Simplification, sanctions and cuts won’t create jobs

Over the last few days the coalition has been keen to sell Universal Credit as the answer to all the labour market's problems. After the deepest recession in decades, they are confident they can reduce worklessness by 300,000 jobs (a 'conservative' estimate), reduce child and working age poverty, reduce working-age welfare expenditure by £18 billion and make everyone in work better off, simply by reforming the welfare system.

Over the last few days the coalition has been keen to sell Universal Credit as the answer to all the labour market’s problems. After the deepest recession in decades, they are confident they can reduce worklessness by 300,000 jobs (a ‘conservative’ estimate), reduce child and working age poverty, reduce working-age welfare expenditure by £18 billion and make everyone in work better off, simply by reforming the welfare system.

There is truth in the coalition’s claims some people will be at lower risk of poverty as a result of their changes – although governments don’t often admit it the amount lost to fraud and error is much less than the amount ‘saved’ in unclaimed benefits. Simplfying the system so that it is easier for people to claim what they are entitled to is a positive move.

Allowing working people on low-incomes to keep a greater proportion of their benefits is also a welcome move. Increasing the amount that can be earned before benefits are lost, and reducing the rate at which some benefits are cut as earnings rise, will make a real financial difference for many in low-paid work (particularly those in the most temporary jobs, whose benefits may now be more responsive to their earnings).

This is despite a government that is given to significantly overstating the number of people who are not at all better off in work under the present system – and to denying the minimum wage and Tax Credits have done anything at all to improve the incomes of working people.

It does, however, appear to be a fair observation that the gains are not as large as we have been led to believe. According to the Department for Work and Pensions’s chart (page 53), the average gain per week for households in the lowest income decile is around £2.40 per week (or £125 a year), rising to just under £4 a week for those on slightly higher incomes.

For many, this will be nowhere near enough to offset the losses that the cuts of recent weeks have led to, for example the £500 Sure Start Maternity Grant; the freeze in Child Benefit; the £190 Health in Pregnancy Grant; 10 per cent cut in Council Tax Benefit; and the cuts in Housing Benefit. It therefore seems likely that the chart compares UC with the current system after the coalition’s recently announced cuts.

The low average gain could also be because the chart (the only assessment of the winners and losers from UC that the white paper provides) considers average gains and losses across all households in each decile, meaning there will be significant variation according to family circumstances within each decile. For now, we simply don’t know which family types will lose or gain considerably more or less than the average amounts.

Surprisingly for a policy that is supposedly driven by ‘simplification’, there are also some new complexities. In-work conditionality, effectively threatening working people with sanctions unless they can increase their hours, looks as if it is on the cards (although no real details are provided). This is not only unfair; with 2.81 million people already working in involuntary part-time work, finding extra hours is often far from straightforward – it is difficult to see how it could work.

Will working people be expected to find time in their week to attend job centre appointments? If their shifts change at short notice will they be sanctioned? If employers refuse to increase their hours will they be required to quit one job and take up another one? And with the localisation of Council Tax Benefit and the Social Fund looking set to introduce a postcode lottery of support for claimants, it will become harder not simpler for people to understand their entitlements.

The employment impacts are, as the government accepts, inevitably no more than an estimate, based on the idea that as the rewards from work increase people will be more likely to choose to leave benefits and take up employment. But the key factor influencing whether or not people move into work is not whether or not a job pays £2.40 more a week – most significantly, jobs have to be there in the first place.

There are currently 5.2 unemployed people for every job, the number of vacancies has been falling for the last three months and the most recent monthly claimant count data shows a small rise, created by a concerning increase of 16,000 in numbers of newly unemployed people. Unless the government can support the creation of significantly more jobs than it is cutting, it is hard to see how rising unemployment is going to be prevented.

As far as individual work incentives go, it is also important to remember that there is a far wider set of factors that determine whether or not it pays to work – childcare availability; how long it takes (and how much it costs) to get to work; access to public transport; whether the job is possible given someone’s particular health problems; whether an employer is prepared to be flexible about hours in care of childcare emergencies.

Furthermore, given that wider Government policy is to cut spending on childcare, forcing people to re-locate to poorer areas (where there are fewer jobs) and cutting spending on public transport (so that fares will inevitably rise), a fair number of strong work disincentives are also coming down the track.

