There are good ways of privatising state monopolies and bad ones. It is a vital concept recognised here.
As so often with government documents, some of the real meat is near the end.
The bad news:
The key bad news is that the much heralded 65% rate of benefit withdrawal is only benefit withdrawal. It does not included the impact of tax or national insurance. So people can still face a combined rate of benefit withdrawal with tax and national insurance of well over 65%.
Page 55. For low-earners but who nonetheless earn enough to pay tax, the incentive to increase their pay has been improved but still not to a really attractive level. Yes, there are 0.1million who will cease to face a tax/national-insurance/benefit-withdrawal rate (known as the Marginal Deduction Rate) on increased earnings of over 90%. Thank goodness for that. There will also be 0.4million people who won't face a rate of 80-90% which is also good. But the numbers facing a rate of 70-80% will increase from 1.7million to 2.0million. I think that rate is still much too high. I wonder if a big increase in personal allowance - with adjustment to the tax bands and perhaps a higher standard rate - would go some way towards fixing the problem?
The good news:
p54 For really low earners - those whose income is not taxable at all - the tax/national-insurance/benefit-withdrawal rate on increased earnings for 0.1million people has been over 90% and another 0.1million have been facing 80-90%. Now no one will face a rate above 60-70%. Excellent.
p56 Those who are currently unemployed will not longer anything like such penal rates of tax/national-insurance/benefit withdrawal rates (know as the Participation Tax Rate) on taking work for 10 hours a week. At present 0.6million are facing a rate of over 90%. That is a scandal - an appalling failure of past governments. Another 0.6 million face 80-90% which is also far too high. Under the new system, a modest 0.2million will face a rate of 70-80%. Some 1million will have a rate of less than 60-70% and an even bigger number, 3.0 million will face less than 60%. A big improvement.
p57 It will very clearly be worthwhile for a lone parent to work under the new system, partly because of the universal credit and partly because of a 'more generous earnings disregard'.
Measuring incentives to work is a complex business. On some measures things look as though they will improve a lot. On others, less so. In every case, though, I expect the attraction of working would be a lot greater if the government could put the money into improving the benefits withdrawal rate to 55%.
Some of us – including myself, I must admit – thought that David Cameron was just a Tory version of Tony Blair. He could sweet-talk and put on a great look of concern but he was not going to do anything radical or worthwhile. He would just let this country continue to drift. But now, against these expectations, his government has announced something dramatic and important. The welfare benefits system really is going to be reformed.
Governments are always announcing ‘the most radical reform of the welfare state since Beveridge’. It came to seem like an annual event under Labour. But it really is happening this time.
The central idea is that work should always pay. The real shock for some people is the realisation that we have gone through thirty or forty years during which time, for hundreds of thousands of people, work has not been worthwhile. It has been crazy. It has been an embarrassment that this country has managed its affairs so badly.
There have been over 30 benefits and they have had different rates at which they have been withdrawn when someone has taken a job. The plan by Iain Duncan Smith is to bring those benefits into one pool with one withdrawal or ‘taper’ rate. Everyone will know that they will gain financially by working instead of living on benefits.
That is not all. The reforms should be seen as a package. Mr Duncan Smith is creating community work placements for the unemployed. They will have a double effect. They will help and encourage those lacking in confidence and work skills become used to getting up in the morning, getting to work on time and having the satisfaction of contributing . The placements will also make fraud far more difficult because you can’t work for cash on the side and, at the same time, sweep leaves in park for your local council.
The sanctions for not accepting job offers will be increased. If someone refuses job offers three times, he or she will face losing benefits for three years.
A fourth big change will be to involve more private companies and charities to help people into work. Frankly, the Job Centres have often not been very good at this. The idea here is that they will get paid according to results. They won’t just be going through the motions. Most ambitious of all, Duncan Smith is also taking on Housing Benefit. This has long been the elephant in the room. People getting huge Housing Benefit payments could never earn enough to make work pay. This had to be tackled. No government for the past 25 years or so has dared confront this. Iain Duncan Smith has.
Ever since Peter Lilley was the Secretary of State in charge, back in the days when John Major was Prime Minister, there have been attempts to make work pay a bit better than before. Labour ministers continued on the same path. But it was all piecemeal and uncoordinated. Frankly there is not much competition for the title “most radical reform of the welfare system”. This is the first big attempt. It is bold and welcome. This country has shown that after a generation of an appalling welfare system, it is finally ready to do something about it. But the reform still does not go far enough.
Yes, it is good that those who come off benefits and take work will lose no more than 65p out of every pound they earn in tax and withdrawal of benefits. But when Duncan Smith was outside government, he argued that they should lose even less than that: 55p. That would make it much more clearly worthwhile to work – a key factor in ending the mass unemployment we have become accustomed to ever since the early 1970s.
There were hints yesterday on how we came to get to reform that was more modest than Duncan Smith really wanted. Labour suggested that it was George Osborne who had refused to put up the extra money. The criticism was a bit rich coming from the party which emptied the treasury. But the point remains. Even after the reforms, work still won’t be financially rewarding enough to tip many tens of thousands into work. More money needs to be pushed into this and the sooner the better. The one good thing is that, once the new system is up and running, it will be the work of a moment to make work more rewarding still.
The other thing that did not go far enough was the requirement to work in the community. When far more radical change was implemented in America – notably in Wisconsin and New York – people were not given the option to hang around at home. If they could not get a job in the open market, they were given a community job like cleaning or maintaining parks. These were not just short term placements. They had to work and - a day or two every week - they also had to turn up to an office and apply for jobs. There was no scope for working on the side. They had no time. And meanwhile every effort was made to encourage and prepare people into work with support and by using incentivised private and charitable outfits. The effect was dramatic. In America overall, welfare rolls fell by 60pc. If that happened in Britain, unemployment would fall by well over a million. We also have more of a problem than other with hundreds of thousands of children whose parents never get married. That is related to welfare benefits and needs tackling, too.
So, Duncan Smith does deserve congratulations. So does David Cameron for appointing him and at least partly backing him – though it seemed from some remarks yesterday that Nick Clegg might have been just as important in this or more. This is genuinely a radical, important reform. But Britain’s dysfunctional welfare state is still a long way from being fixed.
This is the unedited version of an article which was published in the Daily Express today. The online version is here.
Notes on the press conference, the Commons debate and a few other things:
It was very noticeable that Iain Duncan Smith gave special thanks to Nick Clegg for his support. He said that it would have been more difficult to get to this point - bringing in this welfare reform bill - without Mr Clegg's support.
Also striking was the way that the Labour shadow secretary of state suggested that Iain Duncan Smith would have liked to have a tax and benefits withdrawal rate of 55% but had had to settle for 65% because of lack of support by George Osborne. Duncan Smith of course replied that it was Labour who left the cupboard bare. The implication, of course, was that yes, in an ideal world Duncan Smith would have liked the rate to be 55%.
The changes being announced really put an end to the Beveridge concept of a welfare system. His idea was an insurance system - rather like that of many Friendly Societies. He wanted a flat rate contribution for a flat rate benefit. Simples, as the advertisement says. He intended and expected that means-tested benefits not dependent on contributions would be a minor part of the system since everyone would be covered by their insurance contributions. Well, that idea has been gradually disassembled. Now it is even less important.
The 65% rate does not include certain passport benefits like free school meals. If you are unemployed your child gets them. If you are employed, he or she does not. No taper. So the incentives to work are not quite as good as they at first appear. I believe the passport benefits might have been kept because some others in government - perhaps No 10 - wanted 'no losers'.
On the same tack, in his commons speech (see previous posting) Duncan Smith refers to top rates of tax and benefit withdrawal rates that are much higher: over 95% before the reforms and over 76% after. It is not clear to me at the moment how these are calculated. Those figures certainly make the reforms appear desperately needed.
It was noticeable that three or more Labour MPs congratulated Duncan Smith on his Commons statement. It was as if much of the political elite knew in its heart that this sort of reform was needed. Twenty years ago, these reforms would have caused an uproar from Labour. Now the whole attitude to benefits has changed. There is much more awareness of how they have gone wrong. Duncan Smith said in his press conference: "as a political class we have got this wrong for too long".
I spoke to Polly Toynbee of the Guardian after the press conference. She commented that the reforms were 'incremental' and 'technical' and that the tax credits introduced by Gordon Brown had gone a long way to make work pay. She said the old taper was 70% and the new one was 65%. A good change but not a revolution. I think this is unfair. For a start, the new taper includes housing benefit - a major issue. I don't think the taper she is referring to did. Also there were different kinds of taper for different benefits. I doubt that the overall rate was 70%. There are also the host of other reforms being brought in at the same time, including the restrictions on housing benefit and the work placements. The hard truth is that Labour did some incremental changes but took 13 years doing them. Duncan Smith has not gone as far as I would like, but he has covered a huge area and made work pay more clearly than for a generation - all worked out in about six months. It is a vastly better performance.
I remember one Labour secretary of state for work and pensions saying on the radio that the big difficulty was getting money out of the Treasury to help make work pay. Duncan Smith appears to have had precisely that difficulty. But through his determination and his preparation before taking office, he has done better on this than anyone before. One can only hope that if or when money gets easier, the government will go further to make work pay.
In the house, Duncan Smith spoke approvingly of the drive to increase the personal allowance. This helps make work pay for the low paid in a very direct and easy way without any paperwork. It was what Labour ignored, preferring complicated tax credits. Incresing the personal allowance is very much a Liberal Democrate policy and it is interesing to hear Duncan Smith speak approvingly of it.
I spoke to David Freud, one of the DWP ministers, after the press conference. I used to work with him at the Financial Times many years ago. He said 'We've got your book. We're doing what you said aren't we?'. Well, as he well knows, that is an oversimplification, to put it mildly. The book was not prescriptive, for a start. But it is nice to think it might have had some influence.
Duncan Smith is the man of the moment. But as Tolstoy argued in War and Peace, even the Napoleonic wars were not really just the work of one man. Those wars depended on many others - perhaps a great mass of the population. Similarly, these welfare reforms derive from many people. The change in attitude on the Labour side is crucial. So too among the Lib Dems. Peter Lilley was at the beginning end of the change in attitudes. And the public, though such things as opinion polls and in phone-ins, have shown a changed attitude. The background was right.
Here is a link to the white paper: http://www.dwp.gov.uk/docs/universal-credit-full-document.pdf
Below is the speech given by Iain Duncan Smith to introduce his White Paper on reforming welfare benefits:
Mr Speaker, with permission, I’d like to make a statement on welfare reform.
In this House in October I set out our resolve to secure a welfare system fit for the 21st Century where work always pays and is seen to pay.
Following consultation a broad positive consensus has emerged – from Citizens Advice to the Institute for Fiscal Studies and across the political divide.
The White Paper we are publishing sets out reforms to ensure people will be consistently and transparently better off for each hour they work and every pound they earn.
We will cut through complexity to make it easier for people to access benefits.
We will cut costs, reduce error and do better at tackling fraud.
The detail is published today and the White Paper is available in the Library – let me take this opportunity to thank all who have helped build and write these reforms.
Context for Reform
Let me remind the House what the problem is we are trying to solve:
• 5 million people of working age on out of work benefits
• 1.4 million people who have been on out-of-work benefits for 9 of the past 10 years
• 2.6 million working age people claiming incapacity benefits of which around 1 million have been claiming for a decade
• almost 2 million children growing up in workless households – one of the worst rates in Europe.
Some have said recently that it is jobs – not reform – which is important. But in doing so they miss the point.
This is a long-standing problem in Britain.
We have a group of people who have been left behind, even in periods of high growth.
Even as 4 million jobs were created over 63 quarters of consecutive growth, millions of people in Britain remained detached from the labour market.
4.5 million people were on out-of-work benefits before this recession even started.
These reforms are about bringing them back in – I want them to be supported and ready to take up the 450,000 vacancies which are currently available in our economy.
If we solve this problem, we begin to solve the wider social problems associated with worklessness.
The measures in the White Paper get this process underway – they are the first key strand of our welfare reform.
• By creating a simpler benefit system we will make sure work always pays more than benefits.
• By reducing complexity we will reduce the opportunities for fraud and error – which currently cost the taxpayer £5bn per year
Mr Speaker, work is the best route out of poverty.
At present, some of the poorest who take modestly-paid jobs can risk losing £9 or more out of every £10 extra they earn.
The Universal Credit puts an end to some of these perverse disincentives that make it so risky for the poorest to move into work.
The highest marginal deduction rates for in-work households will fall from 95.8% to 76.2%.
And there will be a single taper rate of around 65% before tax.
This means that around 1.3 million households facing the choice to move into work for 10 hours a week will see a virtual elimination of participation tax rates of over 70%.
With single tapers and higher disregards the system will be simpler and easier, and people will keep far more cash in their pockets when they move into work.
Our guarantee is crystal clear – if you take a job you will receive more income.
Some 2.5 million households will get higher entitlements as a result of the move to Universal Credit.
The new transparency in the system will also produce a substantial increase in the take-up of benefits and tax credits.
Taken together, we estimate that these effects will help lift as many as 350,000 children and 500,000 adults out of poverty.
This is just our analysis of the static effects of reform.
Analysing the dynamic effects isn’t easy, but we estimate that the reforms could reduce the number of workless households by around 300,000.
Let me also provide assurance about the transition – we will financially protect those who move across to the Universal Credit system.
There will be no losers.
A far simpler system that operates on the basis of real-time earnings will also reduce the scope for under-payments or over-payments.
We all know from our experience as constituency MPs that this can create anxiety and disruption, and can prove very difficult to correct.
This simplification and reform will help end that problem.
As well as reducing official error, these changes will also make life far more difficult for those who set out to defraud the system.
Simpler, safer, more secure.
Fairer and more effective.
It will require investment.
£2.1bn has been set aside to fund the implementation of the Universal Credit over the Spending Review period.
I have been assisted in this work by my Right Honourable Friend the Chancellor, who has agreed to this investment programme.
This is not just expenditure, it is also investment – investing to break the cycle of welfare dependency is a price worth paying.
The Universal Credit will provide a huge boost to the individuals who are stuck in the benefit trap – reducing the risk of taking work and lifting 850,000 out of poverty in the process.
This investment will produce a flow of savings as a simpler system helps drive out over £1bn of losses due to fraud, error and overpayments each year.
And in the wider economy, dynamic labour supply effects will produce net benefits for the country as greater flexibility helps business and fuels growth.
We will invest £2.1bn in SR10 seeking a multi-billion pound return.
The Work Programme
This is how we will make work pay.
But it is not enough on its own.
We also have to support people as they make their move back to work – and these two issues cannot be separated.
That is why we are moving ahead with our new Work Programme, which will provide integrated back-to-work support.
And that is why we have already started a three-year programme to reassess 1.5 million people who have been abandoned for years on Incapacity Benefit; something the Opposition started before the election for the flow of new claims.
The contract – conditionality and sanctions
This is our contract – we will make work pay and support you, through the Work Programme, to find a job, but in return we expect you to cooperate.
That is why we are developing sanctions for those who refuse to play by the rules, as well as targeted work activity for those who need to get used to the habits of work.
This work activity will be targeted at those who need it most – those who face the most significant challenges engaging with the labour market.
Furthermore, evidence from the Work Capability Assessment – where 36% of people have withdrawn their application before reaching the stage where they are assessed – underlines the effect this could have on those currently working while claiming benefits.
This new contract represents a fair deal for the taxpayer – and a fair deal for those who need our help.
And I commend these reforms and this White Paper to the House.
A TV programme is coming up on Thursday evening in which I expect I will appear. It is a 90 minute film by Martin Durkin about the huge national debt that has piled up and his solution. He will be arguing against Big Government and he interviewed me about the NHS and about welfare and social housing. Apparently the film also includes interviews with four former Chancellors. I believe he also filmed in Hong Kong.
I wonder if Channel 4 knew what they were in for when they commissioned this film since these kind of arguments - presented at length - are not usually seen on British TV. If the channel knew what it was doing, then all credit to it. Maybe something really is changing in Britain. There was a time when most of the media elite would not contemplate giving airtime to such ideas.
Here is a link to the programme details.
1.67 The Government believes social housing is an important element in fostering community cohesion and supporting households in housing need. The number of social rented properties fell between 1997 and 2009. The result has been rising housing waiting lists combined with growing numbers of workless households trapped in dependency on subsidised housing. In the 1970s, 11 per cent of households in social housing had no earner, by 2003-04, this had risen to 69 per cent.
1.68 The Government wants to make social housing more responsive, flexible and fair so that more people can access social housing in ways that better reflect their needs. In future, social housing will more effectively reflect individual needs and changing circumstances. Social landlords will be able to offer a growing proportion of new social tenants new intermediate rental contracts that are more flexible, at rent levels between current market and social rents.
