The government is right to tackle unconditional welfare

 
Alex Wild

THE GOVERNMENT has just taken an important step in the reform of Britain’s welfare system. It may have a cringeworthy name, but Help to Work, which came into effect yesterday, will have significant and beneficial consequences for both the long-term unemployed and UK taxpayers.

While its roots can be traced back to the reign of Henry VIII, it was the 1911 National Insurance Act and the 1942 Beveridge Report that really laid the foundations for the modern welfare state. Since then, something has gone seriously wrong.

The system proposed by Beveridge, built on contributions and avoiding poverty traps caused by high marginal tax rates, has been corrupted beyond recognition by politicians who failed to understand incentives. Saving by the less well-off has been discouraged by poorly-designed means-testing, diminishing personal responsibility and fostering dependency.

Given that it has often made economic sense for people not to work, we have seen endemic long-term unemployment and an exploding bill – of which the £4bn we will spend on Jobseeker’s Allowance this year is just a small proportion. In a sad indictment of decades of welfare and education policies, across the 2000s, and despite the creation of millions of jobs, 2m people claimed out of work benefits for at least five consecutive years.

Fortunately, with Help to Work (and reforms to make the benefits system simpler), work and pensions secretary Iain Duncan Smith has shown he does understand incentives.

Those who have been on the existing Work Programme, but who have not found a job after two years, will have to accept a work placement in the community, visit a Job Centre every day or take part in further training. Those who fail to do so will lose a month’s worth of benefits, with penalties increasing for repeat offenders. For the system to have any positive impact, the threat of sanctions is imperative.

Such an approach is highly popular and with good reason. The evidence supporting the efficacy of work for the dole schemes, like the one proposed by Chris Philp for the TaxPayers’ Alliance last year, is comprehensive. In New York, for example, such a scheme saw the number of welfare caseloads fall by 26 per cent between 1996 and 2001. In Canada, the addition of conditionality to benefit payments moved people onto work programmes, from which 60 per cent of the leavers found jobs.

Importantly, the success of these schemes has depended on their implementation, and how they’ve reflected local demands. Participation rates in work for the dole schemes in the US vary significantly across states. So the government must avoid an overly-centralised system, in which Whitehall dictates which work activities are best for which claimants. Local administration, with the programme tailored for each claimant, will maximise the chances of them finding work.

But given that total welfare spending accounted for 29 per cent of total managed expenditure in 2013-14, we urgently need a different approach. We’ve tried the Left’s “solution” of increasing transfer payments. It’s time Britain stopped failing both welfare claimants and taxpayers.

Alex Wild is a policy analyst at the TaxPayers’ Alliance.

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