Welfare reforms must reflect the changing UK labour market

5th Feb 2015

The welfare system has to acknowledge realities that undermine poverty reduction, says Chris Goulden in this blog.

There have been huge reforms to social security over the past 15 years. It’s high time we allowed them time to bed down fully – in particular Universal Credit. However, think tanks have to ply their trade and many of the ideas set out in the new Policy Exchange Welfare Manifesto have much to commend them. This examination of how the welfare system could be made fairer, more affordable and fit for the 21st century shows that there is an increasingly large centre-ground on social security that could provide some much-needed consensus, and stability for benefit claimants.

The report focuses on fairness, trust, affordability, simplicity, contribution and encouraging independence; themes that most would support across the political spectrum. It acknowledges that the welfare system should focus on helping people into sustained, good quality employment and not just moving them off the benefit caseload. Importantly, it admits that sanctions have gone too far, are causing unnecessary hardship, and that most unemployed people are making great efforts to find work.

The scale of reversed decisions on sanctions means that we need a better outline of what is reasonably expected of claimants and better forms of redress when the system gets it wrong. Sanctions should be a back stop, not a first resort. The routine conditions applied to job search are also not fit for purpose. All conditionality should be actively helpful and backed up by evidence about what gets people into work – not necessarily applying for high volumes of jobs; targeted job search might be better in the longer term.

The affordability of overall welfare spending is also addressed. Recommendations include looking again at the fairness of the ‘Triple Lock’ on pension uprating, which has a ratchet effect over time, guaranteeing bigger pension rises than any of the underlying factors that it is meant to track. There is also talk of addressing the underlying causes of public spending – particularly increasing the supply of affordable homes. JRF has repeatedly called for this, along with greater use of City Deals to pilot new money-saving ideas. We would go further and suggest that city economic growth policies should be tied directly to poverty reduction.

Some other suggestions to reduce welfare spending are worrying. The proposal to limit Child Benefit for larger families should take account of evidence from JRF's Minimum Income Standard research about the costs of children. Altering pensioner benefits to an opt-in system dodges fundamental questions about targeting resources to those in need. Continuing with the Benefit Cap in the face of evidence about its efficacy looks unnecessarily politically-motivated. Proposals for replacing Jobseeker’s Allowance with a semi-compulsory insurance scheme could potentially reinvigorate support in contributory welfare and share costs between individuals, the state and scheme providers. However, more details are needed about how it would work in a labour market that is growing more insecure and diverse.

All this highlights how crucial it is for welfare reform plans to take account of the changing nature of jobs and persistent low pay, which undermine attempts to reduce poverty through welfare alone.