Despite claiming to be more generous, there will inevitably be a significant numbers of losers in the government’s plans – households that the coaltion remains loathe to discuss the existence of. For example, although the white paper is far from clear on this issue, Universal Credit looks likely to mean that Carer’s Allowance (currently available on a non-means tested basis to adults caring for people in reciept of certain disability benefits) looks likely to be incorporated into the new system, meaning that it will now only be available to poorer carers.

In addition, childcare costs, currently available to lower and middle income families through the Tax Credit system, are to be partly “re-allocated to those working fewer than 16 hours, so that all types of work are rewarded”. The lack of detail on this issue is concerning, but it appears that further childcare cuts are on the cards for many working households.

The data on marginal deduction rates also seems to suggest some losers – while the number of  very low earners with marginal deduction rates of 80-90 per cent falls by 200,000, there is a 500,000 increase in the number of people experiencing a marginal deducation rate of 60-70 per cent.

And Tax Credits are being integrated into this system. Fiendishly complicated, the impacts of the coaltion’s Tax Credit cuts have arguably not yet been fully understood – although new analysis is coming out all the time. But the biggest Tax Credit cut of all appears to be announced in today’s white paper – for every £1,000 increase in a household’s income, the amount cut from their Tax Credit award will presumably increase from £390 (current taper) to £650.

For example, this means that, when combined with the other cuts the coalition has already introduced, a sample working couple family with two children will see their Tax Credit entitlement fall by more than £4,500 from what they currently recieve. No detail on these losses is provided in the white paper, but with such a dramatic change in the taper rate it is hard to see how they could fail to exist.

In addition, despite the Secretary of State’s assertion that ‘no one will be worse off’ under the Universal Credit, this transitional protection will only apply to those already in the system – middle earners moving onto UC for the first time will get significantly less than they do under the current Tax Credit system.

There are also real concerns about the impacts of the sanctions the government are proposing. There are already sanctions in the welfare to work system for refusing to take work, but today’s moves make these significantly longer than at present; at the moment the maximum period that benefit can be denied is 26 weeks. While implying that benefits are being cut for lazy unemployed people who choose to sit around watching Sky TV all day plays well with the press, the reality is likely to be much less palatable to most of the public.

Denying hardship payments (and only providing loans) to lone parents who aren’t able to take jobs as there is no appropriate childcare – meaning their children grow up in severe poverty – and forcing disabled people who can’t access appropriate public transport to get to work into extreme hardship, will creating groups of destitute people who are forced to steal or work illegally as they are effectively entirely shut out of the system of state support, and is the inevitable impact of such a harsh sanctions regime.

The delivery challenges for the government’s reforms are enormous. The timetable for a ‘real-time’ system for collecting household income data appears aspirational at best.  As The Times reports, the system is already delayed – the HMRC business plan for real-time PAYE states that the system will not be complete until 2014, sometime after the planned UC roll out. Given the history of large government IT projects, further difficulties are not unlikely.

There will also be plenty of operational teething problems with such a widescale overhaul of PAYE. For example, a new system is likely to cause particular difficulties for those who are working  the bottom of the labour market. Will small employers of low-paid workers who are currently unable to/choose not to comply with basic employment regulations around the minimum wage or working hours,  suddenly be able to/choose to implement the UC system? At worst this will leave claimants in the most vulnerable jobs in a position where both their wages and benefits are dependent upon the behaviour of exploitative bosses.

So, on the impacts of these changes for simplification and in-work incomes, my assessment is mixed. The new system looks as if it will be simpler (in part) yet more complex for some and much harsher for the most vulnerable (those who are least likely to find work). It will lead to slightly higher incomes in-work for some, and far lower incomes in-work for others.

But, possibly most importantly given there are still close to 2.5 million unemployed people across the UK, on the most important test these reforms fail: there is no evidence at all that they will create jobs. Where is the evidence that employers will see a simpler benefits system as a driver of job creation? And where is the coalition’s policy for employment growth?

