“let’s finish what we have begun”

The British government of 2015-2020 looks set to transform the social security system on a massive scale. This blog aims to track some of the major changes being made to the UK social security system following the election of a majority Conservative government in May 2015. The aim is to begin to understand why these changes have been made, what their effects are, and whether things could (or should) have been done differently.

“My message to Britain is this: we have come this far together. Let’s not waste the past five years. Now is not a time to put it all at risk – it’s the time to build on the progress we have made. We offer a good life for those willing to try – because we are the party of working people. So if you want a more secure Britain, if you want a brighter future for your family, and for you. Then together, let’s not go back to square one – let’s finish what we have begun.”

David Cameron, Conservative Party Manifesto Speech, 14th April 2015

“We will find £12 billion from welfare savings, on top of the £21 billion of savings delivered in this Parliament.” “we will see through our welfare reforms, lowering the benefit cap and rolling out Universal Credit, to make the system fairer and reward hard work.”

“We will keep a check on the growth of welfare spending, enabling us to provide a system that is fair to those who need it, and fair to those who pay for it too.”

Conservative Party General Election Manifesto, 2015

Universal Credit Cuts Quietly Introduced Today

Today all of the DWP’s guidance on Universal Credit was reissued. This is because, unlike the widely reported u-turn on cuts to tax credits in the autumn, cuts to Universal Credit proposed in the Summer Budget were not withdrawn and are being implemented as of today. So what is being implemented, and why so little noise around it?

The cuts brought in today relate to the work allowance, which is the amount you can earn before your Universal Credit payment starts to be reduced. When you earn above your work allowance, or you don’t have an allowance and begin to work, your Universal Credit is withdrawn at a rate of 65% (that is, for every pound you earn you get to keep 35p). For disabled people and people with children the work allowance has been decreased drastically; for those without a disability and without any children the allowance has been removed completely.

At the time of the Autumn Statement the u-turn on tax credits was claimed as a victory by opposition parties. Besides the political points scored the reversal did lessen the negative impact in lower income households:

IFS graph 1

In the long term however, as Universal Credit is slowly fazed in (and replaces tax credits) and other changes are introduced in 2017, the tax credit u-turn becomes irrelevant and those at the bottom of the income distribution will still see significant reductions in their incomes:

IFS graph 2

 

When challenged government ministers have claimed that welfare cuts will be countered by other changes, most often holding up the ‘living wage’ (an increase in the minimum wage from £6.70 to £7.20 an hour for over 25s) and an increase in the personal tax allowance as prime examples (government documents also reiterate this). As the graph above shows this claim is wrong: lower income groups (and in fact most groups across the income distribution) will see their incomes reduced over this parliament as a result of tax and benefit changes. Raising the income tax threshold is a regressive policy (it benefits higher income groups more than lower income groups) and the new ‘living wage’ has been shown to not compensate for other tax-benefit changes. It is hard to know whether such claims are ignorant or insidious.

So despite clear evidence that the cuts brought in today and those timetabled for next year will render the tax credit u-turn meaningless and see lower income groups hit hardest, why have they received so little attention? It might be that the cuts introduced today will only come into effect as Universal Credit is rolled out (the introduction of Universal Credit has been incredibly slow) and future cuts to people’s incomes doesn’t make for a great news story or a clear political message. The coverage of the tax credit u-turn may have also been to a large extent motivated by the potential unraveling of George Osborne’s position within the Conservative party and the role of the Opposition, not the details of welfare reform. Prospective, incremental changes seem to be the way to see through welfare cuts without anyone kicking up much of a fuss.

The Summer Budget – Adult workers and invisible children

Much of Osborne’s 8th July budget had been heavily trailed, meaning that the further reductions to working age benefits were to be expected, although the removal of benefit entitlement for 3rd or subsequent children from 2017 (for new claims or births) was a surprisingly radical step. The rabbit out of the hat was the introduction of the misnamed ‘Living Wage’. This post takes a look at a few of the ideas supporting the reforms that I think are most important for understanding the (intended and unintended) direction of this government.

The big announcement was the living wage: The ‘Living Wage’ further cements a worldview where the labour market should provide sufficiently for individuals, with the state only playing a role in exceptional circumstances, in particular in cases where ‘vulnerable’ individuals can’t look after themselves. This worldview ignores the varying needs of different households, and undermines socially useful activities such as caring, domestic and community work. The new ‘living wage’ simply won’t make up for the significant loses families will experience from tax credit cuts (pg.3), but even imagining a world where minimum wages were set at a very generous level (a hypothetical world where there was no adverse effect on unemployment levels), would these high wages paired with a low level of social security provision be desirable?

