Saturday Read: Benefits reforms may not achieve much but they have focused attention
Liz Kendall wanted to avoid ‘sticking plaster politics’ with her welfare reforms, but it’s not clear she succeeded
By Professor Len Shackleton, Editorial and Research Fellow at the Institute of Economic Affairs
This week’s announcement of some minor benefit reforms, accompanied by a Green Paper, may not achieve very much, but it has at least focused attention on some very real problems.
The shape of these problems is well known. Unlike in comparable countries, the economic activity rate – the proportion of the working-age population neither in work nor seeking work – has not recovered its pre-Covid level. This has slowed growth in GDP and accompanying tax revenue. Moreover, a large proportion of the inactive claim benefits of one kind or another, increasing the burden on the taxpayer. A particular concern is the rise in the proportion of the inactive who are claiming health-related benefits. One in every 10 working-age people now claims at least one health or disability benefit- and many claim several. In the past, the bulk of such claimants would be amongst the over-50s, mainly with physical problems accentuated by the ageing process. However a disturbing feature of recent developments is the large number of young people economically inactive as a result of a mental health condition. This has increased by over 25% in the last year alone, and now stands at around 270,000.
The need to do something about this has been apparent for some time. The last government made some attempts to chip away at benefits, but their efforts were resisted by the Opposition. Now Labour is in government and is having to face up to reforming the benefit system itself. The financial pressure to do has been mounting as a result of excessive government borrowing and the ever-growing national debt. In the last few weeks it has also become apparent that we need to spend a lot more on defence, which means other government spending must be cut back sharply if we are not to add to record levels of tax and borrowing.
Liz Kendall’s Green Paper has one eye on the fiscal realities, but politics also demands that it attempts to assuage the concerns of Labour’s backbenchers and the poverty lobby.
Accordingly, the problem is framed as one where hundreds of thousands of inactive workers with health problems or disabilities really want to work, and could do so with the right support, but are held back by a system which ‘consigns’ them to a life on benefits. There is something in this view, but it sees the inactive as passive victims of ill-health and arbitrary bureaucratic classification about fitness to work.
As the Green Paper accepts, though, the increasing proportion of the inactive claiming disability benefits reflects not so much an increase in underlying morbidity, but rather rational behaviour by claimants who see that they can obtain significantly higher financial support than if they were simply on out-of-work benefits such as Job Seekers Allowance or Universal Credit. Their claims have been facilitated by a collapse in the proportion of Work Capability Assessments (WCA) and tests for eligibility for Personal Independence Payments (PIP) which are conducted in person. Poverty advisory groups and online influencers provide coaching on how to give the answers - online or in telephone conversations - which will unlock eligibility for higher benefits.
The measures currently proposed are intended to cut £5 billion from the benefits bill by 2030. This figure, however, looks shaky when looked at in detail, and some changes may not survive the inevitable lobbying and legal challenges which face any reformers at the DWP. Already plans to freeze the nominal value of PIP have been abandoned in the face of back bench opposition.
One probably sensible move is the phasing-out of the WCA, as this involved a binary fitness/unfitness to work which in effect meant those unfit to work were no longer expected to do anything to improve their potential employability. In any case a large proportion of WCA claimants were also being assessed separately for PIP, which will now become the sole access point for disability benefits. The test will be toughened, and will more frequently be conducted in person. This will lead to some people who would previously have qualified no longer doing so, and thus being obliged to undertake some preparation for work. To mollify critics, the basic level of Universal Credit payment will be increased.
There is also to be a restriction on young people under 22 receiving another sort of payment, Limited Capability for Work-Related Activity (LCWRA), with an emphasis on the previously-announced ‘Youth Guarantee’ of education, training or work placement which is said to offer a better opportunity than being on benefits indefinitely. The DWP also hopes to clamp down on rapidly-rising expenditure under PIP on provision for ADHD sufferers such as headphones, smart watches and ‘support workers’. They may be overly optimistic about their ability to control this.
The putative savings from these and other minor measures seem contingent on benefit claimants being more carefully monitored and ‘supported’ by the DWP. This, however, will almost certainly cost more and there must be doubts about how successful such support will be in getting people back to work and reducing benefit expenditure. Many people’s disabilities are so extreme that paid work will never be a real possibility. There will also be many who could in principle get back into the workforce, but much depends on challenging drug and alcohol abuse, obesity, and other behaviours which make employment difficult – particular in areas where a high proportion of residents exist in a culture of benefit dependency.