The terms of existing social tenancies and their rent levels remain unchanged. This is fair to households and reduces costs for taxpayers.
1.69 Taken together with continuing, but more modest, capital investment in social housing, this will allow the Government to deliver up to 150,000 new affordable homes over the Spending Review period.
From the Comprehensive Spending Review, page 29.
Which are the welfare measures that save the most money?
I have taken a look at the table of savings from welfare changes. The most striking thing is how slowly they kick in. The saving in the next financial year is a mere £320m. The next year it rises to £2.6bn, then comes another big jump to £6bn and the final year of the review brings a saving of £7bn.
The biggest items in the final year saving of £7bn are
1. £2.5bn through not paying child benefit to families where there is a higher rate taxpayer.
2. £2.0bn Contributory Employment and Support Allowance: time limit for those in the Work Related Activity Group to one year.
3. £1.8bn increase of contributions to their pensions by public sector workers.
Source: Table 3 on Page 12 of the Comprehensive Spending Review
This sounds rather similar to what Labour said it intended to do, several times. It is hard to tell from the outside whether this will be significantly different:
But there are two other things that I'm planning which will help transform the welfare landscape. The first is to do what Labour never did. For year after year, Tony Blair and Gordon Brown simply abandoned the two and a half million people on incapacity benefit in Britain. Nobody talked to them. Nobody asked if there were better alternatives for them. Nobody challenged them to find a new way to make more of their lives. And no one double-checked to make sure they really needed those benefits. From next week all that will change. Starting on a small scale, and then from next April on a national scale, we will assess all of those claimants - except for those who are about to reach retirement age. Each one will go through an independent medical assessment to see what their condition really is. Those with the potential to work will be expected to do so. Those who could work with extra support will receive it. Those who cannot work will continue, and rightly so, to receive unconditional support. And the minority who are playing the system will lose their benefits straight away. By next spring we will be assessing 10,000 people per week. It will be one of the biggest programmes of its kind ever carried out. I am simply not prepared to let a situation continue where we leave millions of our fellow citizens to live out their lives on benefits without ever asking whether there is a better alternative. But that's just the start. It's no good just assessing people. That was the Labour way. You actually have to do something with them afterwards. And that's where the Work Programme comes in. The Work Programme will be one of the biggest employment and back to work programmes in the world. It will replace the haphazard mix of Labour schemes that cost billions and never worked. And it will create a whole new world for benefit claimants. No more sitting at home on benefits doing nothing. No more excuses about it all being too difficult. Remember that under Labour we had five million people on benefits. And more than two million people managed to come to the UK from other countries and find jobs without difficulties. No wonder we need change. So from next spring we'll start to roll out the Work Programme around the country. There'll be much better support for those on benefits to get them back into work. It will be delivered by experienced organisations in the private and voluntary sectors We'll give them the freedom to design the right programmes for claimants - not just to implement schemes designed in Whitehall. But the quid pro quo for that will be that they work on a payment by results basis. We'll only pay those organisations when they get welfare claimants back into work. And help them stay there. But this is a two way bargain. We'll help people to get back on their feet again. But if they refuse that support, then they will lose their benefits. As simple as that. So there'll be new rules setting out the conditions for receiving benefits. And clearer, simpler and tougher penalties for those who break them.
The full speech is here.
Most of the publicity this morning was given to the decision of George Osborne to stop paying Child Benefit to higher rate taxpayers. Indeed I am due to be interviewed just after 8pm tonight on this subjct on the BBC News channel.
But another significant reform announced in George Osborne's speech was this:
So I can announce today that for the first time we will introduce a limit on the total amount of benefits any one family can receive.
And the limit will be set according to this very simple principle: Unless they have disabilities to cope with, no family should get more from living on benefits than the average family gets from going out to work.
No more open ended chequebook.
A maximum limit on benefits for those out of work.
Set at the level that the average working family earns.
Money to families who need it – but not more money than families who go out to work.
That is what the British people mean by fair – and we will be the first Government in history to bring it about.
I am not sure how many people this could potentially affect. It could also be difficult to administer. However it does send out a signal. It is reminiscent of the Clinton reform package which included a limit on the number of years during which people could live on welfare benefits.
Another change that has been announced but not discussed a great deal is the change in the requirement on lone parents to seek work when their youngest child reaches a given age. It is to be reduced this month from 10 to 7. The Labour government made a first reduction (from 16?) and now there has been a further reduction. These reductions are of great importance because they assert to lone parents that having a child is not a ticket to living at the expense of others for 16 years.
I think that in the USA a lone parent is obliged to seek work when his or her child is aged three months.
This sort of measure does not attract huge attention, perhaps because most reporters do not really follow welfare and do not see its significance. They can grasp Child Benefit but actually that is probably a reform that will have very little effect on the shape of British society. Reducing the vast numbers on welfare benefits could have a far more profound effect.
Postscript. The following is from the Spectator blog:
...this benefit cap is probably more about politics than public finances. It will be set around £500 a week and, according to the numbers being put around by his team, will affect only 50,000 families, if not fewer. For some, apparently, that could mean losses of £300 a week – but I imagine the majority of savings will be far more modest than that.
I cannot be sure whether or not this is true but it sounds credible and I wonder if anyone can confirm it? I was told recently that Iain Duncan Smith wanted those on benefits to keep 50% of anything they earn despite withdrawal of benefits and taxation.
The Treasury, apparently, said it would cost too much and wanted a much lower figure. In the end, they compromised on 35%.
Supposedly the Treasury wanted to know what evidence there was that people who kept more money from working would be significantly more likely to work.
I guess the question is not wholly unreasonable. And yet their own studies have shown that increasing income tax for high earners significantly reduces the amount of money declared to be taxable at that level. They know very well that tax changes the behaviour of the rich. Why should they think that it would not also change the behaviour of the poor?
The NHS has been a much-loved institution all my life. I and members of my family have been treated by it, sometimes wonderfully well.
My elderly mother was treated at Winchester Hospital and I remember a staff nurse there who went extra miles to make sure my mother got the care she needed. I know what it is to feel intensely, emotionally grateful to an NHS nurse.
There are certain phrases that capture powerfully the appeal of the NHS idea: ‘free at the point of delivery’ is probably the most potent. Naturally many people are reluctant to consider anything that goes near to giving up on it.
But I think most people want a health service that provides two things: one, a top class service and, two, one which means we don’t have to worry about the cost when we are ill.
The NHS – in general – is indeed free at the point of delivery. But unfortunately, it is not successful at providing a top class service. The data shows again and again that compared to other advanced countries, Britain is seriously below average.
Eurocare, which is funded by the European Union, records how many people are still alive five years after first being diagnosed with cancer. Let us take one of the most difficult cancers: lung cancer. Survival rates are quite low. In England, only 8.4 people out of hundred survive this cancer for five years after diagnosis. In Germany, 14.7 do – more than half as many again.
In stomach cancer we have a particularly poor record. In England, 17 people survive for five years. In Italy, 33 do. To put this another way, 16 people out of a hundred die in England who would not die if they were using the Italian medical service instead of the British. I am afraid that in every single major cancer, the chances of survival in Britain are lower than in other advanced European countries.
How does this happen?
The NHS often has delays. In France, it would be unacceptable to have a cancer patient wait more than a week between diagnosis and treatment. In Britain, much longer waits are not unusual. On the continent, the latest drugs are used far more quickly. In Europe, the average use of drugs introduced in recent years is three times higher than in Britain. This is according to a survey by the Karolinska Institute in Sweden.
We also have a shortage of up-to-date radiotherapy equipment. In a survey of radiologists, they said that three out of four patients who would have benefited from the use of most advanced radiotherapy technology were being treated, instead, with old machines. This is according to a survey in the leading cancer journal, Clinical Oncology. The use of older technology means more damage to healthy tissue.
The below-standard treatment of cancer patients in Britain is something we have a lot of evidence for. But there is plenty of reason to think it is representative of relatively poor treatment of other diseases, too.
On pretty well every measure you can make of a medical service, Britain is well below the average of other advanced countries. Overall, it is probably right at the bottom.
We have fewer doctors per thousand of population than other advanced countries. We have fewer hospital beds for acute care. Germany has twice as many. We have far fewer CT scanners. We have far fewer MRI scanners, too, – a mere fraction of the numbers in Austria, and Finland and fewer even than Slovakia or Greece.
But there has also been a wasting away of the services that do not hit the headlines - the ‘Cinderella’ services. My late elderly mother needed regular physiotherapy on a continuing basis. The NHS in her local authority paid for six weeks and then it stopped. These things don’t usually get measured. But they matter.
An important thing to note about the NHS is that it is patchy. You could be a woman who suspects you have a lump in your breast, sees a GP and immediately finds yourself referred on to a cancer specialist who has you scanned within a day or two and in the operating theatre within a week. It can happen. But there can also be delays at any stage. These delays give your tumour the chance to grow and to make it more difficult for you to be cured.
But what about the second part of what we really want from a health service: not having to worry about the cost?
The most common system in Europe is called ‘social insurance’. Each country operates in a slightly different way. In Switzerland, for example, you need not worry about the cost because you are compulsorily covered by the social insurance scheme.
Those who are less well-off, have their contributions made up to the full amount by the government. Each person can choose which insurance institution to use. It could be one connected with their particular line of work or run by a trade union. These insurance organisations, in turn, choose which hospitals to make arrangements with to provide you with your care.
France has a government insurance company which covers most of the cost of treatment and the vast majority of people take out further insurance to cover the rest. In the German system, you can choose your insurer. Again, everyone is covered.
Singapore has a highly successful system which is a combination of compulsory health savings and insurance. There are plenty of different models around the world.
Ever since the government took over our hospitals in 1948, politicians have been claiming that they have some changes up their sleeves will make the NHS work better. But after 6o years of ‘improvements’, the results are still inferior to those of other countries. It is now reasonable to suggest that the system is inherently flawed.
The simple point is that it is a government monopoly. We know from experience that such monopolies are prone to waste. To give just one example, one survey asserted that in operating theatres less than half the time scheduled for operations was actually used for surgery. The nursing unions say they have to spend a vast amount of their time doing administrative jobs instead of frontline work.
The number of administrative and support staff employed by an NHS hospital compared to the number of nurses is five times what it is in a private hospital.
In countries such as France, Belgium and Germany, there are hospitals and doctors who have to compete on price and quality. One in five hospital beds in France is in a commercial hospital. Two out of five beds in Germany are in a voluntary hospital. The effect of competition on standards is dramatic. In Britain, there have been attempts to create fake markets and competition within the NHS but they have not worked. It seems it is not easy to create phoney competition.
To get a better system than we have now, we need not give up something we value a great deal: the absence of worry about cost. But we should look around the world at other systems. We should then move to one which would still leave us without financial worry but which bring a higher, international standard of care for ourselves and those we love.
This is an unedited draft of an article which appeared in the Daily Express on Tuesday. The article was based on the opening talk I gave in the BBC Radio 4 programme 'Iconoclasts' on 15th September.
In Britain we are now glumly entering the age of austerity and everyone expects unemployment to go on rising. It is normal here for a lengthy lag between growth starting and unemployment falling.
But Switzerland is different. There, unemployment is already falling. It is down from being relatively low in the first place to being even lower. It has fallen from 4.5pc to 3.8pc since January.
If you go to Zurich and ask the reason why, you have a good chance of being told: “employment is picking up fast because it is cheap to sack people”. It is a classic paradox and not the only one to be found in this part of the world.
In recent years, British policy-wonks have looked at how things are done in the USA. Meanwhile the Left has long had a warm glowing feeling about Sweden – usually unsullied by much research into the place. However there may be more to be learned about good social policy in little Switzerland. The country may not, apparently, have invented the cuckoo clock, but it has made a better fist of a welfare state than most countries. That is to say, it gets better results and, just as crucially, it avoids causing as much collateral damage.
The boom in lone and unmarried parenting is one of the ways in which our own welfare state has damaged our society - not only the children involved but also the women and men. Of course I am not blaming all lone parents, only saying that the research shows it is a less than ideal way of bringing up children and the effects on the children are well-documented. In Britain, 46pc of our children are born out of wedlock. In Switzerland the figure is vastly lower at 16pc.
So what happens, I asked, if you are, say, a young mother in Switzerland with a little baby but no husband or similar on the scene and nowhere to live? There is no countrywide answer to this question because it is not dealt with on a national basis at all. It is not even dealt with by one of the 26 cantons. It is dealt with by your local commune. There are 2,900 of these and the population can be anything between 30 and over 10,000.
Officials from this ultra-small local government will come and investigate the circumstances individually. The father will be expected to pay. The mother’s family, if it is in a position to, will be expected to house and pay for her. As a last resort, the young mother will be given assistance by the commune. But the people who pay the local commune taxes will be paying part of the cost. You can imagine that they will not be thrilled at paying for a birth or separation that need never have taken place. Putting yourself in the position of the mother – and perhaps the father – you can imagine that you will be embarrassed as you pass people in the street who are paying for your baby. Instead of feeling you have impersonal legal rights, as in Britain, you are taking money from people you might meet see at your local café. No wonder unmarried parenting is less common.
A similar system applies if you need means-tested benefits. Those made redundant receive, for a while, generous unemployment insurance payments from the cantonal governments. But once these payments run out, people depend again on their local commune. You would be cautious of claiming fraudulently because, if you worked in the black economy, your chances of being spotted would be high. And so it is that Switzerland has the second highest rate of male employment in the OECD. Britain’s rate is about 50pc worse.
Switzerland has arguably the most successful system of healthcare in the Western world. It is an insurance system with a twist. You are obliged to take out health insurance but you can choose which company to use. There is no state monopoly. So you can choose an insurance group which is connected to your line of work. Or you could go with a trade union-run insurance cooperative. Or a private, commercial company. That means there is some competition among these companies to provide the best possible service for the lowest possible price. Then these companies, in turn, have some choice over which doctors and hospitals they commission to work for them. So again, the doctors and hospitals have to compete to offer the best facilities and treatment at the lowest possible cost. The pressure is on and the performance is one of the best in the world. Poorer people get credits which enable them, too, to choose insurance.
The Swiss health service is decidedly superior to that in Britain, too. It has more doctors per capita, more advanced scanners, better cancer outcomes and so on and on.
All right, it is not perfect. Costs have been running ahead because, effectively, people get treated for free and since the service is easily available and good, they tend to overuse it. Thus the costs have been rising worryingly, as with other social insurance systems. However, it is still one of the best systems around. It provides less of a barrier to employment than most social insurance systems. The cost of the premiums is borne by individuals, not shared with companies as in Germany.
Swiss schools are also better, on average, than British ones. That has, again, surely got a lot to do with local control – not the fake kind that we are used to. Primary schools are run by the little communes and secondary schools and universities by the cantons. It means there are villages where the officials in charge of a school will all know the headmaster and many of the students. There is much less wasteful bureaucracy and much more direct accountability. But I should add that I gather home-schooling is virtually illegal. Those of us who care about the freedom of the individual versus the state do not like this part of the system one bit.
But the Swiss system really scores over ours when it comes to preparation for work. We have got used to Labour politicians and some Tory ones, too, spouting that university education is vital for economic success. This theory was comprehensively debunked in Alison Wolf’s book Does Education Matter? The Swiss example is an illustration that it is nonsense. While Tony Blair was claiming that half of young people must go on to university for economic success, Switzerland was and remains content to have a mere 24pc doing so. It has, at the same time, achieved much greater economic prosperity. Education is only compulsory until the age of 15 but actually the vast majority keep going voluntarily because the schools, colleges and universities are pretty good.
Most of the other three-quarters of students progress from school to vocational training. They don’t do airy-fairy theory. The training typically consists of one and a half days a week at college and the other three and a half at a commercial company. This truly prepares people with the skills and attitudes desirable for a successful career. The result? Switzerland has only 4.5pc youth unemployment compared to 18pc in France where they have the supposedly economy-boosting 50pc of students at university. It seems that writing essays on Racine does not make you a shoe-in at a pharmaceutical company. Funny that.
Let’s be honest. No welfare state is perfect. All of them do damage of one sort or another. And there are some claustrophobic, controlling elements in the Swiss system that are unappetising to British taste. There is a continuous pressure there towards centralisation and regulation. But there are plenty of lessons worth learning amid those lakes and mountains. The Swiss way of welfare is a darn sight better than the British.
The above is the unedited version of an article which appears in this week's Spectator magazine. I would simply link to the Spectator website but I can't locate the article there.
Some people in Britain have the impression that this country's welfare state is a unique creation. Actually, nearly all democracies have a welfare state.
