. 

This would be the definition of cut now, pay later. 

More significantly, I believe there is a huge missing piece of the jigsaw in the government’s plans – which will critically undermine their effectiveness. 

Labour’s job guarantee provided a ‘back stop’ in the welfare system – proving real paid work, not just support, to those at risk of long term unemployment; and the obligation to work for those simply circling around back to work programmes.

It was more supportive than the Work Programme will be – recognising that some people try their heart out to get a job but keep getting knocked back and that, in particular times and places, the market simply does not provide work for some people.

But it was also more demanding – by effectively limiting the amount of time someone capable of work could be on benefits without taking a job and ‘calling out’ those who are playing the system.

The Future Jobs Fund, which helped deliver the job guarantee, was also driving real innovation and best practice in welfare to work. Many tell me that it was the most successful employment scheme they have been involved with. 

To find the £2 billion to implement the universal credit, the Conservatives are having to scrap the guarantee thereby making the welfare state less supportive and less demanding.

We know that long term unemployment is what really scars people’s job prospects and ruins their life chances. Without the job guarantee, the great risk is that this personal, social and economic catastrophe will reappear. 

In a similar vein, I wil l also be pressing the government to think harder about ensuring that the chance of work is real for disabled people too.

In some cases this requires proactive steps for both individuals and employers. And Access to Work already makes a huge difference here. 

The new Work Choices programme should also pioneer innovative ways to support employment for disabled people, including for people with mental health conditions, drawing on the best international evidence. 

Beyond the specifics, I also want to make a broader point of warning; to the government in general and to Iain Duncan Smith in particular.

Are you trying to roll your welfare rock up a steep hill marked unemployment? Are you asking an overhaul of benefits to do more than it is capable of? 

Without action to address the many obstacles to work people face – childcare, housing, health – a simpler benefit system will only address part of the problem.

Without tough conditions and real guarantees, back to work support could end up managing the system rather than transforming it.

Without a growing economy and the creation of new jobs, better work incentives can only have a limited impact.

And if progress is slower than you’d hoped, we will not let you claim success in bringing down the benefits bill if it is only achieved by ending benefit entitlements and cutting benefit levels. 

Because that is punitive welfare cuts, not real welfare reform. And so far in government you have fast forwarded cuts and postponed reform. 

The result – as with previous Conservative governments – could be higher unemployment and a rising benefits bill. 

Yet if the Conservatives’ policies do turn out to underwhelm, Labour will not automatically benefit.

We will only gain if we have an agenda for reform and a vision for the future that is more convincing than our opponents.

Five months or so after an election defeat and five years or so before the next election is not yet the time to write a manifesto. Labour must start by going back to more fundamental questions. What do we stand for? What sort of country do we want Britain to be? 

I want to finish today by offering my thoughts on these questions; and what this means for where our thinking on welfare and work should go.

I believe that the purpose of the Labour Party is to create the conditions for working people to act together to improve their quality of life and standard of living.

This is based on some simple ideas. 

The recognition of our shared fate as a society; in good times and bad, we stand and fall together. 

The understanding of the centrality of relationships to all that gives meaning and purpose to our lives. 

And the realisation that fulfilling this historic purpose will not happen naturally or by accident. It cannot be wished into being. Or indeed ‘nudged’.

It requires action. Action to confront inequalities of power and wealth. Action to address insecurities inherent in a market economy. Action to extend democracy across society.

Responsibility for that action must be shared; between state and citizen, society and market. Not a We’ll Do It For You society, or a Do It Yourself society, but a Do It Together society. 

This is the fundamentally ethical nature of the Labour tradition; rooted in our most basic sense of common decency and humanity. 

Nowhere is approach more appropriate than in welfare, which embodies two sets of values that – when properly expressed and held in creative tension – ignite our purpose as a political party. 

Solidarity on the one hand, obligation on the other. Responsibility for ourselves, reciprocity towards each other. Protecting better, demanding more. 

These ideas will run throughout our approach to welfare.

It is why we stand for the right to work matched by the duty to work. And compassion for those who need matched by contributions from those who can.

For Labour the welfare state is about promoting work and increasing security. And the way we achieve this is through acts of reciprocity and solidarity. 

I would summarise my principles for a Labour approach to welfare as follows: 

People should receive appropriate support during life transitions, like job loss, child rearing and poor health. 

But welfare should be temporary for the vast majority, not a way of life. Those capable of work should do so. 

Virtually everyone on benefits should be on an active journey towards work, with support and conditions tailored to their personal circumstances.

No one with the desire and the motivation to work should be denied that opportunity, requiring positive action and smart investments. 

People should be properly rewarded for their hard work, through a fair tax and benefits system and justice in the labour market. 

Real welfare reform and reductions in unemployment are crucial to bringing down the deficit and switching resources into investments in the future. 

Over the coming weeks and months I want to engage in the widest possible debate about these principles and what they should mean for policy. 

I would kick that off by highlighting a couple of big themes. 

If the universal credit and Work Programme are necessary but insufficient, what would be a more transformational approach? 

I am interested in the potential for matching tough conditions with real guarantees; drawing on the experience of those countries that have consistently achieved the highest rates of employment.

One model is Danish ‘flexicurity’, which combines generous temporary benefits, tough conditionality and investment in both childcare and active labour market programmes. Other EU states, like the Netherlands, have much to teach too.

And if the Conservatives have abandoned the field on the nature of work itself, what should Labour offer in its place? 

I think we need to start by recognising that welfare and work are two sides of the same coin – and in the process face up to the increasingly twin-track nature of the UK economy. 

Because whether someone is ‘better off in work’ – in terms of their quality of life as well as their standard of living – rests as much on the character of the labour market as the operation of the welfare system. 

As part of an agenda for economic reform and renewal we need to think through some big issues: 

How can we tackle our long tail of low value firms and poor management? How can we get more ‘bang for our buck’ from public funding for skills? How can we ensure that no-one who works hard ends up poor?

Such questions require an open mind and new thinking for the future. 

But even they prompt more fundamental issues about the challenges facing welfare states in countries like Britain; especially in an era of fiscal retrenchment.

The danger that reductions in public services end up pushing social problems into the welfare system, where they may end up being more costly and less effectively dealt with. 

The importance of decent social care and childcare provision to supporting modern family life and the role of women at home and in the workplace.

The route to reducing child poverty through economic and social reform, where the scope for ever higher income transfers is limited. 

The centrality of full employment to provide the tax base for world class public services.

These are all huge challenges for the decade ahead, which Labour will apply itself to addressing.

In the short term, Labour’s approach is clear. We will support the government where it rewards work and increases security. We will oppose them when they do the opposite; including holding them to account for what they don’t do but should be doing.

At every step, we will be tireless advocates of real welfare reform that protects better and demands more. 

Because that is how to shape a welfare system that transform people’s lives.