Adult workers

It needs to be made clear that the welfare reforms outlined in the budget are linked to a specific normative view of society, and one which seems to challenge what one would have thought were core conservative ideals. The chancellor made clear that “The best route out of poverty is work”. This almost exclusive focus on the role of the labour market for maintaining income, and narrow definition of what constitutes ‘work’ is problematic. The work of caring for others, and work done in the home is devalued or ignored. Osborne announced that parents with children as young as 3 are now expected to look for work if they want to receive Universal Credit – adults should be workers, and other roles such as parenthood are secondary to this. This continued increasing conditionality on social security, combined with reductions to payment amounts promotes a society of atomised adult workers who must sustain themselves. Ideas of collectivity, pooling of resources, sharing of risk or responsibilities, are increasingly absent.

But there’s a circle to be squared here. How do these reforms, and focus on paid work, fit with conservative values of protecting and valuing family life? I see two options. Either it’s that the vision of a small state takes primacy and must be pursued at all costs. Or, there is a more pernicious belief at work: That those that receive social security payments do so because of personal failings and shortcomings (they are lazy, uncommitted to work, etc.), not because of the weaknesses in a low wage, low security labour market (forces that are outside of their control). Their family lives are not ones worth protecting, and cuts or conditionality are needed to force them to provide for themselves.

The Living Wage and language use

Of course there’s an extra twist to this story, Osborne’s Living Wage rabbit was announced as the counterbalance to social security cuts. Pay, it is claimed, really can be the route out of poverty, trumping the argument made above that you can’t remove benefit payments when there are only insecure, poorly paying jobs available.

On its own terms it is difficult to see how this policy succeeds: the ‘Living Wage’ of £7.20 proposed by Osborne is below the £7.85 currently set by the Living Wage Foundation, and well below its £9.15 figure for London. This gap goes unjustified. The Living Wage Foundation calculates its figures according to need, by accounting for rises in living costs and factoring in the cost of what the public believes is needed for a minimum acceptable standard of living. There appears to be no move to change the remit of the Low Pay Commission (which will be responsible for setting the new Living Wage) so that it calculates the amount based on need and not what it understands the market can take. All that has happened is a rebadging of the minimum wage for the over 25s. Furthermore it has been shown already that the group benefiting from the Living Wage does not map cleanly onto those losing out from tax credit cuts.

But there’s a more fundamental point here – that both the ‘real’ and ‘new’ living wage are inadequate in truly meeting need. The ‘real’ Living Wage looks at different types of households with different needs, and then comes up with a figure based on the average wage needed by these different household types. That is to say, households with particularly costly needs, for example because they have a large family, or disability in the family, or expensive housing costs, will not be able to afford a minimum acceptable standard of living if paid the Living Wage. The ‘new’ living wage doesn’t appear to even try to account for these sorts of factors. Wages cannot act as a guarantee out of poverty.

So why on earth call it a Living Wage if it doesn’t follow the approach of the original Living Wage, and is unlikely to guarantee its recipients enough to live on? By appropriating the terminology of the Living Wage Foundation, the government can begin to dominate, and control, the debate around what a decent level of pay is. It might be a bit of a stretch, but Living Wage also prompts thoughts of ‘living to work’ and not ‘working to live’: A ‘Living Wage’ sums up the idea that increasingly one’s identity is intertwined with, or contingent upon, one’s status as an economically active individual.

Invisible children

Finally to the plans to restrict new social security claims from April 2017 to the first two children (which will also apply to existing claims where there is a new birth after April 2017). This was the most powerful message that the family lives of low income households should not be protected, but instead regulated. The premise for this policy is that ‘most families’ make a careful decision about how many children to have based on the resources available to them, the suggestion being that money available to social security recipients causes them to have more children.

There was a very similar policy introduced in some American states called the ‘family cap’ in the late 1990s, which restricted further welfare assistance to families after the birth of another child. The evidence is mixed, but tends to show that there is no effect, or a weak effect, on reducing birth rates. It seems likely (and intuitive) that women don’t make decisions to have children based on purely monetary calculations. As a welfare director in Georgia, USA put it, when talking about the family cap – “[a]nyone who thinks that a woman goes through nine months of pregnancy, the pain of childbirth and 18 years of rearing a child for $45 more a month . . . has got to be a man.”