This morning I heard a talk by Profesor Neil Gilbert from the University of California at Berkeley (given under the auspices of the Foundation for Law, Justice and Society). Here are a few notes (please forgive my uncertainty about a lot of significant details. I think the ideas are worth mentioning even though my notes are not as good as they should be):
- The share of expenditure on welfare (did he say welfare or social security?) as a proportion of GDP in OECD countries nearly doubled from the 1960s to the 1980s. (I am not sure whether he was measuring from 1960 to 1990. I suspect he meant a shorter period of 20 years)
- After the 1980s, there was a wave of work-oriented reforms across the OECD - particularly relating to unemployment and disability. I think he said that this was a reflection of the ballooning costs and a realisation that there had been unintended consequences resulting from welfare benefits.
- He quoted a German academic who has argued that during this period there was a profound change of psychology so that work became expected.
- I think he said there was a 'Purple' coalition in Holland whose programme was 'work, work and work again'.
- The Dutch pro-work reforms were radical. There were also reforms in Norway, Sweden and so on and on. There were a few instances where reforms went in the other direction but not many.
- In Holland, there had been one out of five [working age?] people on disability benefits. That seems an amazing figure. As part explanation at least, he said that as a disabled person you used to get 70pc of your salary for life! The figure for disability was a great deal higher than in neighbouring Germany.
- He said that it was easier to do pro-work reforms as an economy was growing. OECD GDP grew at an average 2.6pc a year from 1994/2007 and that rate was remarkably consistent. [One sidelight: remember how Gordon Brown used to boast that Britain was producing unparallelled, consistent growth? It turns out if was the normal sort of experience in the advanced world during this period.] Unemployment fell from 6% to 5%. The percentage of working age people in work rose from 64% to 66%.
- He regards the economic downturn starting in 2007 as a 'gamechanger'. Now, unemployment in the Euro area [did he mean the Eurozone or the EU?] is 9.9%. That hides a big range from 19% in Spain to 4% in Denmark. He said that GDP fell by 3.4% [I am not sure over what period exactly]. No wonder, incidentally, that some fear that Spain will default on its debts.
- In France, co-payments for healthcare are increasing. (Co-payments are payments by individuals that are not covered by the state health insurance and perhaps, in France's case, not even covered by the usual additional insurance).
I asked him if he thought that the attempted pull-back of the welfare state across the OECD was something that would last or whether the democratic pressure would always lead to welfare states being up against the ceiling of what states can afford. I don't think I can do justice to his reply but among other things he said there was a large build-up of obligations that had been promised and that therefore the cost would continue to be very high. He mentioned pensions, in particular.
It seems inevitable that there will be a growing chorus of bad publicity about the welfare reforms. It has already started. The cuts to housing benefit and the tightening of tests for incapacity benefit are the the first in line. At some point there will be hard luck stories that really get the attention of the public. There will be a 'Cathy Come Home' moment. ('Cathy Come Home' was a TV programme about a young homeless mother. She was shown in a pitiable condition and I believe it probably influenced social policy for years.)
I hope that Iain Duncan Smith and his advisers are thinking carefully about this.
There are undoubtedly some people who are going to lose out in the benefits changes. It is important that the reasons for the changes are kept to the fore.
Here are some of the stories about how people could lose out:
The National Housing Federation warning about homelessness as reported by BBC Online.
The Times had an article on Friday headlined 'Housing benefit cut by £1,0000 per family' and then, in quotation marks, 'Osborne is hitting 600,000 poor households'. Unfortunately I cannot link to it as Times Online now has a paywall. The material came from an analysis by the Chartered Institute of Housing. Here, though, is an earlier article in the Telegraph headlined 'thousands could be evicted because of 80 per cent cut to housing benefit' which also quotes the same institute.
On Incapacity Benefit, the Times again had a story about what could go wrong (in this case, he seemed to be projecting forward what the Labour government had already done.) Here is a report of the Times report(!) by the Press Association:
The architect of a new benefits system has said radical changes must be made to avert serious problems for vulnerable people, according to reports.
Paul Gregg, Professor of Economics at the University of Bristol, told The Times serious adjustments are necessary before 2.5 million incapacity benefit claimants are moved onto the new employment and support allowance (ESA) in October.
In its current form, the system leaves large numbers of failed claimants to languish on jobseeker's allowance with no prospect of work, he said.
Reflecting on perceived errors in the process, he told the paper: "To go ahead with these problems is not just ridiculous. It is, in fact, scary."
Such reports are building up a background of impressions of welfare cuts that are likely to hurt a lot of people. It is very likely that sooner or later, a concrete case of a decent person being hurt through no fault of his or her own will hit the headlines. Then it will be the usual thing: BBC interviewers will take a righteous, angry tone with ministers when talking about welfare cuts; uninformed comedians on television and radio (one of the most potent and irritating sources of propaganda combined with ignorance) will make 'jokes' about the cruelty of the government; the defence of the reforms by certain newspapers will get more cautious and the attacks from the Guardian and the Times will get more aggressive.
This is when the reform process will get really difficult.
The pace and breadth of welfare reforms that Iain Duncan Smith is attempting have not been seen in a couple of generations. This is the first time that I know of that a new Secretary of State in this field is one who already knows the subject in depth. He has hit the ground running which means the chances of getting things done are much greater than before. Also the Prime Minister, in appointing him, must have known what he was doing. So Duncan Smith is less likely to be undermined than previous ministers such as John Hutton whose ambitions were limited by Gordon Brown - a man who never understood welfare and what can go wrong.
Someone at the conference yesterday remarked that there had been nine different Secretaries of State for Work and Pensions during the Labour administration (which lasted about 13 years). No wonder progress was halting and uncertain.
But now must be an exciting time at the Department. These are likely to be the biggest reforms since the Attlee government. I have to admit a touch of jealousy about the opportunity they have to improve the operation of the welfare state in fundamental ways.
In an impressive speech yesterday, Duncan Smith went beyond the printed text several times. Among other things, he remarked that, in private, members of all parties acknowledged that reform was overdue. He is finally taking this one on.
The prime reason we need reform is that the benefit is so valuable to certain people that it is almost impossible for them to be able to find work which would pay well enough to pay their rent. So they are obliged to stay unemployed and stay on benefit.
Duncan Smith said that 75,000 people get more than £10,000 a year in housing benefit, presumably in addition to other benefits. It is impossible that they would be better off taking a low-paid job. So they are inevitably going to remain jobless, living off the taxes paid by others.
But Duncan Smith gave another reason why reform is desperately needed. The cost, he said, has risen by £5bn in five years and is projected to amount to £21billion in 2014/15. It is a staggering sum.
He said the task ahead of him was 'frightening' and that, once in government, he realised it was like trying to turn a super-tanker round. He said he was sometimes asked why he was moving so fast. He said he was 'in a hurry not to be late'.
With so much going on, it is sometimes hard to pick up on what is not being reformed. But one thing seems to be the Pension Credit. Steve Webb, the pensions minister, also spoke at the conference. I asked what he thought of Pension Credit and whether he intended to reform it. This is a credit which many poor elderly people do not collect simply because they are elderly and do not manage the paperwork. This is a kind of obscenity if ever there was one. Meanwhile the benefit also has been a substantial discouragement to saving for those who are less well off. This needs reform urgently but Mr Webb seemed quite content for it to stay.
The text of Duncan Smith's speech is here and also follows here....
Department for Work and Pensions
30 June 2010
The Rt Hon Iain Duncan Smith
Secretary of State for Work and Pensions
Wednesday 30 June 2010
[Check against delivery]
Good morning, and thank you to Andrew and the team for organising this morning’s event.
The Emergency Budget gave credibility back to the British economy:
* driving down our record deficit
* cutting the second highest level of debt in Europe – projected to be £149 billion this year – over the course of this Parliament with a clear, 5-year plan
* securing a forecast for steadily falling unemployment
* and producing a plan for sustainable, economic growth.
But the Budget was not just about being financially responsible or top-slicing.
It also laid the groundwork for radical reform.
Phase One of our agenda for change sits across two critical areas:
* Housing Benefit reform
* and the new Work Programme, which includes our plan to get the people who can work off long-term incapacity benefits.
The cost of Housing Benefit and Incapacity Benefit has spiralled out of control in recent years and put a great burden on the taxpayer.
But the true cost has been paid by some of the poorest receiving these benefits as they have become trapped in dependency.
Taking Housing Benefit first, no-one can really doubt these reforms are long overdue.
In real terms, the cost of working age HB has jumped by £5 billion in 5 years and is projected to reach £21 billion in 2014/15.
This is clearly unsustainable.
But cost is not the only problem.
The scale of these payments has meant that Housing Benefit has become a disincentive to move into work for those receiving it.
In fact, politicians of all parties have recognised the need for major reform. Yet for too long, nothing has been done.
75,000 people get more than £10,000 a year in HB and some get over £100,000 a year – payments that no-one on a low income could ever afford and it has distorted the social rented sector. So:
* we have capped Local Housing Allowance levels to the rate for four-bedroom properties
* we have introduced size restrictions to the social rented sector to make better use of existing housing stock
* and we have changed the percentile of market rents for Local Housing Allowance rates to 30% to help keep rising rents under control.
The reset the balance of incentives to move into work, these changes are vital.
The other key element in Phase One is the Work Programme and the transition to get people off Incapacity Benefit.
The Work Programme was launched yesterday when Chris Grayling opened the competition for the new commercial framework.
For the first time, the Programme offers providers real freedom to truly tailor support for Jobseekers.
No more centralised, one-size-fits-all schemes, but real support to help people back on the path to sustainable work.
To ensure that we are being fair to the taxpayer, the Work Programme will be run on a payment-by-results basis when it rolls out in the first half of next year.
We have to make sure people stay in work over the long term and make sure they get into the work habit.
We will also demand that Jobseekers take personal responsibility for accepting work when it is there, so there is conditionality and sanctions on the benefits side as well.
This is a complete reappraisal of how we help people back into work and involves a major change in the way providers deliver support.
And I want to see the voluntary sector and other groups get involved too.
Incapacity Benefit / Employment and Support Allowance Migration
We are also committed to tackling the huge numbers of people languishing on Incapacity Benefits.
We currently have some two and a half million people claiming inactive benefits – a figure which has remained stubbornly high, costing the taxpayer £7.2 billion.
Despite many of these people wanting to work, people can spend years on Incapacity Benefit without ever being required to have an assessment.
In fact, 30% of those on the old style benefit never had a medical assessment.
Our society should be capable of tailoring support to get people into work.
When John Hutton was Secretary of State for Work and Pensions, he pointed out that if you have been on Incapacity Benefit for more than 2 years, you are more likely to retire or die on it than ever move back into work.
This is why we are starting the process of migrating 1.5 million of those on Incapacity Benefit on to Employment Support Allowance and simultaneously providing intensive, personalised support to help them make that transition back into work.
In next phase of reform will take this forward:
* reforming the benefit system to make work pay
* simplifying the system to make it more efficient and understandable
* enhancing mobility
* and reforming pensions.
Make Work Pay
Benefit reform will play a major part here.
I have been working with David Freud and experts and officials across Government to look at how we can deliver a benefits model that ensures it pays consistently to take work.
In that context, we have asked Frank Field to look at the issue of poverty, beyond the narrow definitions, for example asset poverty.
At present, the poorest in our society see little reason to take the risk of finding a job and losing their benefits.
Seen in the light of the calculation made on the basis of risk and reward, the decision looks rational.
All the figures show that work provides the most sustainable route out of poverty.
However, the complexity and perverse nature of the system have acted as disincentives.
Multiple withdrawal rates have resulted in a regressive tax and benefit system for the poorest.
For someone to seek work for the first time in an area of high economic dependency, there is a cultural issue to overcome, as well as a financial issue.
We are asking them to make a positive decision about their life, but that is more difficult if they have no examples of people in work around them.
It can be a big decision and we have to make sure the risk outweighs the reward.
For as they see it, if they take a few hours work, for every £10 they earn they might lose £7, £8 or even £9 of their benefits.
Moreover, the complexity of the system means too often they have no idea how much they will lose or when it might be clawed back.
The benefit system has to be far simpler and establish a very clear link between work and reward.
A simpler system will also help to reduce administration costs, as well as reducing the opportunities for fraud and error, which today cost the taxpayer billions every year.
This process of reform to enhance the dynamic benefit of making work pay and simplifying the system is at the heart of our reform agenda.
I hope to bring forward more detail on this soon.
Beyond this, even as we make work pay and simplify the system, we face another problem.
Britain has one of the highest rates of workless households in Europe.
Worse, we have the highest number of children living in workless households in Europe.
But this is not about a North/South divide.
In my view, that is lazy rhetoric. The problem is more complex.
You can find workless blackspots across the country.
In fact, the gap between wealth and worklessness doesn’t have to be far at all.
For example, jobs growth and employment recovery in cities such as Manchester and Leeds has not benefited the deprived communities within them.
This is in part because the system works against labour market flexibility.
Not just transport costs, but because anyone in council housing who wants to move into an area with work runs the risk of losing their right to accommodation.
Again, it is that balance between risk and reward where we seem to penalise the poorest, yet expect them to take some of the greatest life-changing decisions.
So we will be exploring how we can take the risk out of mobility across wider areas with the Department for Transport and Communities and Local Government.
For too long, we have ignored the plight of those trapped in areas where inter-generational unemployment has become the norm.
Without the capacity to seek work, aspiration and hope become the preserve of the middle classes.
We are applying the same principled approach to pensions too.
Steve Webb will be talking more about this later this morning, but the main point to note here is that we are taking responsibility for facing up to the long-term challenges posed by the fact that we are living longer as a society.
That is why, for example, we have already made a start by announcing the end of the Default Retirement Age.
No longer should we have employees who wish to delay their retirement forced out by this sort of mechanism.
However, long-term reform involves providing a solid Basic State Pension that people can start to build on, while creating the right conditions to reinvigorate private savings.
We have made a good start by restoring the earnings link with the triple guarantee for the Basic State Pension.
But we have further to go, which is why we are taking forward the review on auto-enrolment.
I want to reverse the decline in saving levels and ask people to think carefully about how much they will need to fund the type of retirement they want.
We have already said we are committed to raising the state pension age to 66.
At the same time, we have to help people understand why this is the case and the benefits of to them of working longer.
Our figures show that working a single year beyond the current State Pension age and deferring your pension can increase retirement salary by up to 10%.
Just as importantly, working longer is also good for the economy.
If we can extend the effective working life of the country by just one year, it is forecast to increase GDP by 1% – that is around £13 billion.
66 is the starting point for this debate.
At present, there are plans in place to raise the State Pension age to 68 by 2046.
But if we want to be fair to next generation of taxpayers – and be realistic about increasing longevity – then we also need a serious debate about how far and how fast we move forward.
This agenda is, I believe, a bold agenda. But we have no choice.
With the welfare budget ballooning over the last few years, we need to shift the culture which underpins demand.
There is nothing good about a society that accepts people growing up without work, aspiration or hope.
The prize is a society more in balance where work is well distributed and where children grow up seeing work as a normal activity and responsibility is ingrained in them.
A society where people save for their retirement and where we can afford a more secure future for pensions.
My agenda is to make that happen.
This morning I appeared on Broadcasting House, a BBC Radio 4 programme. I was discussing what had happened to state welfare since William Beveridge's famous report. A Labour MP, Kate Green, was there taking a more favourable view of how things have developed than I do. It was a good, civilised, if brief, discussion.
I was honoured when Kate told me after the programme that she had read The Welfare State We're In. Sometimes people ask me what influence the book has had and I am never sure. I know that a signicant number of Conservative MPs and ministers have looked at it. But this is the first time a Labour MP has told me that she has read it. I am delighted by this since influence lasts better if it reaches both sides of the political divide. Not, of course, that Kate Green is likely to have agreed with it all by any means.
Among other things, I said that if Beveridge brought forward his plan today he would be regarded as a right-wing fanatic. The modern welfare state is a travesty of what he proposed. If his system had been put in place and persisted, much of the damage done by the welfare state would not have taken place.
He wanted a system of flat rate contributions for flat rate benefits. Means-tested benefits were designed be a tiny part of the system. In fact the very opposite has developed. Means-tested benefits are vastly more significant than unemployment benefit.
He did not specify any particular favours for lone parents. He was, provisionally, against special payments for housing benefit. He never even dreamed of those who became too ill to work being given more money or different conditions from those who are unemployed. The modern welfare state has very little to do with Beveridge. It is a corruption brought about by vote-seeking politicians - notably during the governments of Macmillan, Wilson and Heath - who knew and cared little about what could go wrong in welfare.
Beveridge proposed that the insurance flat rate payments should be at 'subsistence' level and that the non-insurance, means-tested assistance should be "something less desirable than insurance benefits; otherwise the insured persons get nothing for their contributions" (section 369). So the insured benefits would be 'subsistence' and the means tested benefits would be significantly less than that.
More on this, of course, is in The Welfare State We're In (chapter 2).