The Green Paper is also vague on the other side of the labour market relationship, employers – often in short supply in places where there are high concentrations of worklessness.
Taking on people with poor attachment to the workforce and little prior experience is a risk, particularly in light of the new package of employment rights which the government is currently pushing through. Liz Kendall has talked enthusiastically of a new ‘right to try’, where people who try a job which then doesn’t work for them can go back onto the disability benefits they had before without a reassessment. But if new recruits have a fall-back position of going back onto benefits with no questions asked, employers will understandably be reluctant, particularly if they have to incur significant costs in, for example, providing personalised equipment or special training. There is mention in the Green Paper of some possible funding support for employers, but this is not specified. If provided, it would further eat into the supposed savings from Ms Kendall’s proposals.
Apart from the announced proposals, there are several issues which are out for consultation. One interesting suggestion is moving back towards contribution-based benefits. This was of course the principle behind Beveridge, and it was this that the late Frank Field wished to revive when he was briefly asked to ‘think the unthinkable’ under Tony Blair.
The Green Paper is not completely valueless, but it is a long way from articulating a new general settlement on welfare. In her introduction, Liz Kendall dismisses her predecessors’ attempts at reform as ‘sticking plaster politics’ but it’s not obvious that her proposals are that much better. Major surgery they ain’t.
Can I take you to task over the premise that proposed benefit cuts have to be ‘value for the tax payer’? This is a total misconception. People on benefits pay more in tax and profits pro rata of income than a high rate taxpayer! Tax is not the privilege of the worker either! Lots of workers earn below the threshold to pay income tax yet despite they work, they have something in common with the poor and those on benefits…. They all pay as much tax as they possibly can! Fact! So they self contribute to paying for themselves! Conversely, people who may pay income tax avoid paying tax on the major part of their income by NOT spending it all! By only spending some of their monthly money they contribute less per month in tax revenue as a percentage of income as those on benefits and low income. So ‘we the taxpayers’ is misused unwittingly by those who wrongly assume their tax contribution solely pays for benefits. When in fact it’s probably them who point the finger pay less in tax pro rata of their income than those they are pointing at and blaming! I’d like to educate those as they don’t see how our tax system works! Income tax is misunderstood and used by them as a reason that they pay for themselves benefit recipients when they don’t. Picture this, a homeless tramp beggar who has just spent his days earnings on as bottle of whisky and is now comatose on the village green intoxicated from downing that bottle. He or she has just paid over 73% in Vat dnd alcohol duty let alone contributed to profit for the retailer supplier and manufacturer! Thats more than a high rate tax payer! The fact is anyone who works it not on benefits or now those family’s stretched to the limit, all pay the must tax as they spend all their money each month. That’s the point! Those who spend all their money each month pay as much tax as they can! Conversely it’s those who don’t spend all their money each month pay the least pro rata of income! Why? Because tax is only triggered by money being spent and it money having to move. For example employers spending on employees or when we spend on goods and services Vat is triggered! When and where money is unspent and unused NO tax is triggered NONE!!!!! It is those who wag their finger at the least able and blame for the cost to the taxpayer! We are all taxpayers but some think they pay more and ironically they don’t! The monthly economy is devoid of money because so much money is not being spent in the same time frame and that’s why we are not making enough tax to fill the coffers of the exchequer! It’s that simple, not enough money is being put back in to he working pot via spending. Let’s look at income tax. It’s basically robbery! Money taken before the earner can enjoy spending it and as a result gets nothing in return for it either having something for it! If we make spending the way tax is triggered and most our money is not being spent why is it a surprise there is not enough tax revenue!? And so the government borrow from who? The same people who gave too much of it! So they get richer with interest and the poor get poorer! We need spending policy that gives everyone more each month to make a tsunami of flus and clocking up a tax revenue that overflows the coffers of the exchequer! Cutting is not the answer! So much money is out there in the ether it’s just not being spent back to renter the pot that revolves it to trigger tax take in an exponentially way that a wealth tax could not achieve as it’s only one tax take! Whereas a revolving amount via spending produces many many more tax revenues with all that inter spending! Honestly, had no one realised, we are not short of money that could be spent. We owe £2,800,000,000,000.00 trillion that’s out there somewhere! What do you think would result if that were to be spent every month!….perpetually!!! We would all be wealthy and we could afford proper benefits not less! We are not using all our money! We think we do but don’t. 95% of money is held by 5% of people. So if that’s correct 95% of people only have a working pot of just 5% of money! Thats not democratic! Be wealthy from stuff you buy not from holding the money itself!