It is unlikely that restricting social security payments will result in the widespread deterrence of low income families having more than two children.  These children will be rendered invisible to the social security system (save the payment of Child Benefit that has been preserved for now), and the work involved in raising them quite literally devalued.

The Queen’s Speech: capping the debate

The Queen’s Speech on 27th May made reference to welfare reform, outlining that:

“To give new opportunities to the most disadvantaged, my government will expand the Troubled Families programme and continue to reform welfare, with legislation encouraging employment by capping benefits and requiring young people to earn or learn.”

The speech also emphasised that a “one nation approach” would help “working people get on”, and that measures would be introduced to further protect the State Pension. No surprises here then, the message was that tighter benefit rules were needed to get people into work, that pensioners would be protected, and that changes were being made in the interest of those in work. The fact that evidence on the efficacy of welfare-to-work reforms are shaky at best (p.60), that pensioner benefits are some of the most generous compared to those received by other non-working households (Table 2, p.32), and that it’s difficult to draw a line between ‘workers’ and ‘shirkers’ when around half of JobSeekers Allowance claims last less than 6 months (p.92), doesn’t make a dent in the logic of the speech.

The Commons Debate

In the Commons debate that followed there was much agreement between the government and the opposition, with an inordinate focus on a few reforms. The debate on welfare continues to take place within increasingly narrow, but perhaps not unsurprising, parameters: Evidence either that Labour still lacks the ideas and the confidence to offer alternative narratives, or that voicing an alternative is not regarded as politically viable.

In Harriet Harman’s opening response, she does emphasise the importance of demand side strategies: That the real key is job creation. And although she emphasises the importance of providing appropriate support, she is also sympathetic to benefit cap reduction. It is surprising that no further critique of the reduction of the household benefit cap from £26,000 a year to £23,000 a year is offered. A freedom of information request back in 2012 predicted that around 1% of all households receiving a working age benefit would be affected by the cap, and that in these households the most frequently occurring number of children is 4. The most recent statistics show that 45% of households affected by the cap live in London. My understanding is that the rationale behind the benefit cap policy is to ‘restore fairness’, so that it is not possible to receive more from social security than the median household income. How does this rationale stand up when it becomes clear that it is large families, living in areas where rental costs are very high, who are affected? I doesn’t strike me as particularly fair that the cut falls disproportionately on children.

The case has been made that the benefit cap encourages households to find work, although the evidence is not easy to interpret. In depth analysis by the DWP does show that the cap had a small positive effect on people moving into work, but this finding was driven by what was happening in London, where households experienced the deepest cuts because of their high rents. The IFS points out further limitations with the methods used, and also that the large majority of affected claimants didn’t respond to the reform by moving into work or finding cheaper housing.

For a policy that doesn’t seem particularly fair, isn’t convincingly getting more people into work, and after all only affects 1% of households on a working age benefit, it is extraordinary that it remains the headline reform and is at the forefront of parliamentary debate. The policy has been very popular with the public, but would this attitude remain if the details of ‘restoring fairness’ to the system were laid out?

David Cameron’s refrain throughout the parliamentary debate was that opposition to welfare reform means opposing saving money, and therefore opposing fiscal responsibility. He states that Labour would be making “an historic mistake” if it argues for more welfare. What this comment ignores, is that the coalition’s tax and benefit policy changes were found to be fiscally neutral. The cuts made to the benefits system were offset by other changes including the increase in the personal tax allowance and the rise in state pensions above CPI-inflation. The welfare reforms of the last government did not represent a saving in public finances, they represented a transfer of money away from the poorest half of the population, and some of the very richest, and towards most of the richer half. With attention remaining away from these redistributive issues, and focused on policies that are small fry in terms of the savings involved, yet politically salient, the prospect of an uncapped debate on welfare seems remote.