But here is a quotation on pensions and retirement that is not quoted in the book:
"...the conditions governing pension should be such as to encourage every person who can go on working after reaching pensionable age, to go on working and to postpone retirement and the claiming of pension." (Section 245)
Lord Freud on child poverty: what works to reduce it and what demonstrably has not worked.
The welfare reforms in the budget were bolder than I imagined they would be. Many people, myself included, would have thought implementing the sort of cuts proposed would incur so much opposition that no government would consider attempting them. We would have been wrong.
Our democratic process is a funny thing. The politically impossible is sometimes possible. And how has it been done in this case?
1. Long preparation of public opinion over many years by many people, gradually bringing home to middle-of-the-road people that welfare is not working very well and has had all sorts of perverse consequences. This got to the point where all parties were committed to reforms, often unspecified, of welfare benefits.
2. Barely mentioning the whole subject during the election.
3. Consequently not having to make promises that would be broken such as "we will not cut housing benefit".
4. Suddenly bringing in measures after the election that were never mentioned except in very general terms.
A similar pattern was shown when Labour came to power in 1997. It produced a sudden tax on pension funds and made control of monetary policy a matter for the Bank of England instead of the Chancellor. Both policies were radical. One was very much against the interests of millions of people. Neither was mentioned beforehand.
The "politically impossible" is achieved in a variety of ways. This is one of them.
This is a link to the Treasury's main entry point for information about the emergency budget.
Here is the press release from the Department of Work and Pensions about the welfare benefits changes announced in the budget...
Fairness and reform at the heart of Budget settlement
22 June 2010
In keeping with the commitment to fairness and reform, the Department today confirmed the details of its emergency budget settlement based around the key principles of:
* protecting the most vulnerable
* ensuring the best value for the taxpayer
* reforming the welfare and benefits system
* creating real incentives to make work pay
At its heart, is the commitment to help and support the poorest and most vulnerable in society, whilst making almost £5 billion worth of savings for the taxpayer by 2014-15.
This settlement marks the beginning of a programme of radical and fundamental reform that will see the welfare state return to its core principles of providing a safety net for those who need it and value for those who support it.
The Chancellor confirmed that from April 2011 all DWP administered benefits will be uprated in line with the Consumer Price Index (CPI). This is a better indication of inflation and is the target that the Bank of England works towards, so it makes sense for the Department to uprate benefits using this measure.
The Government's support for pensioners remains absolute. The Budget affirms the commitment to a triple guarantee for pensions, meaning the basic State Pension will be uprated by the highest of the price index, earnings or 2.5%. We will ensure that the basic State Pension will go up in line with RPI for next year if that is higher than all of the three other elements.
We have secured vital support for the 2.5 million poorest pensioners. We will ensure that low income pensioners on the Pension Credit Guarantee Credit receive the same cash increase as provided for through the triple guarantee for the basic State Pension in April 2011.
This budget also sees the Government address some of the unfairness that has become inherent in the Housing Benefit (HB) system and in many cases a barrier to helping people into work. The reforms will save nearly £2 billion in the financial year 2014-15, whilst making the benefit more fair and better targeted. It also marks the first plank of the reform of the benefits system. A reform which will in the long term make the system simpler and fairer, and help reduce the fraud and error bill which today stands at £5 billion across benefits and tax credits.
Local Housing Allowance (LHA) will now be restricted to a maximum of four bedrooms for new and existing claimants. Alongside this, weekly LHA rates will be capped at £250 for a one bedroom property, £290 for two, £340 for three and £400 for a four bedroom property.
LHA rates will now also be based on the thirtieth percentile of rents of the local area. This reform means hard working individuals and families will no longer have to subsidise people living in properties they themselves could not afford. From April 2013 LHA will be uprated by CPI.
There will be staged increases in the rates of non-dependant deductions in the income-related benefits from April 2011. By April 2014, these increases will bring the rates to the level they would have been had they been fully uprated since 2001 to reflect growth in rents and council tax. This measure, phased over three years, will strike a fairer balance.
To help make work pay from April 2013, people who have been on Jobseeker's Allowance for 12 months or more, will have a 10% reduction in their Housing Benefit.
We will also work with local authorities to ensure that the housing stock is more sensibly utilised and that entitlement to social housing reflects a family size. Working age HB claimants who are living in a property that is too large for their household size will have their benefit capped. To help the most vulnerable people who could be affected by this change, the Additional Discretionary Housing Payments budget will be tripled to £60 million a year from 2013-14.
We recognise the important work done by carers up and down the country and so we will provide an extra £60 million by 2014 to help fund an additional room for carers.
Mortgage interest support
The current system of mortgage interest support means that 92% of customers get more help than they actually need. To ensure that Support for Mortgage Interest (SMI) is better targeted we will reduce the rate from 1 October 2010 from 6.08% to the Bank of England average (currently 3.67%).
Disability Living Allowance
Disability Living Allowance (DLA) was originally designed to give those with severe disabilities extra help so they could live with dignity and independence in their own homes. While we are absolutely committed to supporting vulnerable disabled people, over the last decade the system has become open to abuse and the numbers claiming has steadily increased. In just eight years the numbers claiming DLA have risen by more than half a million.
DLA awards can be decided on the basis of self-reporting of need and, although medical assessments are sought for certain awards, these are not mandatory. We believe support must be offered on the basis of genuine need.
That's why we're taking the decision to reassess everyone of working age on DLA, and ensure everyone in the future goes through a proper gateway to claim the benefit.
There are still almost 700,000 lone parents claiming some form of Income Support without any obligation to look for work. Currently lone parents are expected to start seeking work when their youngest child is seven years old – we will lower this to when their youngest child is five years old. Our Jobcentre Plus advisers will work closely with the parents using their current discretionary powers to ensure that these obligations take into account the school hours of their children.
Sure Start Maternity Grant
As part of making the system fair to all families, the Sure Start Maternity Grant of £500 will now be made payable to the first child only. The grant was designed to help with the costs of having a baby – such as buying a pram or cot – yet it was payable for every child and cost the country £73 million a year. Working families will often make use of a pram or cot for a second or third child and we would expect families on benefits to do the same.
[Here is a link to the DWP website.]
Localism as a way of reforming welfare: an article by Dan Hannan.
Whatever else Labour did, they certainly made benefits more complicated.
The Child Poverty Action Group annually publishes the Welfare benefits and tax credits handbook.
How many pages do you need to read to get the picture? Well, I just bought the out-of-date 2009/10 edition because I could buy it much cheaper, second-hand, than its cover price of £37.
The total number of page is 1,601. The benefits system has become ludicrously complex.
Right now, we have a rare chance to change Britain. Many of us feel there has been a steady, decline in its culture, behaviour, crime and more besides. This has been accompanied – I would say largely caused – by the growth in welfare dependency. At last there is an opportunity to start reversing all that.
The man who, potentially, could turn our country round is Iain Duncan Smith, the new Secretary of State for Work and Pensions. He is an unusual man. He looks and talks as though he were still in the Guards. But he is the one Tory MP who has, in the years of opposition, dedicatedly studied our ‘broken society’. He has looked at the root causes and developed a plan to make things better.
David Cameron has had the guts to put him in charge of welfare benefits. We all remember that Tony Blair once wanted Frank Field, another keen reformer, to ‘think the unthinkable’ about welfare. But Blair never had the courage to put Frank Field in charge and after a while sacked him even from his junior position. Tony Blair funked it. David Cameron, though, has put a true radical in charge.
Yesterday Duncan Smith explained his plan which is, basically, extremely simple. He wants to make work pay. It is as obvious and commonsensical as that.
You may think, “but surely the Labour government often said it wanted to make work pay so hasn’t that been done already”. In short, no. Some improvements were made. But after 13 years of Labour reforms, plans and schemes, there are still people who, if they decided to work would face a combination of benefit withdrawals and taxation amounting to 95 per cent or more of what they would earn. As Ian Duncan Smith has said, the rich would shout the houses down if they faced a marginal tax rate like that and say it discouraged enterprise. They would be right. Exactly the same applies at the other end of the scale.
How does Duncan Smith intend to make work pay?
He wants to sweep away the complex system of different benefits and perks that have built up over the years and replace them with just two benefits. Doing this will enable him to devise a system in which everybody on benefits – absolutely everybody – would always be better off working – even part time.
When he was working on his plan at the think tank he set up, the Centre for Social Justice, he published a paper called “Dynamic Benefits” which illustrated the idea. He took, for example, the case of a couple with two children. Under the existing system, if one of them were to take a low-paid job, the combination of benefits withdrawal and taxation would amount to 96 per cent of what the worker earned. But under Duncan Smith’s plan, some of the benefits would not be removed, so the family would face a much lower rate of 69 per cent.
You will have noticed that, unfortunately, this costs money in extra benefits. But to make work pay, you need to do one of two things. There is no third way. Either you cut benefits for those who are out of work or you increase benefits for those who take up work. Lowering taxes helps but not enough. The first option of lowering benefits would be politically almost impossible and in some instances unfair. So that leaves the second option of raising benefits. Duncan Smith therefore needs to get some money off the Treasury.
His think tank estimated the cost at £3.6 billion. Obviously this is a terrible time to be going along to the Treasury and asking for money. Duncan Smith has tried to downplay the problem saying that he has found balancing savings he can make. But the savings his plan will make tend to be longer term and the costs would be immediate. John Hutton, a former secretary of State who tried to bring in reforms, said yesterday, “you always end up having a row with the Treasury”.
It is essential that Duncan Smith persuades his colleagues. Even Hutton, a Labour man, has said that Duncan Smith’s plan is “exciting”. A great deal is at stake. If the scheme is put through, suddenly it will be worthwhile for everyone to work – something that has not been true for over 40 years. It would be a revolution, possibly even bearing comparison with the successful welfare revolution in American signed off by President Clinton. His central idea is accompanied by other useful measures such as an insistence that people should be willing to accept work as a condition of getting Jobseekers’ Allowance.
Making work pay, though, is the key thing. The earlier the plan is put in place, the sooner the initial cost will be replaced by savings as more people have good reason to work. They will then come off benefits and start paying taxes. In three years or so, the plan will start saving money instead of costing it. If they get on with it, this reward will happen before the government faces the next election instead of after.
The pluses would not stop there, either. The unemployed are often demoralised and unhappy. Getting more people into work would literally make a significant number of people happier. And when more people see that work pays, then it will become more obvious that getting a good education matters. It will become clearer that having good manners and a good record are important, too – in order to get work. All these things can contribute, as time passes, to a renaissance in the decency and culture of British people. The damage that has occurred in our society could be counter-acted. The change could be the most significant that this government could possibly make. David Cameron’s promise to combat the ‘broken society’ would resonate loudly at last.
The prize in front of us is great indeed. I only pray that the current financial problems and long-standing failure of the Treasury to understand welfare will not prevent us from taking it.
The above is the unedited draft of an article I wrote for the Daily Express yesterday. The Daily Express link is here. Late last night I realised I had phrased the description of the combine benefit withdrawal and tax rates incorrectly. I apologise for this.
Britain's welfare system is "bust", with such penal disincentives to work that many people on benefits regard those who take up job offers as "bloody morons", Iain Duncan Smith, the new work and pensions secretary, says in a Guardian interview setting out the most ambitious welfare reform plans for a decade.
Duncan Smith says he is to propose to the Treasury a radical scheme that includes simplification of the complex benefits system designed to make it financially worthwhile for unemployed people to work, including in part-time jobs.
Interesting that he says he is to "propose" his scheme to the Treasury. That makes it sound as though his scheme has not as yet been accepted. In which case, it is also interesting that he should be presenting it publicly. Is he trying to push the cabinet into accepting it?
He claims that at present it is not worth going from the dole into work if the job pays £15,000 or less. He also suggests that it is an imperative that the state retirement age rises because of growing life expectancy. The coalition agreement published last week said the state retirement age should rise to 66, although it added that this would not happen before 2016 for men and 2020 for women.
He also hints at a curtailment of welfare for the middle class, saying the government is already paring back tax credits for those earning over £50,000. "My general view is that the benefit system is a deeply ineffective and costly way of subsidising people's lives. If you want to help people above a certain income the route to do that is through tax – it is simple, straightforward and easy. The benefit system is about helping people in difficulty."
Duncan Smith says, in advance of a speech tomorrow: "What we want to do is reform the welfare system – in the way Tony Blair talked about 13 years ago, but never achieved – a system that was created for the days after the second world war."
About Tony Blair, this is right. About the system after the second world war, it is wrong. If we had kept with the post-second world war system, our current problems would not have arisen in anything like the way they have. The real problems were created by incremental changes over the years by governments which had no real understanding of the dangers of welfare benefits. The Heath and Wilson governments were probably the most to blame, not Attlee.
The former Tory party leader concedes that his proposals, initially drawn up by his Centre for Social Justice (CSJ) thinktank, will cost more in the short term, but he argues that on the basis of figures given to him since going into government he is confident that "the short-term costs are minuscule, and the potential savings are enormous". However, he acknowledges: "I have yet to arrive at the point where everyone agrees that is the way forward."
This is extraordinary. He appears to be announcing a programme for which the government has not agreed to pay.
The CSJ report proposed the merger of eight benefits into just two, the withdrawal of benefits much more slowly for low earners, and the removal of rules that stop people claiming out-of-work benefits entirely if they do only a few hours' work a week.
The scheme was thought to cost as much as £3bn, but Duncan Smith has stressed that those figures are going down since he has had access to government statistics. He says £2m-3m a year is being wasted in tax credit overpayments.
Does the Guardian mean '£2bn-3bn'?
Change would come, the CSJ report said, at the expense of some middle-income families on £30,000 a year who would lose their child tax credit.
... Duncan Smith promises to press ahead in the autumn with a review of the work capability of all 2.5 million people claiming the [incapacity] benefit.
"People basically get parked on this benefit and forgotten about. If you have been on this benefit for more than two years, you are likely to die on it."
He argues: "The present benefits system is so complex and unfair that no one understands it. It leads at the bottom end to one of the most regressive tax and benefit withdrawal rates that it is possible to imagine.
"We ask people to go to work for the first time and then tell them to pay back 70%, 80% and 90% back to the state. These are levels none of the wealthiest bankers are asked to pay – they are moaning at 50%.
This is a very good point. The upper middle class elite which runs Britain has always readily understood, when it comes to themselves, that high tax rates distort behaviour and discourage incentive when they themselves are involved. It has lacked the imagination or logic to understant that the same applies to those who are much poorer and deciding whether to work or be on benefits. It is, perhaps, the core reason why the welfare benefits system has been so badly run for the past generation.
"If you are unemployed, and you come from a family that is unemployed, all you can see when you think about work is risk. It is a real risk because for all the efforts you make the rewards are very minimal and in some cases none at all.
"Socially, everyone says: 'You are a bloody moron – why are you doing this? You don't have to do this.' So taking responsibility is a real risk for you."
Duncan Smith's ultimate aim is a single withdrawal rate for all benefits. He also discloses that he is looking at widening the definition of child poverty to include other measures besides the previous government's definition of poverty, which he says was a measure of inequality. "You get this constant juddering adjustment with poverty figures going up when, for instance, upper incomes rise."
It is good to hear Duncan Smith reject the absurd definition of poverty which was, as described in The Welfare State We're In, a deliberate plot by the Left to keep up the level of people who could be described as in 'poverty'.
He will chair a cabinet committee on social justice, saying it is ironic that it has taken the Conservative party to set up such a committee.
Duncan Smith also promises to be tougher on claimants who refuse job opportunities. "The jobseeker's allowance has a sanction at present. It just has not been used. If you simply are not going to play ball, then the taxpayer has a right to say: 'You need to know there is a limit to the amount of support we are going to give you.' The sanction comes into play."
But he stresses: "I did not come into this department to cheesepare. I came into this department to reform. My purpose in life here is to improve the quality of life of the worst off in society. If somebody tells me that I have to do something different then I won't be here any longer."
There is everything to play for and quite a lot to lose for Duncan Smith, for the coalition and for the country.
Here are some excerpts from the Guardian article with my comments:
As leader, the former Scots Guards officer was introduced to searing levels of poverty, and the cycle that is often impossible to escape, when he visited the Easterhouse estate on the eastern outskirts of Glasgow. His experience prompted Duncan Smith to establish the Centre for Social Justice, ...It is always interesting to hear of the 'road to Damascus' moments that lead people to develop or change their ideas.
"The purpose of my life here is to improve the quality of life of the worst off in society." he says. "If somebody tells me I have to do something different then I won't be here any longer. Tattooed across my heart is that I didn't come here in any shape or form simply as a cheeseparer. What I have come to do is look root and branch at how we deliver welfare which is aimed at groups at the bottom end of society who need help and support, either because they can't work or because they can but they are unable to get back to work, or because they are disabled."
