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Alex Wild

Welfare Reform in the UK

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The roots of the British welfare state can be traced all the way back to the reign of Henry VIII. His break with the Catholic Church, coupled with the need to find money for unnecessary wars and his own lavish lifestyle, led to his expropriation of monasteries which had built up enormous wealth.

With monasteries no longer in a position to provide a safety net for the poor and sick, Henry passed a law requiring local politicians to collect charitable donations to help them.

But it wasn’t until nearly 400 years later that the 1911 National Insurance Act, and then the 1942 Beveridge Report, laid the foundations for the modern British welfare state. Since then, something has gone seriously wrong.

The system that William Beveridge proposed was in fact not a bad one. Most of the left-wingers who speak of him in such adoring terms are blissfully ignorant of what he actually advocated.

He proposed that everyone would make flat-rate contributions into a national insurance scheme and that when they fell ill or became unemployed, they would receive flat rate payments. It was simple.

He opposed the idea of a specific housing benefit, and only advocated means tested benefits in very limited cases, aware of the poverty trap that would be created by high effective marginal tax rates.

These principles and indeed many others have been forgotten. We have variable “National Insurance Contributions” taken from our pay cheques, a myriad of means tested benefits and will spend £24.5 billion (NZ$47.7 billion) on Housing Benefit alone this year.

Overall we will spend £184.3 billion (NZ$358.7 billion) on social security benefits and a further £28.9 billion (NZ$456.2) billion on tax credits this year.

Saving by the less well-off has been discouraged by poorly-designed means-testing, diminishing personal responsibility and fostering dependency.

These mistakes mean we have much more unemployment than we used to. Despite the remarkable recent performance of the UK jobs market, unemployment at 6.8 per cent is far higher than it was in the 1950s and 1960s when the value of unemployment benefits fluctuated significantly.

Historically, a year or so after benefit levels increased faster than earnings and inflation, unemployment has also increased. The big boosts to the value of benefits in the 1970s and 1980s helped entrench the relatively high unemployment we have today.

Across the 2000s, despite the creation of millions of jobs, two million people claimed at least one out of work benefit for more than five years.

A recent television documentary in the UK, Benefits Street, has perhaps more than anything else, opened the public’s eyes to the dependency and permanent unemployment we have today.

Unfortunately however, much of the public anger has been directed at the claimants rather than the politicians who have created a system under which for many benefit claimants, low-paid work simply isn’t worth doing.

If the protagonist of the show “White Dee, were to find a job paying £90 a week, the system would reduce her benefits by £70 – an effective tax rate of 78 per cent. So it’s not surprising that she doesn’t work; the pecuniary incentive simply isn’t strong enough.

The crazy effective marginal tax rates clearly need to be addressed, but the long term unemployed need further incentives to find work. The conditionality that came with claiming Jobseekers’ Allowance was clearly inadequate.

Indeed a report from the Centre for Social Justice think tank found that contact between jobseekers and Job Centre advisers was often short and primarily focused on processing benefits rather than delivering genuine employment support.

So last year, the TaxPayers’ Alliance proposed a change. Those claiming out of work benefits for more than thrree months should be referred onto a “Work for the Dole” activity scheme and lose benefits if they fail to comply

We proposed that:

  • The activity should be for 30 hours per week for anyone not working
  • For anyone working, it will top up their working time to 30 hours per week
  • This benchmark would be adjusted downwards for people with childcare or similar obligations
  • The activity should continue indefinitely until the person is working more than 30 hours per week (or their lower benchmark) or stops claiming benefits.

The activity would consist of one of, or a combination of:

  • Community work such as clearing parks
  • Charity work
  • Participation in a recognised training programme
  • Work experience, or participation in a work-based training programme or apprenticeship-type scheme. If these are with commercial organisations, then there must be genuine skills development – it cannot simply be free labour for the commercial company
  • Physical attendance at a job search centre where meaningful job search and preparation activities would be undertaken.

Those with a longer history of National Insurance Contributions would be able to claim benefits for longer before being referred onto the scheme. This would strengthen the contributory concept in out-of-work benefits.

There is plenty of evidence from abroad that shows schemes such as this can be a success.

In New York, for example, the introduction of a similar scheme saw the number of welfare caseloads fall by 26 per cent between 1996 and 2001. In Canada, the addition of conditionality to benefit payments moved people onto work programmes from which 60 per cent of the leavers found jobs.

The response to the report from the very left of the political spectrum was predictably vitriolic. Amongst other things, we were accused of advocating slavery. But the left simply don’t have any answers beyond higher transfer payments. They have lost the argument.

Three weeks later at the Conservative Party Conference, the Chancellor of the Excequer, George Osborne, announced that the long term unemployed would have to undertake work placements in return for their benefits.

The scheme came into effect last month and is strikingly similar to what we campaigned for.

Those who have been on the government’s existing Work Programme, but who have not found a job after two years, will have to accept a work placement in the community, visit a Job Centre every day or take part in further training. Those who fail to do so will lose a month’s worth of benefits, with penalties increasing for repeat offenders.

For the system to have any positive impact, the threat of sanctions is imperative.

The success of these schemes has depended on their implementation, and how they’ve reflected local demands. Participation rates in work for the dole schemes in the US vary significantly across states. So the government must avoid an overly-centralised system, in which central government dictates which work activities are best for which claimants. Local administration, with the programme tailored for each claimant, will maximise the chances of them finding work.

Policy makers should appreciate that the public are extremely supportive of such ideas in the UK, with net agreement of 75% that those who can, should do full-time community service in return for their benefits. Even 59 per cent of benefit claimants now believe that benefits are too high and discourage work.

Taxpayers’ deserve a return for their massive annual outlay on welfare. A properly implemented work for the dole scheme benefits both taxpayers and those trying to get into work.

What’s not to like?