Despite all the media spin, prior to the recession unemployment fell dramatically under the last government. This was not a result of harsher benefit sanctions, but of a growing economy. There are still more than five unemployed people for every job, and the government’s only real plan on employment is to cut a million posts across the public and private sectors.

For a Government so focused on worklessness, it is surprising and highly concerning that creating work is not higher up their agenda.

25 Responses to “Simplification, sanctions and cuts won’t create jobs”

  1. Hazico_Jo

    RT @leftfootfwd: Universal Credit: Simplification, sanctions and cuts won't create jobs: //bit.ly/c5e0W7

  2. Andy

    RT @leftfootfwd: Universal Credit: Simplification, sanctions and cuts won't create jobs: //bit.ly/c5e0W7

  3. Ian Gray

    RT @leftfootfwd: Universal Credit: Simplification, sanctions and cuts won't create jobs: //bit.ly/c5e0W7

  4. Welfare White Paper: A simpler but harsher system that won’t create jobs | ToUChstone blog: A public policy blog from the TUC

    […] have a post up at Left Foot Forward exploring the detail of today’s welfare reform White Paper. The Government’s […]

  5. Nigel Stanley

    RT @leftfootfwd: Universal Credit: Simplification, sanctions and cuts won't create jobs: //bit.ly/c5e0W7 >great post from TUC's Nicola

  6. william

    After 13 years of Labour in power, it is pretty shameful to have to admit the level of worklessness, even after the heroic expansion of public sector employment.All these benefits, grants, allowances, tax credits and so on have got us,as a party ,nowhere.We ran out of money.It is a bitter irony that we did not reform the system.

  7. Redstar PCS Stoke

    RT @leftfootfwd: Universal Credit: Simplification, sanctions and cuts won't create jobs: //bit.ly/c5e0W7

  8. Stuart

    William – New Labour ‘reformed’ the system too many times to count. However, what Nicola says of the coalition goverment is true of NL, for all their obsession with worklessness and benefits and credits NL didn’t seem to be able to see the bigger picture of government’s role in job creation (outside of the public sector and its private sector dependents). Even during the boom years when unemployment and the welfare bill fell rapidly (in real terms, adjusted for etc etc) there was on average 3 people to every vacancy. As someone pointed out in the Financial Times a lot of the new government’s policies in this white paper are slight modifications on existing policies. All this reforming strikes me as fiddling while Rome burns – time for us to get working on some new ideas towards that old idea, full employment.

  9. Tearfuldragon

    The “list” of benefits to be simplified seems to include quite a few that haven’t existed for many years, some being abolished of “simplified” back in the 80’s!

  10. william

    Stuart,’full employment’ agreed,ie 2-5%unemployment over the cycle.Most private sector jobs come from small entities, so it is important for the state to get off their backs.The state also has to find a means to retrain the unemployed, whilst not subjecting them to competition in the jobs market from an uncontrolled level of immigration.That is a fact and not a prejudice.

  11. Benefit Sanctions in the White Paper | ToUChstone blog: A public policy blog from the TUC

    […] some time. In addition to the extended duration of benefit penalties, there’s workfare and, as Nicola has pointed out, the Universal Credit looks likely to introduce a much steeper taper than tax […]

  12. Pat Raven

    RT @leftfootfwd: Simplification, sanctions and cuts won't create jobs //bit.ly/d7Hbd9

  13. chiltix

    “… a government that is given to significantly overstating the number of people who are not at all better off in work under the present system – and to denying the minimum wage and Tax Credits have done anything at all to improve the incomes of working people”

    In this context, something that jumped out at me in this white paper is the number of times they say they’re expecting some of the real income gains to come as a result of people actually taking up benefits they’re already entitled to. This bit in particular raised a (rather grim) smile: “there is clear evidence that many people are unaware of their full benefit entitlements and potential gains from moving into work. Latest statistics show that the take-up rate of Housing Benefit for people in work is low – between just 38 per cent and 51 per cent” This from a government that over the last few weeks seems to have being doing its best to reinforce the misapprehension that Housing Benefit is something claimed only by the idle scrounging unemployed.

  14. Mr. Sensible

    Nicola I fully agree with you.

    As you say, these reforms might sound great in the press, but won’t solve the problem.