This sounds like a warning to Cameron that if he is not given the upfront money he needs to do the changes he wants, he will resign. He knows that it would be extremely damaging for Cameron to have a senior minister resign so early in his premiership. But he gives the warning because he passionately believes in what he is doing and does not want to spend his time at the job doing something else..'cheeseparing'.
Duncan Smith believes that two of his recent predecessors as work and pensions secretary – the Blairites James Purnell and John Hutton – embarked on the right journey, but found themselves thwarted by Gordon Brown. This was to shake up the bias in the benefits system, which "parks" people capable of work on incapacity benefit; to impose tough sanctions on claimants for other benefits, such as the jobseeker's allowance, who do not accept offers of work; and to take a hard-hearted approach to welfare by ending programmes which fail to place the unemployed back in work. This will involve a greater involvement for voluntary groups and private companies that will be paid by results.It is interesting that he should give credit to these former Labour ministers and that he blames Gordon Brown for thwarting them. This all rings true. While not a fan of the Labour party in general, I regret that Purnell has left frontline Labour politics.
A former acolyte of Margaret Thatcher, Duncan Smith is honest about how her government attempted to massage down the unemployment numbers by placing reasonably healthy people on incapacity benefit. "Over the years IB was, to some degree, used as a way of slightly getting out of the unemployment figures and not being overly honest. Conservatives and Labour have signed up to that. Being bold about trying to change it is also about saying we may be putting more people on the unemployment list shortly because that is where they should be rather than sitting on IB. But [we then] work with them intensively to get them back into work."
I have still to see any good evidence that the Thatcher administration ever deliberately used Incapacity Benefit for this purpose. It still seems to me it was a politically useful but not a calculated result. Be that as it may, Duncan Smith is absolutely right that tightening up Incapacity Benefit could easily have the effect of increasing the numbers who are shifted onto Jobseekers' Allowance. So the numbers who appear to be unemployed could easily go up, though in fact the numbers actually unemployed do not. I once suggested to a junior minister years ago - could it have been William Hague? - that the unemployed and the Incapacity Benefit claimants should be put together in one official figure as this would give a more accurate impression of changes in unemployment. Of course many people who are on incapacity benefit are genuinely incapable of work. But that number does not change much. So the change in the figure is an indicator of changes in those who are not incapable - in other words of unemployment.
The new work and pensions secretary echoes this language as he says: "Lots of different hard-headed politicians have come into this job saying they're going to do something different and walked out with the bills of social failure still rising. I'm determined that we take this once- in-a-generation chance to tie two parties together, and possibly elements of the third, to get the job done."
This could indeed be a great opportunity. It is the first time I can remember of a man becoming the secretary of state who has spent a number of years beforehand getting to understand how welfare can cause damage and thinking how to improve matters. It is interesting that he thinks he can get the Liberal Democrats on board. If he can, that would greatly increase the chances of the reforms going through.
I appeared - briefly - on BBC Radio 5 yesterday lunchtime to talk about the new government's plans for welfare reform. Yvette Cooper, the shadow secretary of state, came on to criticise the plans.
Prior to the interview, there was precious little I could glean from the Queen's Speech so I went back to the paper, Dynamic Benefits, produced by Iain Duncan Smith's think tank, the Centre for Social Justice, last year.
It does seem that part of the plan is include housing benefit inside the framework of the two benefits which would come to exist. If that is right, the plan is more ambitious than I had first thought and has greater potential for always giving people a good incentive to get work. It is also clear that those who did the work on it did a lot of detailed calculations.
There are basically two ways to make work pay. One is to reduce benefits for those who don't work. The other is to increase benefits for those who do work. The latter is - for political if not humanitarian reasons - the one that Duncan Smith opted for. In a word, he plans to take away less of the benefits when people get jobs. This way, it will always be financially worthwhile to work.
The trouble is that, in the short term at least, this costs a lot of money. In Dynamic Benefits, Duncan Smith's think tank suggested the extra cost would be £3.6bn offset by increased tax receipts of £0.9bn. The paper argued that there would, however, be savings in government expenditure in the form of reduced need for policing, lower NHS costs and reduced costs of administration in the Department of Work and Pensions. Unfortunately the savings he looked forward to will take time to come through whereas the increased cost of the benefits will be immediate.
With our current financial problems, will Duncan Smith be able to persuade the rest of those in the government to give him the money for the initial cost? I hope so.
He is quoted in a recent press release on poverty:
"These statistics reveal the scale of poverty in the UK today. Millions of children, adults and pensioners are daily experiencing the crushing disadvantage that poverty brings. They are living at the margins of society, unable to achieve their aspirations and trapped in dependency. Such levels of poverty are unacceptable and today’s statistics show that, despite huge expenditure, this has made little impact in helping the poorest.
"Vast sums of money have been poured into the benefits system over the last decade in an attempt to address poverty, but today’s statistics clearly show that this approach has failed. Little progress has been made in tackling child poverty, society is more unequal than 50 years ago and there are more working age people living in poverty than ever before. A new approach is needed which addresses the drivers behind poverty and actually improves the outcomes of the millions of adults and children trapped in poverty.
"It is right that we invest in addressing poverty, but we must focus our resources where they will be most effective. Work, for the vast majority of people, is the best route out of poverty.
"Yet the current welfare system is trapping in dependency the very people it is designed to help. The rise in working age poverty and continued inequality show that we must make work pay and the first choice for millions of people. It is not right that someone can actually be worse off by taking work, we should be rewarding such positive behaviour by making work pay.
"Likewise, we must demand a return on our investment in work programmes. It is crucial that we fully support people making the transition into work, but tax payers’ money should be spent on initiatives that work and make a difference to people’s lives.
"The time for piecemeal reform has ended. There has never been a more pressing need for fundamental radical reform and we will waste no time in acting."
our programme for government
Jobs and welfare
The Government believes that we need to encourage responsibility and fairness in the welfare system. That means providing help for those who cannot work, training and targeted support for those looking for work, but sanctions for those who turn down reasonable offers of work or training.
* We will end all existing welfare to work programmes and create a single welfare to work programme to help all unemployed people get back into work.
* We will ensure that Jobseeker’s Allowance claimants facing the most significant barriers to work are referred to the new welfare to work programme immediately, not after 12 months as is currently the case. We will ensure that Jobseeker’s Allowance claimants aged under 25 are referred to the programme after a maximum of six months.
* We will realign contracts with welfare to work service providers to reflect more closely the results they achieve in getting people back into work.
* We will reform the funding mechanism used by government to finance welfare to work programmes to reflect the fact that initial investment delivers later savings through lower benefit expenditure, including creating an integrated work programme with outcome funding based upon the DEL/AME switch.
* We will ensure that receipt of benefits for those able to work is conditional on their willingness to work.
* We support the National Minimum Wage because of the protection it gives low-income workers and the incentives to work it provides.
* We will re-assess all current claimants of Incapacity Benefit for their readiness to work. Those assessed as fully capable for work will be moved onto Jobseeker’s Allowance.
* We will support would-be entrepreneurs through a new programme – Work for Yourself – which will give the unemployed access to business mentors and start-up loans.
* We will draw on a range of Service Academies to offer pre-employment training and work placements for unemployed people.
* We will develop local Work Clubs – places where unemployed people can gather to exchange skills, find opportunities, make contacts and provide mutual support.
* We will investigate how to simplify the benefit system in order to improve incentives to work.
The official website for this is here.
This has some good things in it but also some ideas which sound 'well meaning' but will probably have little effect.
1. Increased sanctions for those who are not willing to work - good.
2. Simplification of benefits - good. This will help remove some perverse incentives.
3. Earlier referral of people to welfare to work programmes - good.
4. Something nearer to 'payment by results' for those companies who try to find work for the unemployed - good. This is far more likely to get results.
5. Reforming funding mechanism to recognise that upfront cost of getting people into work brings long term benefits - good. So often government does not do sensible things because it thinks only of payback in one year instead of five.
6. Support for minimum wage - bad. This causes unemployment for those who cannot command the minimum wage.
7. Re-assess those on Incapacity Benefit - it is not clear how this will differ from what the Labour government already had under way. In principle it is the right thing to do. Still there are hundreds of thousands on incapacity benefit who should not be.
8. 'Work for yourself' mentoring plan - I am dubious about this. How many people who are not able to get a job are going to be people who take on the far more demanding task of starting a business?
9. Work clubs - I am pretty sceptical about this one, too. Gathering together those who can't get work could potentially make them feel even more demoralised than before. Any such place needs to have a positive, go-getting atmosphere. That may not be easy. Will attendance be compulsory? That could at least combat the common problem of 'working and claiming'.
10. Simplification to ensure incentives to work - this is vital. But we all say we are in favour of this. No government has so far really pushed it through. It is extremely difficult - politically - to make this happen.
What is not there: a promise to tackle the difficult housing benefit problem.
Here is the Sunday Telegraph leak on what will be in the Queen's Speech on welfare reform:
Welfare Reform Bill (DWP).
The key piece of legislation for Iain Duncan Smith, the Work and Pensions Secretary. This will be "sold" as helping people back into work, partly by scrapping all existing programmes and establishing a single welfare-to-work regime.
However it will also increase sanctions on those who refuse, including reassessing all Incapacity Benefit claimants for "readiness to work" – with the threat of being moved on to Jobseeker's Allowance.
It sounds from this as though the Duncan Smith approach to welfare reform will be dominant in the immediate programme. See previous entries on an article he wrote and the publication he was responsible for last year. The same publication is referred to here, too.
Full Sunday Telegraph article here.
How to reform welfare benefits?
It is not often that anyone puts forward a definite programme. It is good that Dr Richard Wellings, Deputy Editorial Director at the Institute of Economic Affairs, has done so. I have numbered his proposals, underlining the key changes he proposes. I have also added some comments of my own in italics:
"The key to reducing welfare dependency is removing the “poverty trap”. For many claimants it is simply not worth doing low-paid work – at least not in the “formal sector”. Once work-related costs such as clothing, train tickets or petrol are factored in, someone working full time on the minimum wage will typically be just a few pounds a week better off. Because benefits are withdrawn as income increases, the effective pay rate can be less than £1 an hour.
Working may also mean losing the other perks given to those on welfare, including priority access to low-rent social housing. As a result of massive government subsidies, social properties are generally of superior quality to privately rented homes. Welfare dependency will only be reduced when there is a big gap in living standards between those who work and those who do not.
A series of specific policy measures would push the system in the right direction:
1) Child tax credits, for example, should be paid at a much lower rate to workless households to better reflect the additional costs of working.
The theory may be sound but the politics would be extremely hard.
2) More can also be done to reduce the income tax burden on low-paid employees – the new Government’s plan to increase personal allowances is a good start, though it would be far more effective if it were funded by benefit cuts rather than higher taxes on investment.
The idea would make a big difference but it would be a political Everest to climb. The closest thing that might be politically feasible would be to freeze benefits for a few years. It is much more politically attractive to increase the personal allowances to make work pay better.
3) The poverty trap is a particular problem for those stuck on incapacity benefits. The incentives to move on to them are too strong and there are powerful reasons for claimants to hang on to these entitlements. But incapacity is a privately insurable risk. The Government should not provide special benefits for those no longer able to work as a result of chronic health problems.
To make this politically possible, it would be necessary for the government to insist that everybody takes out this kind of private insurance. Otherwise you will have cases of people who genuinely develop serious chronic disability and who do not have insurance. There will be articles about their suffering and demands that the government 'put it right'. This is the reality of modern politics.
4) Perhaps most importantly, the perverse incentives associated with housing policy must be addressed. Social housing should be very basic – a last resort for the genuinely homeless rather than an aspiration for people trying to get accommodation on the cheap.
This is surely right. But politically it will only be done by the same methods used by the Labour government to cut back on social housing altogether: by stealth.
5)This means paring down the £7 billion-a-year public housing subsidies and also reforming the £20 billion-a-year Housing Benefit system. The latter is absolutely essential if work incentives are to be increased. Withdrawn at 65p for every pound earned, Housing Benefit is often the major reason why it is not worth working.
The problem is identified quite correctly. But the effect of cutting subsidies can actually make the perverse incentives of public housing even worse. If the rents are increased because of lower subsidies, then the value of the housing benefit actually goes up and if one gets a job, then it becomes an even bigger problem to lose that benefit. This is a very tricky policy area. But a continuation of the overall reducation in publicly owned low-cost housing would be good.
6)Part of the solution is to ensure that a significant proportion of rent is paid from basic benefits such as Jobseeker’s Allowance and Income Support. In this way, tenants are encouraged to find low-cost accommodation and the negative impact of the subsidies is reduced.
Yes, this is probably a good way to go. But, as before, Housing Benefit reform is both very important and full of pitfalls.
7)Moreover, the barmy rules that allow claimants to live in expensive areas such as Kensington and Chelsea should be phased out.
Absolutely. Getting a flat in areas like these is like winning the lottery. That is not what the benefits system is for. If the flats were let out at a market rent, many of the low-paid residents would find that they could not afford to work. So that is no good. If, on the other hand, they are let out at below a market rent, the tenants are being subsidised by others to have premium accomodation. That is not fair. They should not get this lottery win on the basis that they joined a long queue and, in some case, had children outside wedlock. It is absurd and unfair for the welfare system to house people in expensive flats and houses.
Be bold now – or miss the chance
Yet reforming the benefit system is only part of the equation. The Government must also tackle other barriers to work.
8) Key steps include reining back employment law
9) and making it easier for the unemployed to relocate by liberalising the planning system.
This is certainly necessary.The planning system increases the cost of housing for everyone. It reduces the quality and amount of housing available for the poor. It is a system accidentally designed to hurt the poor. A house-builder, Redrow, recently stated that it has to spend more on getting planning permissions than it does on buying bricks. The demand that developers should provide 'affordable housing' in their developments is a hypocritical gesture by a planning system which has not genuinely thought through how affordable housing can be created.
10)Indeed, by lowering the cost of housing and basic goods, a programme of deregulation across the economy would enable benefit rates to be cut without increasing poverty, giving a further boost to work incentives."
Dr Wellings' full article in the Telegraph the day before yesterday is here.
The presence of so many welfare reformers in the coalition government is excellent. There are at least four who have been appointed: Iain Duncan Smith is the secretary of state, Chris Grayling is a minister, David Freud is a minister and Frank Field is an adviser.
I have four concerns however. One is that they all have slightly different perspectives and ideas. That may interfere with the development of clear and radical change. My second concern is that the political groundwork has not been done for such change. The subject did not figure largely in the debates before the election. Prior to that, the public was aware of the Cameron idea of the 'broken society' but not so much of any significant reform to welfare.
Third, are the Lib-Dems really signed up for radical change? Fourth, we should be ready for utter hostility from the Labour Party and the BBC. The appointment of Frank Field to the team and, to a lesser extent David Freud who used to advise Labour on the issue, may be an attempt to defuse that opposition. But I am doubtful that this will really make much difference. And if either of them resigned, because they did not agree with some aspect of the reform decided upon, it would give the Labour Party and the BBC extra ammunition.
I hope my concerns will prove to have been excessive.
(David Freud was a colleague and friend of mine when we both worked at the Financial Times in the 1970s.)
For reference, here is an assessment in July 2006 of how US welfare reform had done up to that point. The figures at the end of the article are impressive but obviously the figures would not look so good today.
A former teacher who was falsely accused by a pupil suggested that one of the reasons for classroom disruption now is the Children's Act. Speaking on Radio 5 Live this morning, he said that the Children's Act meant that any teacher who was accused by a child of doing something wrong was immediately suspended. Teachers were terrified of being accused. He suggested that this was linked with the high rate at which teachers leave the profession.
The solicitor who spoke on the same programme who clearly was involved with children's rights had no sympathy for him and clearly thought that children's rights are a black and white matter on which there is no room for compromise. She might like to consider what damage is done to children by
a) the loss of good teachers.
b) the disruption of classes that would not take place if the teachers were more often able to maintain good discipline.
Good policy in education is surely better decided upon by considering what is in the best interest of children rather than inventing 'rights' and then adhering blindly to them regardless of the consequences.
See also here.
I have just returned from the launch of proposals by the think-tank Reform for changing welfare benefits. The report is called the The End of Entitlement and is surprisingly disappointing. Its main thrust is that lots of money is 'wasted' because it goes to middle-class people. Instead, the money should be concentrated on those who need it.
This is an idea which has been knocking around for centuries. Among the various times, I remember it being proposed by Conservatives in the 1970s. On the face of it, the idea is attractive. Let's save money by only giving money to those who really need it.
Quite absurdly, the name of Beveridge was mentioned in this context and anyone who has a cursory knowledge of the system Beveridge proposed would know that he was against such a thing. His proposal was for a flat rate contribution rate for everyone and a flat rate benefit for everyone, too. Means-testing was intended to play a tiny part.
