Opinion: A radical approach to welfare – forget changing benefits

The word ‘radical’ is to welfare reform what a pot of paint is to a wall full of cracks. The less you really know what to do to fix things, the more you slap it about all over the place in the hope that it will cover up things.

When you peer carefully at the detail of what is said after the roaring demand for radical reforms, you see what usually follows is either an absence of quite what form the radical action should take (‘radical, radical, we must be radical; just please don’t ask me how’) or simply by a desire to cut and cut but dress it up in slightly nicer language.

A hunt for properly radical welfare reform which contains substance runs immediately into two problems. First, for all the overall public hostility to spending on welfare, that immediately flips round once you give nearly half of the welfare budget the other name it justly has, namely ‘pensions’. (Currently, 47% of the benefits budget goes on the state pension alone.)

Second, many of those in receipt of benefits are not the scroungers of popular imagination and tabloid headline. Instead, they are people in work. The details of these numbers are often heavily debated (such as the question of what proportion of housing benefit recipients are in work) but some clear numbers do give a sense of scale. For example, the number of families who receive tax credits and have at least one person in work has risen to 3.3 million (which is a big chunk of the 18.2 million families in total in the UK). That gives a clue to where really to look for radical welfare reform.

Skip the talk about making work pay. Instead talk about making work pay more.

Better paid jobs aren’t just good for those in them, they’re good for cutting the welfare bill. Or in other words, forget tinkering with benefit levels and instead worry about the job market, training and education.

The Living Wage should be part of that mix, though given even the IPPR and Resolution Foundation’s concerns about the limitations of the Living Wage’s impact on poverty, it’s not a simple fix for all these ills. Further cuts to income tax, especially to bring the basic allowance in line with the national minimum wage (and so provide a default Living Wage via another route) should be another part and so should even more expansion of apprenticeships. Thinking longer term, genuinely radical welfare reform is also another reason to add to the list in favour of a nursery premium.

It is these sorts of measures, which raise wages and cut poverty, that are where Liberal Democrats should look for welfare savings in future.

* Mark Pack is a member of the Federal Board and editor of Liberal Democrat Newswire. He is a candidate for Party President.

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19 Comments

  • While I completely agree with your general premise; there is a problem here that what is a good wage for some will never be enough for others, and no amount of Government intervention in the employment sphere can change that fact.

    A family of four will always cost more for its general living expenses than, say, a middle-aged couple with no dependents. As such, £30,000 a year will go a lot further for the couple than for the family; this means state interventionism will be required more for families than the couple, barring some exceptions. Now, as we cannot really say that companies should pay their staff with families more than those without dependents this means the intervention taken, often needs to take the form of welfare.

  • I don’t think we can ignore questions of how generous various benefits should be, and Universal Credit really is a radical and welcome reform that we need to engage with. There are always going to people in between jobs or unable to work.

    But I think you’re right that we should concentrate more on why people need in-work support or why they’re unemployed or why they can’t afford their rent. As part of a general shift to early intervention and prevention rather than cure, we might wish to put more time and money into education (from early years to adult retraining) to deliver higher wages and employment; building far more homes to reduce the benefits bill; and encouraging private pension saving to reduce the need for benefits in later life. There may also be ways to invest money in mental health, medical research, environmental health, public health and learning difficulties to reduce the cost of disability benefits (in some cases) later on.

    Whether any short-term costs should be funded through borrowing, newfangled social impact bonds, taxes or cutting current expenditure is of course a more trickier and less politically attractive question!

  • I agree with Al, a living wage is a nice theory, but there is no way to quantity such a thing. A single parent with 3 children needs a much higher income to be able to ‘live’ than a single person. Do you give the single person enough to care for 3 children, or the single parent enough to care for just one person?

    I personally believe living standards are quite subjective. As a single person on minimum wage, I wouldn’t expect to be able to live in a 1 bedroom flat, while others believe this is a necessity.

