Today, I want to talk to you about my plans for welfare reform.
This is an issue I have championed for many years.
The Coalition Government has committed itself to reform and just a few months in, we are already in the process of making that happen.
Successive governments have failed to get to grips with an increasingly broken system.
Minister after minister has echoed the tough rhetoric, but either have not been given the time to implement the scale of reform required, or have shied away from doing so.
- So instead of facing up to the challenge of a broken and ballooning welfare system, we have seen millions of people left to languish in dependency, with little hope of making the transition back into work;
- Rather than alleviating poverty, we have seen more and more money poured into a benefits system making the poverty trap worse.
- And in the process, we have too often ignored the roots causes of poverty in favour of chasing an arbitrary poverty line.
The cost of failure
The cost of this failure is paid by everyone:
- by the taxpayer who has had to watch the welfare budget spiral upwards in real terms from £63 billion in 1996/1997 to £87 billion in 2009/2010 (including tax credits, excluding pensions) - almost 40% in just over a decade
- by the economy and society, which lose the skills and talents of those left behind when more than one in four working age adults who can work, do not
- but the highest price is paid by the individuals who find themselves caught in the welfare dependency trap:
- the 5 million people stuck on out of work benefits
- the 1.4 million who have been receiving out of work benefits for 9 out of the last 10 years
- and the 1.9 million children living in workless homes.
The scale of the challenge cannot be underestimated.
Today, Britain has one of the highest rates of workless households in Europe:
- no-one works in almost one out of every 5 households - that is almost 4 million households in all, and
- 1.5 million people in this country have never worked at all.
It is unacceptable that in a prosperous country such as Britain, so many people are living in ghettos of worklessness, without any real sense of aspiration.
I witnessed it for myself when I went to Easterhouse in Glasgow in 2002 - an experience that convinced me more than ever that we had to break the cycle of inter-generational poverty.
I don’t need to tell anyone here about the challenge here in Scotland:
- neighbourhoods where 60% or more of the residents do not work
- homes where not a single family member has had a job in generations
- areas in cities such as Glasgow, Dundee and Edinburgh where claimant count and Incapacity Benefit rates are more than double the UK average (UK Claimant Count 3.6% vs Glasgow City 6.3%) and
- a country that boasts 7 wards in the top 10 list for lowest male life expectancy at birth in the whole of Britain. That means a man born today in Glasgow is expected to live an average of 70.7 years, compared to 82.9 years in Westminster where I work.
Many of these communities saw few benefits in the years of economic growth.
Income inequality is now at its highest since records began in 1961 - a legacy we have inherited.
In Edinburgh, as in too many cities in the UK, the well-off can live just a short walk away from the worst-off.
It is clear that the solutions of the past have failed to improve the life outcomes of the most disadvantaged.
Rather than focusing simply on wealth redistribution, we should be looking for better work distribution.
Work is the key to tackling poverty.
It is good for society. It is good for people’s health and well-being. And it is good for children, because we know that those growing up in working households do better later in life than their peers from workless households.
This is why we are reforming the welfare system and the 21st Century Welfare paper I published in July represents a milestone in this journey:
- to make work pay for the poorest
- to simplify the benefits system so that people understand what they are entitled to and what we expect from them in return, and
- to provide personalised support to help people become ‘work ready’.
Make work pay
Making work pay is fundamental to what we are trying to achieve.
Under the current benefit system, too often people do not see work as the obvious choice.
There are two closely inter-linked reasons for this:
- first - the benefits system can disincentivise people from taking a job, and
- second - where people do decide to work, the system of multiple withdrawal rates for benefits is so complicated that taking a job at the lower end of the pay scale involves taking a very real risk for little or no reward.
When you consider that for some of the poorest people in society face losing £8 or £9 for every £10 earned, the decision not to work, or remain on limited hours, seems rational.
In effect, the tax rate for the very poorest can be in excess of 90%.
This paltry financial incentive also has to be weighed against the other risks the poorest face:
- of being out of step with your friends and neighbours who see no reason to work
- of losing your housing benefit or other types of support
- or the risk of not keeping the job for long and then having to navigate your way back through a maze of forms and agencies to land back where you started.
This leads me to the second major problem with the present system - its complexity.