It is disappointing, to put it kindly, that the people who wrote this report seemed to have little awareness of why the idea has been discredited and why, indeed, Beveridge would have none of it.
What is wrong with 'concentrating benefits on those who really need it'?
Let us say that you decide to remove Child Benefit in order not to 'waste' it on the middle classes and, indeed, the rich. In doing so, you will be under great pressure to make up the loss of this benefit to the poor.
So the pay-out that goes specifically to the poor - who will probably also be unemployed - will go up. But if that poor person thinks of taking a job, that child benefit element of his or her benefits will be lost. Whereas if you keep the child benefit, he or she will not lose it on taking a job. Therefore the incentive to take a job will be reduced. The poor person's reasons to stay on benefits will increase. This will, other things being equal, lead to even more unemployment with all the damage it creates in terms of the poor person's well-being and self-respect and the tax burden on those who work.
This failure to think through the effect of welfare legislation on the incentives affecting the poor has caused the unemployment and unmarried parenting explosions that have afflicted this country over the past half century. It is dismaying to hear them touted as a new proposal.
The trouble always comes from those who think it would be a good idea to save money but have no background in how welfare can go wrong. The Treasury has often been at fault in this way, I suspect. It comes as no suprise that the Reform presentation started with the size of the government deficit as a reason to reform welfare.
If benefits, such as Child Benefit, that often go to the middle classes were removed as part of a thoroughgoing reform of benefits in which the incentives facing the poor were centre stage, there need be no harm. But removing such benefits and replacing them with even more means-testing would be a terrible mistake.
I should say that I have previously and otherwise had great respect for Reform which has done some terrific work. However in this area, I fear they are aiming at the wrong target and could end up doing more harm than good.
There has been an interestingly muted response to Gordon Brown's proposal of hostels for teenage mothers aged 16 and 17. Simon Hoggart in the Guardian referred to
a weird Victorian notion of an institution for fallen women – a barracks for single teenage mothers
and his colleague Polly Toybee said,
Sheltered housing with support is a good idea for the youngest teenage mums without families. But why make good schemes sound like sending them to a Victorian nunnery for punishment?
If a Tory government had suggested such a thing it is sure that there would have been shriek of outrage that unfortunate women were being 'victimised'.
If the Tories run with the idea or anything like it when/if they form the next government, the Left and people on Question Time and the BBC will be sure to turn on it with fury.
Here, then, is a reminder of why action of some sort has become desirable. It comes from Dynamic Benefit: towards welfare that works recently published by the Centre for Social Justice. It includes a graph showing that Britain is the unmarried parenting capital of Europe. The only country that is anywhere close to us is Ireland. The rest have a far lower incidence of unmarried mothers.
These are the proportions of households headed by an unmarried mother (figures from Eurostat, read off as best I can from the graph on page 117 of the report):
The reason we are the European capital for unmarried parenting is that we give higher benefits - in cash and housing - compared to money available from low-paid jobs than the other countries. Italy gives virtually nothing and unmarried parenting there is rare. It is not that the cash encourages young women to have children out of wedlock. It is rather that government, by giving - relatively speaking - so much money has ended the situation that has previously existed in Britain and still exists elsewhere: that it is a disaster for a young woman to have a child outside wedlock so she does all she can to avoid it.
To those who say that giving less money is harsh and that this is a humanitarian issue I will agree on this: it is indeed a humanitarian issue. A government which changes the natural order of things so that more children are produced by unmarried mothers without any means of support other than the state is creating a deluge of misery for the children that are created.
There are many kinds of evidence that the children are likely to do less well at school and turn to delinquency causing unhappiness to themselves and others, too. Here are just two figures from the same report (p120):
- 70% of young offenders are from lone parent families
- children from lone parent families are than 70% more likely to fail at school.
It is indeed a humanitarian issue and we should think of and speak for the children who are created by the policies that remove the natural disincentive to have children out of wedlock.
In my previous entry I suggested we should take a closer look at those healthcare systems which came out best in an international survey. How do they work? Should we move in their direction?
Nick Cowen has suggested the Civitas report Quite like heaven? Options for the NHS in a consumer age for information on the Dutch system of healthcare which came out well. There is also information of the Swiss system which also come out well.
I went to the Civitas web site and found this highly relevant part of the summary:
Evidence from abroad, particularly countries such as Switzerland and the Netherlands, indicates that it is possible to deliver universal and comprehensive healthcare, equitably and to higher standards than in the NHS.
The Dutch, in particular have succeeded in setting up a system that has the potential to harness the benefits of real competition and real choice, through insurance arrangements, while maintaining health care for public benefit through tax credits and a Health Insurance Fund.
In both systems the government is neither the provider, nor main funder, of health care, but regulator. Political interference is at a premium compared to the NHS.
The ability of the patient to choose between insurers, insurance packages and hospitals ensures the system is patient-focused. Patients are a lot more cost-conscious and, if they don't like the health care they receive, they can vote with their feet and go elsewhere.
The power of exit for providers is real and acts as a powerful incentive for them to drive up standards. (ch.5)
So two of the top-ranking systems appear to include two layers of choice for the consumer: among insurers and among providers of healthcare.
[I am afraid the 'comment' facility on the website does not appear to working reliably at present. I have asked the website host if this can be fixed.]
Here are six good things about the Centre for Social Justice's report on reforming welfare benefits - and one worry. (This is based only, so far, on the summary):
1. The idea that no person on benefits should face a tax and benefit withdrawal rate of more than 55 per cent by working.
2. The idea of 'dynamic analysis' of welfare benefits. It is absurdly the case that people in government for decades have liked to think that benefit rates do not affect behaviour. (Thus it was that Edward Heath's government was the first to make invalidity benefit higher than unemployment benefit. It did not occur to them that the result would be hundreds of thousands more people claiming the benefit.)
3. The report aims to remove the existing discouragement that the benefits system gives to couples living together.
4. The report aims to remove the discouragement which the benefits system gives to poorer people to save.
5. It suggest simplification of benefits so there are two instead of over 50. This could be more important than it sounds. Imagine you are thinking of taking a job but it would be insecure. The idea of trying to make sure you get all your benefits back if you lose your job might be daunting. Or perhaps it is just too complicated to try to work out how much better off you would be working. I would suggest that every year ten or so employees at the ministry apply for benefits as if they were unemployed and experience all the hassle it involves.
6. The report also deserves praise for trying to make sense of housing benefit. This has been one of the most intractable problems in welfare reform. It is the elephant in the room that usually people don't want to talk about, it is so difficult to put right. I don't know how well the proposals manage the task, but the CSJ deserves marks for trying at least.
One worry: from the four page summary I have seen, there appears to be no mention of substantially raising the personal tax allowance. This seems to me to be a much simpler and less bureaucratic way of making work pay for the low paid than tax credits. People will object that the benefit of larger tax allowances would be enjoyed by the rich. It need not be if you re-jig tax bands and rates.
Obama is moving on towards his reforms of American healthcare. The Cato Institute is mounting a carefully argued opposition to his reforms.
The existing US healthcare is, of course, bad in a number of respects. It is just less bad that British healthcare. One of the agreed faults of American healthcare is its ridiculous cost.
Here are a few ways in which the cost could, perhaps, be reduced:
1. All people could be allowed to buy the insurance they want instead of coverage dictated by their state. (See excerpt from Cato paper below.)
2. Break up the cartels that I suspect may exist in US healthcare such as accredition only by a very limited number of associations for doctors and nurses. This kind of cartel leads to many, expensive years of training which are an unnecessary expense if a practitioner is going to work exclusively, say, in in obstetrics. The customer pays for massive over-qualification. Competition in accreditation would bring down costs and allow innovative, lower-cost solutions.
3. Reduce the awards given by courts for medical malpractice. These big awards increase the cost of a doctor's insurance which, I gather, can be amazingly high. If the awards were lower, the doctor's insurance bill would be lower and the customer's bill would be lower. The laws on what constitute malpractice may well be worth revising, too.
I expect there are plenty more, major savings to be had. American healthcare could perhaps be half the price without sacrificing any quality at all.
Here is an excerpt from the Cato paper in which the policy proposals of Obama and also McCain were discussed. Here is the section on McCain's liberalising ideas:
Whereas Senator Obama’s plan relies
heavily on new regulation, Senator McCain
generally calls for deregulation, particularly
in the area of insurance.
Most notably,McCain would allow people
to purchase health insurance across state lines,
a practice that is currently prohibited by state
laws. Since health insurance is largely regulated
at the state level, one of the major reasons
that costs differ so from state to state is
because of the varying regulations and mandates
that states have chosen to impose.
For example, New Jersey has imposed more than
40 mandated benefits, including in vitro fertilization,
contraceptives, chiropodists, and coverage
of children until they reach age 25.
The state has also adopted community rating
and guaranteed issue. In part as a result of this,
the cost of a standard health insurance policy
for a healthy 25-year-old man would average
$5,580 in the state. A similar policy in
Kentucky, which has far fewer mandates and
no community rating or guaranteed issue,
would cost the same man only $960 per
year. Unfortunately, consumers are more or
less held prisoner by their state’s regulatory
regime. It is illegal for that hypothetical New
Jersey resident to buy the cheaper health insurance
In contrast, if consumers were free to purchase
insurance in other states, they could in
effect “purchase” the regulations of that other
state. A consumer in New Jersey could avoid
the state’s regulatory costs and choose, say,
Kentucky, if that state’s regulations aligned
more closely with his or her preferences. Many
consumers would undoubtedly choose less
regulation. For example, young and healthy
individuals with low incomes may choose not
to buy coverage that forces them to subsidize
older, sicker (and generally wealthier) individuals.
For those risk-adverse individuals who
prefer greater regulatory protection, the cost
of those protections would be reflected in
Senator McCain’s proposal would permit
this type of interstate competition. With millions
of American consumers balancing costs
and risks, states would be forced to evaluate
whether their regulations offered true value or
simply reflect the influence of special interests.
As McCain says, “nationwide insurance markets
that ensure broad and vigorous competition
will wring out excessive costs.”
McCain would also allow people to purchase
insurance through nontraditional groups. Today,
three types of organizations can offer group
insurance: employers,unions, and trade associations.
McCain would open this to other groups,
notably churches and professional organizations.
More problematically, he would also allow
small businesses to band together in “association
health plans” (AHPs) to gain benefits
from pooling their risks. That makes sense if
the AHPs can choose among competing state
regulations, but there are reasons to be concerned
over creating federally regulated
AHPs. Doing so would be a step toward
greater federalization of insurance regulation.
As costly and damaging as much insurance
regulation is today, it is at least somewhat
restrained by the fact that special
interests are forced to lobby in 50 state capitals.
Fundamental to McCain’s vision
of health care reform is
changing not just who pays for
health care, but how that health
care is paid for.Moving the locus of insurance regulation
to Washington would simply create a
“one-stop shopping” center for lobbyists.
On the supply side, McCain supports
“innovative delivery systems, such as clinics in
retail outlets and other ways that provide
greater market flexibility in permitting appropriate
roles for nurse practitioners, nurses, and
doctors.” His campaign speaks of healthcare
being offered through a variety of venues such
as “Minute Clinic, COSTCO, banks, investment
such as Wellpoint, Humana or online services
such as Revolution Health, Google Health,
etc.,” with the government’s role limited to
establishing “some standards of transparency,
He has also called for “different licensing
schemes for medical providers.” In particular,
McCain has suggested that some types of
care could be shifted to nurse practitioners
and other allied health personnel. “We need to
have flexibility in the delivery of care so physicians
can spend more time on the tasks they’re
suited for,” a McCain advisor explained.
Although most medical licensing and scope of
practice laws are a state, not a federal,
purview, there are some actions McCain could
take in this area, particularly in terms of federal
Unfortunately, not all of Sen. McCain’s
proposals are free-market oriented.
How do you go about reforming welfare benefits?
It is not often that the story is told but the process which took place in Wisconsin was carefully examined in Government Matters by Lawrence Mead (Princeton University Press, 2004).
Here are few observations extracted from the first two chapters:
“The states with good-government traditions like Wisconsin were the most able to fuse generous benefits with strong work requirement. That is the combination that seems to work best and that the public supports.” (p12)
“Administrative work tests – where work effort is demanded as an eligibility condition for aid – avoided the fairness problem of incentives. They turned out to be more effective as well.” (p20)
“Work enforcement emerged as a middle ground between the old policy of entitlement and the more extreme conservative proposal of simply eliminating welfare.” (p20)
“While fraud and abuse were indeed rampant when welfare expanded in the 1960s and 1970s, states moved speedily under federal pressure to clean up, and the rolls remained largely unchanged.” (p20)
“However, deciding and enforcing the required work standards makes serious demands on government. The potential for political conflict or administrative breakdown is great. The dilemmas of traditional welfare are traded for institutional challenges that may prove just as difficult.” (p20)
Between 1994 and 2000, the real value of welfare benefits in Wisconsin rose a little. So the dramatic fall in caseload between those two dates clearly had nothing to do with the level of benefits. It appears to have been entirely due to the amount of conditionality. (Statistics on p22)
Prior to 1994, “Normally when applicants approached local welfare agencies, they were immediately processed to determine their eligibility. Under Work First, they were first counselled against unnecessary dependency and invited to pursue other options, including immediate participation in JOBS.” [JOBS = Job Opportunities and Basic Skills Training Programme.]….Self Sufficiency First (SSF) was a tougher version of the same thing…they had to attend work orientation sessions and put in 60 hours looking for work for 30 days prior to going on aid – or their applications would be denied.”(p30)
“SSF’s companion was Pay for Performance. PFP toughened the sanction for noncooperation with work requirements….hours of assigned activities that a client missed without good cause were docked from the grant at a rate of $4.25 an hour…” (p31)
“SSF and PFP were implemented in March 1996 for the entire state. They were thus the first reform programs to impact Milwaukee seriously. They produced little short of a revolution….huge numbers simply left the rolls, with the majority apparently taking jobs…”(p31)
“There is no point in considering options to solve a problem that will be rejected by the legislature or the voters.” (p35)
“Tommy Thompson [the Governor of Wisconsin] realized it was more important to begin a process of change than to know precisely where it was headed. By proposing one initiative after another, he got people thinking about change, and he kept his opponents off balance. He legitimised the idea that welfare, which had been sacrosanct, could be changed without the roof falling in.” (p35)
Early ‘inconsequential’ legislation “…changed the discourse surrounding welfare and thus prepared the way for the later and more radical programs…Policymaking is a process as much as a decision.” (p36)
There have been 20 occasions since 2004 on which gang members have fired guns in the Croxteth and Norris Green areas where Rhys Jones was killed. The gang members start as early as 12. They come from broken, workless homes and start out as couriers or look-outs for the older members. Then they progress up the pecking order, their rising status measured by the viciousness of the crimes they have committed.
Sean Mercer, the youth who killed Rhys Jones, has been stopped by police on an astonishing 80 occasions by the police. He scorned them and their lack of ability to arrest him and other gang members.
It is surely impossible to deny the association between the social breakdown – the unmarried parenting and the worklessness in Norris Green and Croxteth – and the development of these gangs.
In Norris Green, more than half the people are in social housing and the workless rate is 35 per cent – far above the national average. A worrying number of council house and housing association estates have turned into ghettoes of hopelessness, vandalism, crime and fear. A poll by YouGov on behalf of the Centre for Social Justice found that a third of social tenants nationwide feel that where they live is not ‘reasonably safe’. Nearly half won’t say that they trust their neighbours and 40 per cent don’t believe that the local schools provide a good education.
The underclass has grown and become concentrated in many council estates. What are we going to do about it?
Yes, of course we can start by tightening up the weaknesses in the policing, prosecuting and sentencing. These communities have a crisis on their hands and it is offensive that police time is taken up with so much paperwork. It is absurd that the police should have had such knowledge or the wrongdoings of Sean Mercer yet been somehow unable to send him to a corrective institution. The weakness of our justice system – and those who made it so weak – bears a responsibility for the death of Rhys Jones.
So, yes, it would help if Labour finally fulfilled its long-ago promise to be ‘tough on crime’. But we need to go much deeper. One of the major causes of crime is the way many estates have become centres of unemployment and unmarried parenting. There is plenty of evidence that unmarried parenting leads to a greater likelihood of children becoming delinquents. Add that to a concentration of unemployment on a council estate and the result can be extremely toxic.
Council housing has been around for well over a century. Originally it was allocated to the respectable and even prosperous working class. It was a reward and a privilege for people considered worthy of it. It was also for those who had been compulsorily or otherwise moved out of housing areas designated as slums.