    We also can’t ignore that, as wages rise, companies will pass on the cost to customers. For example, if utility companies have to pay higher wages to all, their higher costs are passed on to customers and bills go up, meaning this new ‘living wage’ no longer covers the costs of the person now receiving it. I’m not saying it justifies keeping staff on low wages, but we sometimes forget about these factors.

  • Melanie Harvey 13th Apr '13 - 1:56pm

    I am by no means a tax expert etc but it seems, (if not already in play), in order to help increase the wage whilst, reducing benefit requirements is by drawing comparison of, company profits to ratio employee requiring state assistance and where, Penalties should be put on companies who have high profit yet high employee state assitance requirements and turnover of staff.. Advice as to law and accountancy in this regard would be welcome and appreciated from anyone who has expertise/in depth knowledge in this field.

  • mike cobley 13th Apr '13 - 2:14pm

    The whole Universal Credit scheme is a massive sleight of hand. After all, claimants still need to be assessed for different types of benefit according to laid-down qualifications which vary according to the type of benefit being aplied for – its just that when it pops out the delivery slot it`ll have a Universal Credit label slapped on it. No, the underlying logic is to restrict access by a variety of methods (including purposeful difficulty in the initial application stage), and then to introduce a minefield of traps and tricks by which sanctions are triggered and payout denials enforced. I know that some who read and post here find it difficult to believe that any government would stoop so low but then 52% of this party thought that Thatcher was good for the country.

  • I think Adam is on the right track here. We need to have a completely joined up approach to working age benefits with regard to other services and support. This builds on the link between the Pupil Premium and entitlement to free school meals.

    So, for example, working in a full time minimum wage job for a year for example could entitle you to free or subsidised adult education or training aimed at promotion to a better paid job. Likewise, those with families they can’t afford to support without government assistance could also be entitled to similar opportunities. There could also be an element of compulsion in this.

    Everyone out of work and claiming benefits should be offered a tailored, high quality (that being the difficult part to deliver) programme of assistance aimed at identifying any skills and educational gaps and training needs, which can then be filled on the basis of attendance at suitable courses, with the rest of their time being dedicated to fully supported job search activities. This might have higher costs in the short run, but will pay for itself in the medium to longer term. People in high unemployment areas should also receive grants for job search activities in more prosperous areas, with further support if they move to take up employment. It does not make sense for us to force employers to pay more to poorly trained, less productive staff. What we need to be doing is to upskill workers to the point where their productivity is worth a higher wage.

    The point is, we need a new social contract between the government and the individual about what working age benefits are for. The government should be there to give real, constructive help to people to help themselves. It should not be there as a permanent part of their lives unless there are very good reasons for dependency like disability.

  • Mark,

    fully endorse your conclusion “…measures, which raise wages and cut poverty, are where Liberal Democrats should look for welfare savings in future.

    While I think universal credit is a step in the right direction, I think we need to go further and fully integrate the tax and social security system with a view to eliminating the bulk of means testing. It was a conservative chancellor, Anthony Barber, who I believe first proposed the holy grail of amalgamating parts of the social security and tax systems through a tax credit system, in order to eliminate means tests. These hopes were lost, howver, with the Tory Government’s defeat in the February 1974 general election.

    I have posted on Stephen Tall’s thread my views on the kind of reforms I would like to see in the Libdem manifesto:

    1. Minimum wage job guarantee scheme to replace existing workfare program There would be heavy emphasis on providing affordable social care for the elderly and child care support for working familes in the job guarantee scheme.
    2. Bacic Citizens Income to replace £10k personal allowance/employee NI threhold and JSA/ESA/Income support Bacic Child income to replace family allowance and child tax credits.
    3. Housing benefit and social housing tenancies restricted to retired, disabled and those in employment including participants in the job guarantee scheme.
    4. Combining income tax and employee NI to flat tax of 32% on all sources of income including pensions and corporate taxes. Pensioners would receive citizens income tax free in addition to flat rate pension taxed at 32% but other pensioner benefits would be withdrawn. Companies could deduct dividend payments from taxable profits and divident tax credit woud be withdrawn.
    5. Land Value Tax would replace both higher rate income tax, business rates and council tax with householder allowance.
    6. One off capital Levy on net worth of individuals and trusts in excess of £5m along the lines proposed by Donald Trump in 1999. The levy would be used to retire the approximate £375 billion of outstanding public debt acquired by the BofE in the course of the Quantative easing program that has inflated asset prices for the super-wealthy while at the same time reducing the earnings of those of fixed incomes, annuity payments and interest on savings very substantially for several years now.
    7. ATOS examinations to be conducted at GP surgeries with family doctor present to co-sign work capability assessments and fitness for placement with job guarantee scheme.

  • Andrew Suffield 13th Apr '13 - 6:52pm

    The whole Universal Credit scheme is a massive sleight of hand. After all, claimants still need to be assessed for different types of benefit according to laid-down qualifications which vary according to the type of benefit being aplied for – its just that when it pops out the delivery slot it`ll have a Universal Credit label slapped on it.

    It only looks like that because you aren’t comparing it to the current disastrous mess of the benefits it replaces. Today, if you’re in part time work and start making £10 a week more, then your benefits might go up or down or stay the same, by more or less than £10, and it’s surprisingly hard to figure out what will happen. This is because every benefit has a different scale and taper, and some have no taper at all, and the numbers do not make any kind of sense when you put them all together. The outcome is random nonsense.

    The main purpose of the universal credit is to sort this mess out and make the benefits system really work for the first time ever.

    Returning to Mark’s point: my proposal for radical welfare reform is a realignment along the lines of education, training, and career development for anybody eligible to claim benefits. It’s a no-brainer financially: if the state has to fund their living conditions then it should be seriously considering whether it would cost less, over their lifespan, to educate them to a level where they earn more money. It’s also the most fundamentally liberal approach because education empowers individuals to take control of their own lives.

  • @Andrew

    “It’s also the most fundamentally liberal approach because education empowers individuals to take control of their own lives.”

    That, in a nutshell, is it.

  • Has the idea of a basic income/citizens dividend ever been discussed in Liberal Democrat circles? As technological innovation continues to go parabolic more and more job which are currently done by people will be done cheaper and more efficiently by machines, there will just not be enough jobs to go around. I think the basic income is the way forward,

    Chris Dillow makes a pretty good case for it:

    http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2005/04/the_case_for_ba.html

  • jamessandbach 14th Apr '13 - 7:36am

    I too suport the living wage and would like to see it on page 1 of our Manifesto. But get real – employers will never let it happen. Currently they are lobbying for a reduction in the minimum wage and Jo Swinson is reported to be doing their bidding with the Low Pay Commission. Often the minimum wage is never actually enforced.

  • jenny barnes 14th Apr '13 - 8:32am

    ” education empowers individuals to take control of their own lives.”

    Do you have evidence for this? I suggest that graduates who are unable to find jobs at all, and if they do they are low-skill ones, indicates the contrary.

  • I fully agree with you proposal that work should pay more but I still feel wages are not the only way of distributing wealth and income. Back in Thatcher’s hey-day the Liberal alternative plan was to legislate so that all employees had a share in the ownership, control and the profits of the enterprise in which they worked. David Steel-hardly the most radical of Liberals- advocated that ‘ a substantial part of the average person’s take home pay should be expressed not as regular wage but as a share in the profit earned or value added in the company to which he or she has contributed’ . This is a long standing Liberal view which was significantly brought up to date by the work of James Meade.

  • @Adrian

    Citizens Income was Liberal/Lib Dem policy in the 1980 and 1990s. I was dismayed when it was withdrawn as too “utopian”. But I can see the argument that those on very high incomes don’t need say a disability benefit, and that benefits can be withdrawn at a moderate rate as incomes rise.

