Black April: The Problem with Welfare Reform
In April we wrote a series of blogs in response to the welfare reforms introduced in the 2013/14 financial year. This report brings the articles together. Each article looks at particular reform from the point of view that it was not enough to oppose the reforms simply because they hit the poor.
At different points in the month, the Government introduced a replacement for council tax benefit, a levy on spare rooms in social housing and an overall cap on the total amount of benefits, a family could receive. The new benefit uprating bill came into effect, limiting increases in various benefits to 1% per year. April also saw the first pilots of the Personal Independence Payment, the proposed replacement of the Disability Living Allowance.
Based on our review of the April package, we draw five lessons.
1. Don’t muddle reform with the need to save money. Good reform takes time and money to design and implement. It is often judged to be wise – including, as with universal credit, by this Government – to spend money now to get a better system later. Unless employment increases, the more that reforms aimed at altering behaviour succeed, the less money they are likely to save.
2. Don’t pretend that money can be saved without hitting the blameless: the obviously ‘bad’ claimants are tiny in number. If savings must be made, holding down benefit rates is the clearest and cheapest way to do it. ‘All in this together’ should mean pensioners are hit too. Also, if it is right to hold down benefits when wages are stagnant, it is right to let them rise when wages recover.
3. Treat big increases in benefit spending as a warning but don’t mistake symptoms for causes. Housing problems lurk behind several of April’s reforms. But employment and earnings (the economy), demographics (an aging working-age population) and social change (long term trends towards two adult working families) are heavily implicated too.
4. Tackle underlying problems directly rather than via benefit reform. If benefit recipients are only a small part of the problem (e.g. in under-occupation of social housing), tackling it by only targeting benefit recipients limits effectiveness. If the problem is not solved, reform is either cruel (because recipient have to take the hit) or counter-productive (because the problem crops up elsewhere).
5. Don’t mistake Treasury savings for public sector savings. From the economic point of view it is the latter that matters. As a shock absorber, the benefit system should be anchored to the point where the shock can be absorbed most easily, at the centre, supported by tax payers at large.
One last point: we reach these conclusions on the basis of a review of the April changes, but they are not just a criticism of the Coalition government. More than six years ago we started pointing out, in our annual Monitoring Poverty and Social Exclusion report for the Joseph Rowntree Foundation, that as the number of children being lifted out of poverty by tax credits was going up, so too was the number whose families seemed to need tax credits in order to do so.
On the basis of conclusion #3 above, this should have given cause for concern and a search, as per conclusion #4, for the underlying problem and answers to it. Instead what happened was that the Government continued to use the benefit system, chiefly tax credits but later housing benefit too, in pursuit of its child poverty target.
So while we are very critical of most of the April package, it would be quite wrong to imagine that this Government’s mistakes are unprecedented. On the contrary: the over-estimation of ‘welfare reform’ has been a mark of all UK governments for at least 25 years. Genuine reform, usually low key, of the benefit system is a proper business of government. But this obsession with ‘welfare reform’, as the answer to one of the problems, reflects a deep weakness in British politics, namely that this system is one of the few institutions over which government has at least some control.
This conclusion points to a completely different answer: instead of subjecting the same old institutions to ever more drastic reform, whether to ‘end child poverty’ or ‘make work pay’, what Britain badly needs is new institutions.