But then in 1949, the allocation of council housing began to change. It began to be granted to people on the basis of need rather than worth. In 1977, this way of doing things became compulsory. And so began the downward spiral of Britain’s council estates. Sir Robin Wales, the Mayor of Newham described it like this last year: “If you walk in and say ‘I’m homeless’ you get a greater priority than if you walk in and say ‘I’ve managed to do something for myself but I’m still looking for a council property’”. I could add that if you walk in and say, “I’m homeless and I’ve got a baby” then you jump ahead as if you were playing snakes and ladders.
So the system now makes the life-choice of being unmarried and workless easier to fall into. Not actually attractive, but less obviously awful. Worse still, it makes it almost impossible to get out the trap. Once you have council or social housing and are in receipt of housing benefit and council tax benefit you will find it difficult to discover a job which would bring in much more money after you are obliged to give up these benefits.
Housing benefit is the dark secret of the whole benefits system. People often say the Jobseekers’ Allowance and Income Support are tiny. They say no one would be discouraged from working because they get one of these benefits. Perhaps. But once you add on housing benefit and council tax relief and other so-called ‘passport’ benefits, the maths change substantially. The council estates have become quagmires from which few escape. Would you like to guess how many people move out of council estates each year? It is mere four per cent. Once you are in, it is practically for life. A large minority of people are living in these estates, subsidized by everyone else and living low-quality lives.
Reform is desperately needed. But even after 11 years in power, Labour is still in the position where it is only promising a green paper next year. In other words, it has not thought the unthinkable. It has buried its head in the sand.
What should be done? First, one must surely allow those of retirement age to live out their lives in peace in the council homes they have known for years. But after that, we should no longer be content to let this disastrous social experiment continue as it is. Those of working age should be required to seek work if they get subsidised rents or housing benefit. The tenancies should not be for life but for limited periods – an idea that is being taken on in the Netherlands. Tenants should be given every encouragement to become the owners or partial owners of their properties. Unmarried parents should no longer jump up the housing lists compared to those who have worked and planned for their futures.
Such a programme – allied with a more purposeful justice system - could make a dramatic difference. Some may say the government would need a lot of political courage to do such things. But many of us – especially those in council estates – will need a lot of courage to face the future of increased unemployment, crime and fear that will result if we do nothing.
The above is the original draft of an article which appears in today's Daily Express.
Thwe full report on housing by the Centre for Social Justice is here.
NOTES AHEAD OF THE WHITE PAPER ON WELFARE REFORM
Britain has more than four million people who are of working age but who are claiming benefit on the basis that they are not working. This is the case after more than a decade of economic growth. The figure is likely to rise substantially now that we have entered a recession.
The numbers who are claiming benefits in this way are about four times the equivalent figure in the 1960s. This has been a massive increase and it shows particularly in the number claiming benefit on the basis that they are sick or incapable and then number claiming benefit as lone parents.
This enormous change in our society has been and remains extremely damaging.
1. Living on benefits and not on earned income is demoralising and disaffecting for many people. It has a tendency (though of course this does not always happen) to change the values of those affected. People are sorely tempted to go on claiming benefits when they know, in fact, they are no longer genuinely entitled to them. Karen Matthews, allegedly, was tempted to have more children for the bad reason that she would get more benefits and perhaps larger accomodation. Women are tempted not to care so much whether a man who fathers a child with her actually stays around. Men consequently feel they no longer have a duty to take responsibility for children they father. Unintended consequences such as these reverberate through a benefits culture.
2. The unemployed are depressed as is evidenced by the increased likelihood of them becoming ill, committing suicide, drinking and smoking more than others and dying.
3. Children brought up in families in which no one has worked are twice as likely to have psychiatric disorders (this telling statistic comes from the government-commissioned report by Professor Gregg published a week or so ago).
4. The benefits system has led to enormous growth in lone parenting and absent fathers. It is well established that children of lone parents and absent fathers tend to less well in life, tend to be less happy and have a greater likelihood of becoming delinquent. (Of course this is a tendency, not true in every or indeed many cases. I should also add that the evidence for this holds true even after allowance is made for class, wealth and other factors which might be thought to be a cause of children's good or bad outcomes.)
5. The welfare benefits have to be paid for out of taxing those who are working. This is, in many cases, simply unfair. It is also distressing to think of able-bodied people claiming benefits and the cost being paid for in part by taxing, for example, elderly people with very low incomes.
6. The fact that millions of able-bodied people are not working means that Britain's economic output and growth is lower than it would otherwise be.
What the present administration has done:
- it has reduced the value of benefits in comparison to earnings (continuing the policy instituted by Lady Thatcher)
- It has created various schemes of encouragement and training to try to get people to work.
- Incapacity benefit has continued to be paid on more attractive terms than unemployment benefit
RESULT There has been a big reduction in the number claiming unemployment benefit/jobseekers' allowance since 1997. (Personally I suspect the reduction in the value of the benefits is the more important cause of this change.)
Sickness and incapacity benefits
- There has been some mild tightening up on the checks on people and some encouragement to take up work.
RESULT The numbers of such benefits are a little higher now than in 1997. These benefits are now the benefit of choice for those who are unemployed. (As well, of course, as being the benefit which is paid to those who have genuine incapacity to work.)
Benefits to lone parents
- Little change except the general reduction of benefits in comparison with earnings.
- Some extra pressure on mothers with older children to take up work. This pressure is now due to increase especially on those with an oldest child of 12 or more.
RESULT A small reduction in the numbers of lone parents claiming benefits.
OVERALL VIEW OF THIS ADMINISTRATION'S PERFORMANCE
The Labour government basically funked it. President Clinton had signed into law a radical change in the USA which resulted a 60 per cent reduction in the numbers claiming welfare benefits. Other countries, according to Professor Gregg, also sharply increased the conditionality of their welfare benefits. Britain has made only marginal progress. The welfare culture with the damaging effects it has on national culture has been allowed to continue.
THE CURRENT PROPOSALS IN THE WHITE PAPER
At the time of writing, these have not been published. If the leaks are accurate, the proposals will tighten up the conditions more and offer more assistance to people in getting work. This is welcome. But it will still be modest compared to what has happened in America. It sounds as though there will be little in the way of workfare or in requiring people to turn up every week either to work or to try to get work (important elements of the reform in New York State, for example).
In one or more interviews, Alan Purnell, the Secretary of State for Work and Pensions, has referred back to the report by David Freud published in 2007. I thought it might be useful to have link to his report since it seems to have had an influence on the current minister in framing his reforms.
Here is an extract:
...the UK is some way behind international best practice. The lone parent employment rate in Great Britain stands at 56.5%, compared to 80% in Denmark, one of the best-performing comparators. Practices round the world vary. What is increasingly common, however, is an expectation that once children reach school age then receipt of benefits should be conditional on looking for a job.
I should declare that I used to work alongside David when we were at the Financial Times many years ago.
A Daily Telegraph leader on Saturday puts the case for tough welfare reform. Of course it is a case with which I agree and it is satisfying, well over 15 years since I conceived the idea of writing The Welfare State We're In to see one of the main contentions of the book supported in a major national newspaper. But, as I have said before, our best chance of a major advance will be when the Guardian and even presenters of the Today progamme or Newsnight take the same view.
The conclusion of the Telegraph leader:
Ten years ago, Labour identified a moral case for welfare reform, but, like so much with this Government, it was mere rhetoric.
Another attempt is to be made in the current parliament, but it offers no greater prospect of success than the last.
Unless a far tougher approach is adopted, another generation of children will be born into this cycle of state-sponsored hopelessness.
Sadly, Polly Toynbee in the Guardian appears unwilling to accept that things are getting worse or that welfare and housing benefits are the root cause. She wrote on Saturday:
But this is not a story of broken Britain going to hell in a hand cart; it is a picture of small but deep and persistent dysfunction passed from generation to generation. Social historians looking at Charles Booth's maps of poverty in Victorian Britain find the same areas still in deep poverty, often the descendants of those he studied. The seven Matthews children or Baby P's siblings have a slender chance of growing up to be good parents, as abuse, neglect and lack of love are passed on indelibly.
I would urge her to read the Duncan Smith article below which offers at least some evidence that this constant level of people in great difficulties that she suggests does not actually exist. The levels of dependency, worklessness and crime have all risen dramatically. Moreover the evidence from Charles Booth is not all as most people suppose as this earlier post reveals.
I have just been to a talk given by Charles Murray, the American intellectual who has been so influential in the matter of state welfare and the damage it has done. He spoke about his idea for reform - an idea described fully in his book In Our Hands.
His idea, briefly, is this: that the government should give every person US$10,000 a year in place of all welfare benefits, retirement payments and healthcare. Of this, US$3,000 would have to be used to buy health insurance.
I hope he will forgive me if I misreport some of his remarks. I do not have shorthand.
He said he was not primarily concerned that the welfare state costs too much "though it does", nor that it tends to make things worse "though it does" but that it "drains" the life out of people - particularly the spiritual life and sense of meaning.
He believed that people derive a sense of meaning in their lives in one or more of the following four ways: vocation, community, family and faith. For these things to retain their meaning, it was vital that government should leave them alone.
He offered his sense of how Europeans defined the purpose of life these days. He felt they think that the idea is to have a pleasant time until you die. He felt that they no longer believe that life has a special or transcendental meaning. Their priorities seem to be holidays and shorter working hours. The idea that work can have meaning in their lives has faded. Their belief in marriage, too, has dwindled. They even are no longer so ready to put their children's interests above their own. There has been a secularisation of society. People now think they are a combination of chemicals which, after a while, would "de-activate".
This may be a caricature of how Europeans think but it is not so very far from how a lot of Britons think. His view is influenced, I think by the fact that he is a believer - and believers in God are probably more widespread and fervent in America than in Britain. It is his religion that perhaps makes him more shocked by some of the behaviour in Britain than non-religious people are.
In fact, I would suggest that America's continuing belief in God helped to get through the welfare reform of 1997. Many simply thought that it was wrong, for instance, that there should be special government payments for those having children outside marriage. It was against God's law. (American religion is, perhaps, different from what remains of British religion in that, here in Britain, the church has given up on morality and tends to take a socialist approach, calling for more big government).
He said that if his plan were introduced, behaviour would be affected. There would be 'feedback loops'. I think he implied that a girl would be less inclined to get pregnant out of wedlock if she knew she would get no extra money from the government. She would also be able to get money from the father because his regular money from the government would be paid to a known bank account and money could be taken from it. This would, Murray suggested, affect his behaviour, too. He would be more cautious about making women pregnant.
The idea of 'feedback loops', such as described above, is crucial to understanding how the welfare state has undermined behaviour. The welfare state has, in many ways, taken away the feedbacks which a society without state welfare used to supply.
Among these, Murray emphasised, is stigma. He said "stigma is wonderful" and "it is extremely powerful" and he suggested it was rarely a bad thing except in novels.
My take on Charles Murray's proposal is this:
I am struck first of all by how he admitted that this was a compromise. He said he was making an offer to the Left. They would be allowed to keep big spending - since his plan would continue big state spending. But it would be in a different form that would curtail many of the bad effects of state welfare.
Many times I have been asked, when giving talks about my book, "so what is the answer?" I have always felt it is impossible to give a satisfactory answer. The ideal solution - minimal state welfare - would probably not be politically acceptable in a democracy. But reforms that would be politically acceptable would probably not be radical enough to make a 'good society'.
What Murray has done is come up with an admitted compromise. But I wonder whether even this compromise would hold. I can imagine some hard luck stories that would be played out at length on TV and radio and would cry out for action by the government. Gradually, the whole thing might fall apart. I fear that in a democracy there is a tendency for people to look to government to sort out every problem. I fear that even in America, the will to say: "let the chips fall where they may - the net good to society will still overwhelmingly come from a low welfare state society" is not likely to be strong enough in the face of such stories.
I have come to fear that all advanced societies are becoming more and more welfare state dependent and that people in these countries are gradually being changed more and more by these welfare states. The welfare state gives you money if you have children out of wedlock, it gives you money if you don't work, if gives you money if you are well but you pretend to be ill and it declines money it would have given you if you have saved. I agree with Charles Murray that the worst effect of the welfare state is on the character of the people it affects (mostly the less well off). I would love to see major reform but I fear that over the long term, reform will not last and that the damage done to society will continue.
If this happens around the advanced world, we are really talking about a whole civilisation in decline. Is this too gloomy? I hope so.
Rather belatedly I want to mention last week's speech by John Hutton, the Secretary for Work and Pensions. He flagged up the idea of requiring more lone parents to seek work in order to be entitled to welfare benefits. At present, they are not required to seek work until their youngest child reaches the age of 16. He suggested this age might be reduced to 12.
If this sounds radical, it is nothing compared to the situation in other countries. He mentioned that in Sweden, widely regarded in Britain as the place where welfare benefits are enormous and handed out without question, lone parents are expected to seek work. In America, I believe, lone parents are expected to seek when their youngest children reach the age of three months.
Britain has been amazingly lax about this with the result that we have an enormous lone parent population with millions of children disadvantaged as a result.
The fact that John Hutton is prepared to suggest this reform is a sign that common sense can break through from time to time. He must have been encouraged by the modest objections from the Left. The Guardian clearly did not like it much but did not make a great deal of it.
But the Telegraph points out that David Blunkett suggested something similar two years ago.
Let's see if Hutton goes ahead and puts this through. It would be one of the more significant welfare reforms of this government. It might also pave the way to reducing the age requirement much further.
This is part of the Guardian's coverage:
The work and pensions secretary, John Hutton, signalled his willingness to consider more stringent requirements for lone parents to look for work as part of a package of measures to encourage them back into employment and alleviate child poverty.
"Very little" is currently asked of lone parents on benefit with a requirement to look for work that begins only when the youngest child reaches the age of 16, Mr Hutton said in a speech in central London today.
Mr Hutton cited evidence which showed that when the youngest child reached 16, as many as a third of lone parents moved almost "seamlessly" on to incapacity benefit or made a further claim for income support within the following 12 months, he said.
The UK was at the bottom of the league of major European countries for lone parent employment rates, he said.
Countries such as Sweden and Denmark make "little distinction" between lone parents and other benefit recipients in terms of their obligation to look for work.
Here is some of the text of Hutton's speech with a few useful statistics:
The UK has one of the highest proportions of families headed by a lone parent in Europe. And yet despite the progress we have made in increasing the lone parent employment rate since 1997 – now up over 11 percentage points to 56.5 per cent - we still have the lowest lone parent employment rate of any major European country.
Coupled with this, we ask very little of lone parents on benefit – with a requirement to look for work that only begins when the youngest child reaches 16.
By contrast countries whose welfare systems are held up as beacons of progressive social values, such as Sweden and Denmark, make little distinction between lone parents and other benefit recipients in terms of the obligation to look for work. As a result, they have lone parent employment rates as high as 80 per cent.
Furthermore in the UK, when the youngest child reaches 16, there is evidence that as many as a third of lone parents move almost seamlessly onto Incapacity Benefit or make a further claim for income support within the following 12 months. None of this should come as a surprise. If a person has been out of the labour market for 10 or 15 years, during which time they have had little help or support, they are obviously going to find it difficult moving straight from Income Support on to JSA and being required to actively seek work. This just isn’t good enough.
We know that children of lone parents not in work are over five times more likely to be in poverty than children of lone parents in full time employment. And three times more likely to be in poverty than children of lone parents in part time work. Around 40 per cent of poor children live in lone parent households – the majority of which are non-working.
Ten years ago, President Bill Clinton was faced with a difficult decision. For the third time, Congress, dominated by the Republican Party, had sent him a welfare reform bill to approve. He had vetoed the previous two.
The Democrats - his own party - were overwhelmingly against this reform. Left-wing commentators warned that the poor would become destitute. But Clinton, for all his faults, knew a lot about the welfare system and the damage it was doing to America. After some indecision, he signed the bill. It was probably the best act of his presidency.
A decade later, the terrific success of America's welfare reform is there for all to see. The number of people receiving welfare benefits has fallen by 60 per cent. That is a staggering figure - a major change in the nature of the lives of millions of people. There has been a 70 per cent rise in the employment of single mothers. Welfare grants from the central government to the states have been cut by 30 per cent in real terms.
As for the poor, far from becoming penniless, as some said they would, their condition has considerably improved. The rate of officially-defined poverty among blacks has fallen from 31% to 24%. Among Hispanics, it has has fallen from 31% to 23%. The toughening up of welfare has made poor people better off. It is a paradox which many on the Left struggle to understand or accept. But it is not hard to explain: work is the best route out of poverty.
The benefits of the major changes have reverberated through the country. Since the amount of benefits paid by government have been reduced, taxes are lower than they would otherwise have been. As a result of lower taxes and more employment, economic growth has been faster.