  15. Wendy Maddox

    RT @leftfootfwd: Universal Credit: Simplification, sanctions and cuts won't create jobs: //bit.ly/c5e0W7

  16. NUWM

    RT @leftfootfwd: Universal Credit: Simplification, sanctions and cuts won't create jobs: //bit.ly/c5e0W7

  17. Chris

    @william

    “After 13 years of Labour in power, it is pretty shameful to have to admit the level of worklessness, even after the heroic expansion of public sector employment.”

    Didn’t you notice the biggest recession since 1930?

    “All these benefits, grants, allowances, tax credits and so on have got us,as a party ,nowhere.We ran out of money.It is a bitter irony that we did not reform the system.”

    We did reform the system, we introduced Tax Credits which cut massively the number of people who faced high marginal deduction rates. The growth in welfare spending over the past 13 years was mainly due to pensions and tax credits. Labour made some mistakes, continuing the tory policy of allowing housing benefit to “take the strain” and not building more council houses sooner.

    However, Labour didn’t “run out of money”, a global financial crisis blew a $2 trillion hole in the worlds finances – the whole world ran out of money.

  18. Nick H.

    RT @leftfootfwd: Simplification, sanctions and cuts won't create jobs //bit.ly/d7Hbd9 – Pah! Who needs jobs?

  19. william

    RBS,HBOS both bust under Labour.A structural deficit in excess of £100 billion pa.The note from Lliam Byrne.Come on, Chris, face the real world.

  20. What does Universal Credit mean for middle earners? | ToUChstone blog: A public policy blog from the TUC

    […] the real lack of detail about who gains and loses from today’s reforms, there are some ominous signs for middle […]

  21. Chris

    @william

    Labour made mistakes in not regulating or taxing the banks enough but your peddling the right wing narrative of the past decade.

    If you believe it is all Labour’s fault then explain why the whole world experienced a recession. Our economic problems are because of the failure of lassiez-faire capitalism not public spending.

    “A structural deficit in excess of £100 billion pa”

    This is meaningless, we have no idea how big or small our “structural” deficit is, that depends on the output gap which is basically a guessimate dependent on who is paying the economist doing the guessing. And slashing public spending will decrease growth, putting it below trend growth and thus increasing the “structural” deficit – //bit.ly/djfUbR

    “The note from Lliam Byrne”

    A silly joke is no basis for an economic policy.

    This is the economic argument that Labour must win.

  22. Look Left – Real issues lost amidst the madness | Left Foot Forward

    […] however, may not be as large as people were led to believe, Left Foot Forward’s Nicola Smith calculating “the average gain per week for households in the lowest income decile is around £2.40 per […]

  23. william

    Mr.Byrne’s silly joke was quantified as £109 billion by Osborne, and to date,this figure has not been recalculated officially by us, Labour.Until we do so,how can Labour win the economic argument? We had all the figures in April 2010, it is time to put some flesh on the bones.

  24. Nigel Holder

    TRANSFERRING WEALTH FROM THE STATE TO THE CITIZEN

    In the current debate it seems that everyone has lost the will to advocate significant reductions in taxation. It is as though victory has been conceded to socialism on the battlefield of the public services. Is it not now the time for the Coalition to adumbrate the following truths?

    Taxation is evil – it may in some cases be a necessary evil – but it should be minimised at all costs. Why? – because taxation involves the sequestration of wealth from the citizen by the politician so that the bureaucrat may then exercise choices, notionally on behalf of the citizenry, in how that wealth is to be disbursed. In practice, the public sector is parasitic on the public purse, as it will always feed itself before it feeds the citizen. Furthermore, in taking choice away from the citizen and exercising it by proxy, the public sector regularly commits monopsony – the denial of free and fair competition through the exercise of monopoly purchasing power within a rigged marketplace. And this amounts to an assault on the most fundamental conservative value – freedom of the individual.

    Freedom is only evidenced when the individual can exercise choices in what they do and how they do it. It is true that we have much freedom in many aspects of our lives – travel, speech, diet and association to name but a few areas. But, even in those areas where the State exercises fairly loose constraints – through sensible regulation – true choices are only available to those who possess what economists call effective demand or discretionary spending power. When the State sequestrates wealth through excessive taxation it shrinks the discretionary spending power of the citizen to such an extent that the taxation itself amounts to an assault on basic freedoms. Further, when the state arrogates unto itself the right to administer the delivery of essential services, then the assault on freedom of choice is even clearer.