    The Universal Credit is a huge step towards a Citizens Income because it consolidates the main benefits and moderates the impact of means-testing by ensuring that it is the total benefit that is withdrawn at a more proportionate rate. Currently, you can lose several benefits simultaneously when you start earning, which means you face a marginal rate of loss of income of 100% or more. However, there are still too many anomalies with Universal Credit and there are other means-tested benefits which is why I think we need further integration of taxes and benefits.

    The main problem with Citizens Income is that it fails the tabloid test: it looks like “something-for-nothing” or “benefits for millionaires” (I know they pay for the benefit many times over in extra taxes, but many voters don’t see it that way), and it also seems to be too easy for fraudsters/immigrants/EU citizens to abuse. So the trick is to integrate our taxes and benefits so that they produce the same effect as the citizens income (ie a minimum underpin and a proportionate rate of tax/benefit withdrawal on income).

    I am a big fan of Steve Webb’s new pension plan, which is based on the Lib Dem Citizens Pension proposal before the last election. However, unless you retain a contributory principle, it is a bit arbitrary. Why should you receive a big benefit when you reach a particular birthday, but nothing at all before that? So again we might wish to integrate pensions and benefits as well.

    What I would like to see in our manifesto is a commitment to integrate our taxes and benefits system (as well as the 9% supertax for recent graduates) so that nobody faces a marginal rate of loss of income of more than 50%.

    The only exception might be employees (and quasi-employees such as “consultants”) who are taking no risks with their own capital and whose earnings are so high that they cannot be justified as being a legitimate expense of their employer. However, the 50% ceiling on these employees could be retained by imposing an extra tax (or loss of tax-deductibility) on the employer rather than the employee.

  • Whilst I agree with Mark over making work pay more, I think that in the context of much that has happened recently with respect to benefits, I suggest we should make “a little bit of work/enterprise pay significantly more”. Remember the hardest part of getting started on something is the getting up, we therefore should be providing more encouragement to people to “get up”.

    What I mean is that the hardest part is provide incentives to people to increase their non-benefit income, particularly as currently they will often pay a penalty of earn a £1 and loose a £1 of benefits. We see this with the “bedroom tax” where there is little real incentive for families to let out the “spare room” – in fact even if the family were to let the room out for the maximum permitted rate they are likely to still be out of pocket.

  • A question that arises is what is the ultimate purpose of the welfare reforms?
    I suggest one purpose, must be to cap and (overtime) reduce the total expenditure on ‘benefits’ (ie. actual monetary amount not % of expenditure or GDP). Something that I suggest will become more important as the number of claimants (including pensioners) increase and the number of workers/taxpayers decrease (although we could try and mitigate this by becoming a tax haven and hence encourage more companies to be registered here and so pay their taxes here…).

    Whilst some may think that the difference can be made up for by increasing the population (eg. via immigration) this just makes the benefits system into more of a ponzi scheme, since this will only serve to increase the numbers qualifying for benefits in later years… No the only real way to address the problem is to increase the per capita GBP of the existing population, specifically those of working age (16~70), something that Mark’s viewpoint would seem to be supporting, by seeking to find ways in which people currently on benefits can increase their income through work and hence reduce their call on benefits.

  • Well said Mark.

    The scandinavian system is interesting to compare. There, the welfare system is used as an essential stabiliser, a strong foundation to generate productivity and growth. http://www.guardian.co.uk/society/joepublic/2009/aug/05/scandinavia-recession-welfare-state

  • Thanks Paul K

  • A Social Liberal 16th Apr '13 - 11:42pm

    Further to Jennys post. Not all people can utilise education to the extent that they can make a difference to their employment prospects. And, even if they could, who would then do those low paid low skilled jobs? Certain parties in society are already speaking out against low skilled immigration

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