Most Americans recognise the success of the reforms and are glad of them. Last week I was riding in America. A retired man who had administered food stamps - one of the major welfare benefits - remarked that the rules had been tightened up considerably and it was better. He used to do home visits to people on welfare and had seen how those who claimed they were not working often had a job on the side. Men who supposedly were not part of a single mother's household turned up when the welfare cheque arrived. There was a ripple of agreement.
Why can't we have the same sort of reform here? Why can't we have a similar transformation? The answer is that we could.
True, at present it seems impossible that a politician of any political party could manage it. Tony Blair talked a lot about welfare reform on coming to office, but funked it. Gordon Brown was effectively in charge of welfare but did not understand it. He bodged the entire thing, creating tax credits and numerous employment plans which have added greatly to the bureaucracy and left the underlying problems little changed. The discouragement to saving is actually worse. And we still have, by the government's own admission, over a million people on incapacity benefit who could be working.
Meanwhile the new Tory leadership, in awe of the way Tony Blair achieved power by being a centrist, has adopted a similar stance. It does not appear to have the guts to reform welfare.
Yet in the 1970s, it seemed equally impossible that overwheening trade union power would ever been contained. No one predicted the events which then took place. As with the trade unions, a powerful force is pushing for reform: the problem itself is causing major damage to our country. More than that, an increasing proportion of the population is aware of the fact.
We all know that there are millions of people 'working the system'. We know that single parenting is unpleasant for the mother, fails to socialise the father and often damages the children. It contributes, in the long term, to crime. We all know that incapacity benefit is often a cover for unemployment. We know, too, that lives spent in dependency are miserable. As Lord Beveridge, the man who wrote the report that led to the modern welfare state, said, "Complete idleness even on an income demoralises".
Eventually welfare reform will have to take place. The only question is when and how. The way things are going, welfare reform is happening so slowly that our society will continue to deteriorate. Crime will continue to rise. Our economy will lag further behind that of America and the rising countries of the Far East. More people will be so poor they are means-tested in their old age.
But if we took radical steps, like the Americans, we could change our nation's future. True, It would take political bravery and skill. Some of the measures would be angrily criticised as harsh. In America, for example, a single parent on benefits is required to seek work once her child is three months old. In Britain, she can continue on benefits until the child is 16.
In America, the bill that Clinton signed introduced a requirement that no one should live on welfare benefits for more than five years. That would be strong medicine by British standards.
But anyone who cares about this country must support radical reform such as America has had. Welfare is probably more influential on the nature of Britain than the church or the media. We must get our poor off benefits and into work. In doing so, we can make the poor richer. We could then reduce taxes. And in all this we would be doing major work to arrest the decline of civility and decency that has been the bane of our country in recent decades.
We need to fight for welfare reform not in order to be mean or hard but to give people back their dignity and to make Britain a better society.
(The above is the unedited draft for an article which appears in today's Daily Express.)
Here is an article on the success of America's welfare reform in the Daily Mail today.
In France, children are taught that the Battle of Trafalgar was inconclusive and that the British admiral was killed. In Britain, of course, we are told something rather different, that it was one of our greatest naval triumphs.
History is not just a series of facts but an interpretation of them. Quite often there is considerable disagreement. [A new book called ] Margaret Thatcher's Revolution is a cavalry charge by loyalists in the battle over how her time in office should be seen. It is a bold assertion that the Iron Lady made Britain a better place than it was before.
Yes, she had her flops.
State education probably got worse. Reforms of the NHS were not fundamental enough. Only too late did she seriously turn her attention to the problems caused by welfare benefits. And her impact on the family was not good. During her time, the proportion of children living with two natural and married parents fell from 83 to 68 per cent.
But by bringing together in one place all the things she did, this collection of essays rams home the astonishing scope of what she did achieve. Council tenants were enabled to buy their homes, foreign exchange control was abolished, many state-owned industries including British Telecom and British Airways were privatised, the top tax rate was slashed from 83% to 40%, new laws were created so that landlords could get their property back from tenants (which gave rise to the boom in buy- to-let), foreign students were charged for comimg to British universities, trade unions ceased to be major political forces, the European Union reluctantly gave Britain a big annual rebate, pensioners were given tax relief for health insurance, government spending fell from 45 per cent of the economy to 39 per cent and so on. The list is too long to give in full. As a result, Britain was transformed from being the sick man of Europe to the fastest growing of its major countries. Labour politicians are currently riding the wave of economic success which Margaret Thatcher started in the face of their angry opposition.
It was not only the official opposition that she had to fight. Lord Tebbit, in his essay, describes how Lady Thatcher was a radical up against a large number of upper class patricians in her own party who generally accepted the kind of Britain created by Labour since the war. Her victory over Edward Heath for the leadership was a 'corporals' coup'. This conflict between different sides of the party - the 'accepters' and the free market radicals - is still going on in the current leadership contest.
The book reminds us what terrific battle she had to go through to make such a difference. She was often going utterly against the consensus, and quite rightly. William Hague tells how he only narrowly squeaked into parliament through a by-election in 1989. He had lost thousands of votes because water privatisation had been so unpopular. He went to Margaret Thatcher and told her - rather recklessly perhaps - that he had met no voter in favour of this policy.
Many politicians would have expressed regret about this. But not her. William Hague reports: "Margaret Thatcher left me in no doubt that the fault of this lay with the voters than than the policy, an insight which was indeed borne out as the privatised industry succeeded and controversy evaporated over subsequent years".
This was not just another politician just trying to please everybody. She was a woman with a mission to make her country a better place. Thatcher's rule was an amazing story. For my money, this is a book that sets the record straight. Every Tory should have a copy. It reminds us all what she did and what is still to be done. It stiffens the sinews.
[Unedited version of a review of Margaret Thatcher's Revolution which has essays by Norman Tebbit, William Hague, Christopher Booker, Terence Kealey, Dennis O'Keeffe, James Tooley and James Stanfield, Patricia Morgan, David Marsland and others. The review appeared in yesterday's Mail on Sunday. The book can be obtained on Amazon herehttp://www.amazon.co.uk/exec/obidos/search-handle-form/202-6896457-4182224 or by clicking on any of the links to books on sale in the left column and then searching for 'Margaret Thatcher's Revolution']
I attended a talk by Professor Larry Mead at the Institute of Economic Affairs the night before last. He gave his talk in a scholarly, methodical way - quite different from the more openly partisan talk given by Ron Haskins last week. But the message was mostly the same. The big fact is that welfare rolls fell by 60 per cent in America following the 1996 reform package. It was an awesome result. Of course, people like Professor Mead knew very well that such a thing would be attacked as cruel and bad. But one of the impressive things about the American Right is that it arms itself with plenty of facts to counter such assertions:
He gave Federal Poverty Rates for whites, blacks and Hispanics in 1994, 2000 and 2003 respectively:
Whites: 14.5%, 11.3% and 12.5%
Blacks: 30.6% 22.5% and 24.4%
Hispanics: 30.7%, 21.5% and 22.5%
He ascribes the recent uptick in poverty rates to the reduction in US growth since 2000. Even allowing for this, it is very clear that there has been a major reduction in poverty among those who are most prone to it.
Incidentally, the official American government's definition of poverty is very different from that in Britain. In Britain, 'poverty' is defined as people who are much poorer than average. In America, the government defined poverty in 1964 as a particular level of income. That level of income is adjusted each year for inflation. This provides, in my view, a far more useful definition. Under this measure, so-called poverty does not rise because the top one percent gets richer. That is what happens under the British system (see postscript in The Welfare State We're In , "Why do people talk more about 'poverty' now there is less of it?"
What is the difference between Larry Mead and Charles Murray, author of the seminal work, Losing Ground? Professor Mead said that Charles Murray believed that people responded to incentives whereas he thought people did not always make proper calculations about where their advantages lay. He thought people, especially the least able 5%, wanted to be told what to do. That was what the welfare reform programme had done. It had declared, "We expect you to work. If you want the right to benefits, we expect you to work, even if you are a lone parent and even if you have a disability." (These are not his words but my interpretation.)
However in my view, the same measures could also be seen as a rearrangement of incentives. Only getting benefits if you work looks like a pretty strong incentive to get moving.
Unless I misheard him, Larry Mead said he was staying with David Willetts. An interesting connection. David Willetts has also told me in the past that he knows Charles Murray personally. David Willetts is certainly well versed in welfare reform. But his public pronouncements have fallen well short of the radical reforms that took place in America and was generally endorsed by both these men. Will the Conservative Party ever stand up for radical welfare benefits reform?
One of Larry Mead's book that I must get is Government Matters: Welfare Reform in Wisconsin. It available from Amazon here or you could try Abebooks.com or click onto any of the Amazon links in the left hand column and then search for 'Welfare Reform in Wisconsin'.
Gordon Brown's poor record as chancellor is gradually becoming more obvious.
This week, more light fell on his bad policy of tax credits. But first a quick summary of the bad policies he has pursued:
1. He has raised tax heavily to pay for investment in a monopolistic healthcare system (adding to the problem by fighting any attempt to make it less monopolistic). The result: the country will be poorer than it would have been and people less well cared for when ill.
2. He took a pension system which was amongst the most successful and well provided for in Europe and has put it in crisis. Result: more people will be poor in old age.
3. He has increased the prevalence of means testing - with all its disadvantages (see The Welfare State We're In and previous postings. One of the results: reduced savings (which will, again, cause more people to be poor in old age).
4. He has dramatically increased red tape, waste and errors through complicated systems - such as tax credits - instead of using much simpler methods (such as higher thresholds for tax-free income). By wasting public money, he has made us poorer. Through red tape he has cost us money again and wasted our time.
Here is some of the coverage of the problems Mr Brown created through tax credits:
Hundreds of thousands of families have suffered because of flaws in Gordon Brown's £13 billion system of tax credits, a watchdog says today.
Ann Abraham, the Parliamentary and Health Service Ombudsman, says poor families are particularly vulnerable because of the way they have been forced to pay back money given to them in error.
In a hard-hitting report, she says that, without reforms to the system, "a sizeable group of families will continue to suffer not only considerable inconvenience, but also significant worry and distress".
She urges ministers to reconsider the way the Government pays tax credits, which are claimed by around six million families.
She also accuses the Treasury of misleading MPs about the extent of the problems and calls for claimants to be allowed to keep overpayments received as a result of error. The ombudsman's findings, which are echoed in a separate report today from the charity Citizens Advice, are an embarrassment to the Chancellor, who considers tax credits to be one of his major achievements.
The full article is in the Telegraph.
Polly Toynbee, in the Guardian, rode to the defence of tax credits although in the process she was good enough to lay bare more about how disastrous they have been:
If the sums involved are eye-wateringly huge - £2bn overpaid - that is because more families are getting these payments and the money they receive is far more generous than ever before. Even so, it takes the breath away to find that out of the 6 million families getting tax credits, almost 2 million have been overpaid by an average of £1,000 each.
For Ms Toynbee, it is a regrettable side issue that two million overpayments have been made. For her, the point is how generous Mr Brown has been and how clever he is politically to help the poor, despite the fact that - so she claims - the electorate does not like this.
She claims, incidentally, that there is no higher incidence of computer systems going wrong in the private sector than in the public sector. I wonder what evidence she has for that, assuming she has some? But in any case, should not prudent government policy allow for the fact that public sector computer systems, at least, tend to go wrong (and way over budget)? Would it not be sensible to make policies, where possible, that do not heavily depend on them?
But the major failing of her piece is the failure to consider much simpler (and thus less accident-prone) approaches such as introducing a high threshold for tax free income. Tax credits are generally repayments of tax paid. It is far simpler not to take the tax in the first place.
A second failing in her piece is to ignore the fact that many of the poorest and least able do not claim their tax credits. It is just too difficult. So they are not helped at all.
Today, Polly Toynbee has been reminded that her great admiration for tax credits is not shared by, er,
The Guardian was the first newspaper to reveal the tax credit system was in trouble and Jobs & Money has campaigned tirelessly for two years for the Inland Revenue officials to take a more lenient stance on repayments.
Last year, under the headline "Don't make it easy for the taxman" we told how Citizens Advice was advising claimants to check their records before agreeing to make overpayments. Given the official reports detailing how Inland Revenue systems make thousands of errors a month, it turned out be sound advice.
In the spring we offered further tips on how to appeal if the Revenue had begun to claw back overpayments ("Tax credit victims in fightback") and reported on calls by MPs for ministers to tackle the "tax credit shambles".
It would be a further two months before Dawn Primarolo, the minister in charge would concede to conducting a limited review. Calls for her resignation this week were rebuffed by the government.
The government has resisted calls for an overhaul of the tax credits system ever since it was launched in 2003 amid chaos and confusion.
Ms Primarolo ordered a limited review last month, but this week's critical reports have failed to persuade her the system is flawed.
She has also ignored calls by charities representing low income families, MPs and civil service unions, which have campaigned for a moratorium on demands for tax credits to be repaid until basic defects in the system are investigated.
"Chaos", "confusion", "shambles"? Not a problem for Polly.
Ron Haskins, a senior adviser to President Bush on welfare reform, addressed the Centre for Policy Studies yesterday. It was an exceptionally good presentation - powerful about the way in which the 1996 welfare reform programme has succeeded and honest about admitting ways in which it has disappointed.
He brought home that the welfare reform was not, as it is usually described in Britain, a genuinely bi-partisan affair. It was, above all, a Republican reform that was fought bitterly by most Democrats (with one particularly notable exception). Based on the American experience, we should not get hung up on the idea that only the Left can reform welfare on the same basis that 'only Nixon could make peace with Commmunist China'. In America, passionate Republicans aimed to save their country though welfare reform and they have, to a remarkable degree, succeeded.
The notable exception on the Democrat side was,
believe it or not, Bill Clinton. Ron Haskins was assertively conservative and Republican. But, on the matter of welfare reform, he was full of praise for Clinton. He had met Clinton before he became president and even then had been impressed by his detailed knowledge of the welfare system. There was only one other governor who knew as much or more. Clinton was also emphatic, regardless of his own sexual history, that people should leave college, get a job, get married and have children in that order.
Most other democrats fought reform bitterly. That Democrat attitude still has not gone. Haskins now works at the Brookings Institution which clearly has a full representation, to put it gently, of Democrats. One day Haskins found, just in time, that one of the images he was going to use for a presentation had been doctored. It was a poster with Bush and Cheney. On it had been put super-imposed message, "We hate poor people".
He said that even Clinton vetoed the reform package twice. Support from Democrats in the House amounted to a mere 17 votes. Then Clinton, at the last moment, decided not to veto the package on the third occasion. Only at this very late stage did the vote among the Democrats increase to about 100.
The achievements of the package so far?
- a 60 per cent reduction in those on welfare rolls
- a massive saving in taxation
- a major reduction 'poverty' as officially measured among lone mothers.
- the rate of unmarried parenting has stopped rising but has not fallen
- black men are no more likely to have a job than previously
- there is little support in the figures for the idea that people can start on a low income job and hope to rise and rise from there.
I suggested, in the question and answer session, that getting people to marry more could be like trying to turn around an oil tanker - it takes time. People who are thinking of having sex, will not pause and say "Oh no, wait a minute. The benefit system has changed. Perhaps I won't after all."
It takes a big cultural shift. That takes place by such things as a younger sister seeing that her older sister is not having such a good life as a lone parent. She is having to drop off her children in the early hours at school or with childminders, then she is rushing to work, then going back to pick up the children and put them to bed. Not great fun. Over time, the younger sister might come to decide - or be advised - that maybe it would be better have children in the context of marriage.
Others in the room were concernd that a large amount of money was being spent on unmarried mothers in the form of child care subsidies that they would not get (?) if they were married. So lone parenting was, perhaps, still being unintentionally encouraged by the state.
Following back a 'site reference' to this website, I came across the following by someone signing him or herself 'darkhorse' on Guardian Unlimited 'The Talk'.
I notice that Bartholomew unquestioningly parrots the comments of Haskins.
It doesn't occur to him that changes in the statistics relating to single parent families and unmarried parents in the US over the 90s are almost certainly down to the fact that the US experienced a recession in the early 90s, followed by the usual economic growth cycle after a recession and the dotcom boom from 96-2000.
Instead, like a starry-eyed evangelist (or propagandist, more likely) he is, he unquestioningly accepts the spurious attribution of this improvement in income to a range of welfare reforms implemented in 96. It's as if he believes nothing else happened in the US in this period except these blessed reforms.
It so happens that Ron Haskins dealt specifically with this line of political counter-attack. Unfortunately I don't have a transcript of his remarks so I cannot authoritatively give chapter and verse. But he showed a chart which, from memory, was of the number of people on welfare benefits over several decades. This showed that periods of strong economic growth in the past have indeed had some effect. But the impact was alway relatively small and quite trivial compared to what has happened since 1996.
The blog Once More Unto the Breach has an interesting posting and comments on the options and difficulties in welfare reform.