The Conservative Party’s General Election Manifesto

Let’s have a look at the main proposals for welfare reform included in the Conservative’s 2015 Manifesto. While the Manifesto may have actually been read by very few voters, and not played much of a role in winning the election, I think it’s a pretty good starting point for gauging policy rationale and rhetoric. There is also the caveat that, with a hung parliament seen as inevitable until the last minute, the party Manifestos were moreover bargaining chips to be used in coalition negotiations. The Conservatives may have outlined more hard line policies, with the expectation of watering them down when seeking a deal. With that in mind, and with the final caveat that there’s not space to explore each pledge in detail, let’s see what the Manifesto said:

“Building a fairer welfare system”

  • The maximum amount a single household can claim in benefits will be reduced from £26,000 to £23,000 per year (with those receiving disability benefits exempted).
  • Working age benefits will be frozen for two years from April 2016 (with exemptions for disability, pensioner, maternity and paternity, and sickness benefits).
  • EU migrants will only receive tax credits and child benefit, and be eligible for social housing, when they have lived in the UK for at least four years.
  • EU jobseekers will not be able to claim any job-seeking benefits, and must leave the country if they do not find a job within 6 months.
  • A total of £12 billion in welfare savings will be made.

These pledges represent extensions of the work of the previous government, rather than new initiatives. Despite some signs of slightly alternative formulations of policy, the principle of ‘finishing the job’ seems to be being stuck to. Hints at a regional household benefit cap seem to not have materialised, with a blanket reduction being put in place instead. The UK government’s referral to the EU’s Court of Justice in the last parliament following its restriction of access to benefits for EU migrants hasn’t dissuaded the extension of the differential treatment between Britons and other EU citizens when it comes to social security provision. What remains unresolved though, despite leaked DWP documents providing some suggestions, is where £12 billion of reductions in welfare savings will come from.

 “Make work pay”

  • Continue the roll out of Universal Credit.
  • Extend free childcare to 30 hours for three and four year olds in families where all parents are working.
  • Review how to best help those with long term conditions back to work.

Universal Credit and childcare provision again mark extensions of the work of the coalition government. The previous government’s poor performance on helping those with long term conditions means the manifesto proposes a review. The manifesto cites drug and alcohol addiction, and obesity, as examples of long term yet treatable conditions which need to be overcome to help people back to work. It’s unclear what is meant by ‘treatable’, but it should be pointed out that those with alcohol, drug addiction, or obesity accounted for 4% of ESA claimants in 2013 (Employment Support Allowance is the benefit paid to people with limited capacity to work).

Tackle the ‘root causes’

  • Work to end child poverty by recognising the root causes.

The root causes of child poverty are recognised in the manifesto as “entrenched worklessness, family breakdown, problem debt, and drug and alcohol dependency.” It is notable that child poverty is blamed uniquely on individual level, rather than structural (e.g. a weak labour market, insecure jobs, failure of the social security system, etc.) causes. In terms of understanding where these ideas come from (and where the government might be drawing its solutions from), the ‘root causes’ cited in the manifesto pretty much exactly mirror the ‘five pathways to poverty’ outlined by the Centre for Social Justice, the think tank set up by Ian Duncan Smith before he became Work and Pensions Secretary.

The importance of fairness

Restoring fairness, along with making work pay, is central to justifying the manifesto pledges. The list above shows that restoring fairness for the most part means cutting, or taking away benefits from certain groups. Other areas of public spending cuts have been justified on a ‘needs must’ basis, with the end goal of deficit reduction (however misguided some  commentators believe this to be). Welfare reform rhetoric goes beyond this, and the deficit reduction argument isn’t particularly needed: more simply, an unfair system must be made fair.

Fairness in this case relies on establishing two groups. The manifesto explains that welfare must be, “Fair to those who need it, and fair to those who pay for it too.” Despite the fact that nearly half of unemployed people return to work within six months, a picture of two very different groups is created: one that works hard, does the right thing, pays their taxes; and another that does not (want to) work, is irresponsible, and only takes from the system. Previous research has found that ideas of fairness resonates with people, and is central to supporting harsher social security provision. The same research also suggested that political rhetoric that focuses on fairness may harden rather than appease grievances that people feel, by heightening perceptions of unfairness.

A couple of groups don’t fit on either side of the fairness debate. There is one exception among groups who do not work and are therefore the target of ‘fair’ welfare reforms: pensioners. Not a focus in the manifesto, the ‘triple lock’ on the state pension safeguarded the incomes of the elderly in the last parliament. This protection, when contrasted against working age benefits, further emphasises the judgement that the latter group is underserving. Another group completely whitewashed from statements around fairness are children. Children will tend to live in households with parents of working age, meaning that if their parents are out of work, they will suffer too as a result of the freezes and caps to benefits. The benefit cap in particular, disproportionately affects children compared to adults. Persuasive arguments are simple arguments, meaning that pensioners and children, for better and for worse, are sidelined from the debate.