    The has been much talk of late about the role of the State a commissioner of services, with competition being provided through a multiplicity of providers, some of whom may be in the private sector. It is important to recognise that true competition only exists when an individual citizen freely can make a value for money distinction between providers that are vying for trade in a free market place. As anyone who has seen the public sector tendering process at work will attest, bureaucrat choice is a very poor substitute for the judgement of individual citizens about those choices which are in their own parochial and immediate best interests.

    Socialism has always sought to transfer wealth from rich to poor. The principle mechanism devised to achieve this has been to tax the rich and to give benefits to the poor. However, an additional mechanism, the arrogation by the State of power over the delivery of essential services, has somehow become enshrined as an essential component of wealth redistribution policies. Both of these socialist nostrums should be challenged.

    First, taxing the rich and giving benefits to the poor is a “Revenue” rather than a “Capital” solution. State benefits will never enrich the poor; they just institutionalise the poverty trap. The Coalition, should seek to transfer wealth, not just benefits, to the poor. The sale of council houses to their tenants was a classical example of compassionate capitalism and we should urgently search for new ways of wealth creation for the poorest in society.

    Second, if we believe that true freedom is only achieved when individuals have the wealth to exercise free choices about all the goods and services that they might wish to purchase, then the purchasing decision must be transferred from the bureaucrat to the citizen in every feasible circumstance.

    Third, if we believe that capitalism is the preferred method for the delivery of goods and services – because the profit motive moderated by competition is the best mechanism for delivering quality at the lowest cost – then the Coalition have an obligation to ensure that, in every practical circumstance, public services should be delivered by profit seeking private enterprises operating freely within a competitive marketplace.

    These ideas can be unified under a single policy strap-line – “Transferring Wealth from the State to the Citizen”. We should set out a programme to transfer ownership to our citizenry, of the all those state enterprises which cannot be defended as “Natural Monopolies”. Every hospital and every school should be incorporated as a limited company with share capital distributed to all in the relevant catchment area. It would be important to transfer the shares to citizens rather than sell them – millions of citizens would become capitalists at a stroke, able to trade their shares or to retain them as profitable investments.

    Equitable education funding would be achieved by distributing vouchers to parents each year for the purchase of the national curriculum from any school of their choosing. By moving every school to the private sector, the damaging class-divide between the state sector and the independent sector would be removed – all schools including those in what is now called the independent sector would take these vouchers. A continuum of provision from independent schools would emerge, with some charging nothing, some charging for extra curricular activities and some charging significant top-up fees.

    Healthcare, free at the point of need, would be preserved for all emergency and acute conditions, and in a highly subsidised form for all treatment of chronic conditions, by the introduction of a hypothecated tax that funded insurance payments to all patients. Citizens could choose their insurer from within a competitive marketplace. Emergency and acute care would be paid for directly by the insurer according to locally agreed schedules of rates for specified healthcare interventions. These rates would be negotiated between insurers and hospital companies within a free market. Chronic care would be subject to citizen choice of provider and basic care would be reimbursed by their insurer with “Optional Extras” paid for out of advance voluntary contributions or ad-hoc top-up fees. Thus the principle of free healthcare at the point of need would be retained for all accident and acute care, whilst a regime of differential insurance premiums would disincentivise the adverse lifestyle choices that require greater reliance on the healthcare system.

    In summary, we privatise all healthcare and education, eliminate the sclerosis of state control, introduce competition into those marketplaces and thereby significantly reduce the costs of service delivery and simultaneously increase the quality of the services provided; empower the citizen with real choice rather than bureaucrat mediated choice, and give every citizen – even the very poorest in society – a first step on the capitalism ladder. Together, these policies would reduce the tax burden and more fairly distribute the benefits of taxation throughout society. Who would dare to oppose such policies? Or should I ask –who would dare to advocate them?

  25. Bryonny G-H

    RT @leftfootfwd: Simplification, sanctions and cuts won't create jobs //bit.ly/d7Hbd9

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