Even long-serving DWP staff find it hard to navigate. And no wonder:
- DWP issues 14 manuals to staff to help them assess benefit claims covering 8,690 pages, and
- there are even more volumes the Local Authority staff who administer Housing Benefit.
One senior official from my Department who visited Jobcentre Plus recently saw an experienced adviser take 45 minutes to calculate whether one woman would be better off taking on extra hours.
That is time-consuming for individual advisers, but looking across all DWP’s customers, you can easily imagine why it costs multiple agencies £3.5 billion to administer the benefits system and why fraud and error accounts for £5 billion a year.
Creating a simpler benefits system will go a long way toward re-balancing the risk and reward trade-off for the poorest - as well as delivering significant savings through reduced administration costs and far more efficient service.
The 21st Century Welfare Paper sets out the options for doing this - including a Universal Credit system with a simple taper system that ensures that if you work harder, you see a clear reward for that extra effort.
This approach will create a fairer, more dynamic system that supports work incentives and makes sure that work pays.
Just as importantly, we have to help more people make the journey back into work and out of poverty - which is where our Work Programme comes in.
Some of you here today may be involved in bids for the Scottish element of the programme. If so, good luck.
But for those of you who don’t know as much about the new scheme, it is designed to give providers far greater freedom to deliver a tailored package of support to individual customers.
It will ensure we deliver more effective welfare to work schemes and better value for money for the taxpayer:
- by combining the professionalism and financial capital of global providers with the energy, insights and excellence of local social entrepreneurs
- by delivering payment by results
- by supporting positive behaviours across the people we help, and
- by ensuring we don’t shrink from balancing that support with conditionality so that people take reasonable offers of work when they are available.
At the same time, we are planning to drive forward a series of additional support options such as:
- encouraging people to move into self-employment
- promoting Work Clubs
- highlighting the benefits of volunteering to bolster work skills
- developing work experience and pre-employment training for young people, and
- supporting further education and apprenticeships - something that I know the Scottish Government has been doing a lot of work on.
This is a two-pronged approach:
- reforming the benefits system so that it actually incentivises work, and
- delivering a welfare to work programme that focuses on overcoming barriers into the labour market.
And in this way, we will transform the way we support the most disadvantaged people in society
Incapacity Benefit (IB) and Employment and Support Allowance (ESA)
Alongside this is a programme to move people away from the old-style Incapacity Benefits.
For too long, people have been abandoned to a lifetime on sickness benefits regardless of their condition.
Somebody could be on IB for as long as 5 years before they talked to anyone at the DWP about their condition or their work options. There have even been cases where people were not seen by anyone for 10 years.
Work plays a huge part in developing independence, confidence and self-esteem, so if someone is able to work we should support them in playing a full role in society.
Yet today, there are some 2.5 million people on incapacity benefits and around a quarter of them have been claiming for more than 12 years.
While we know some are unable to work - it is a tragedy for the others who have been abandoned for so long without real support from the welfare system.
That is why we are working so hard to ensure that the Work Capability Assessment helps us to target the right support to the right people.
Obviously, if a person cannot work, then they should get the support they need. But for the rest, we have a responsibility to help them build the skills and confidence they need to prepare for work and a better future.
We need to get this right.
That is why we have already implemented a number of changes to the Work Capability Assessment as a result of our review and we will be closely following the progress of the first tranche of the new assessments taking place in Aberdeen and Burnley from October.
Over the next few years, the IB Migration and the new Work Programme will together help people to make the most of their lives.
We know there are many other challenges we have to face up to as well as welfare dependency:
- educational failure
- family breakdown, and
- drug and alcohol addiction.
And the Government has plans to do this - not least through the Cabinet Committee on Social Justice and the work my Department has been doing with Labour MPs - Frank Field on poverty and Graham Allen on early intervention.
For many people, though, these 21st Century Welfare reforms will represent the first step they have taken toward sustainable employment for years.
This a transformational moment - not just for the individuals concerned, but for everyone here today and the country as a whole as we start to see the full social return on our investment.
For too long we have been content to see a large proportion of the population consigned to a culture of dependency. Unable to change their life outcomes, their innate skills have been lost to the nation.
It is time to challenge that and together release the human potential that has lain dormant for too long.