I’d like to thank IPPR for the invitation to speak to you about welfare reform.
It’s important that we have a debate about this.
We currently have:
- 5 million people on out of work benefits
- one of the highest numbers of children in workless households in the whole of Europe
- and 2.6 million individuals on incapacity benefits, of which around 1.6 million have been in receipt of benefits for more than 5 years.
And the costs of welfare dependency are unsustainable - the welfare bill has risen by over 40% in the last decade or so.
So let me start with an analysis of why we’re in this situation.
First, the system is immensely complex.
A host of benefits, premiums, and allowances interact with each other in a myriad of ways.
And different benefits are delivered by different agencies, making it difficult for people to know who to contact and when.
It’s no wonder the guidance manuals for advisors run to thousands of pages.
Even my officials debate the exact number of benefits - it depends on whether you are counting premiums, additions and so on or not.
Disincentives to work
Once they are on benefits, one of the first questions people ask is whether they will be better off in work.
Too often they find that the answer is no, or only just.
This is because, after a small disregard, benefits are tapered away at a very high rate.
For example, certain lone parents can lose 96 pence of every pound they earn.
Currently around 130,000 people face a marginal deduction rate of more than 90%.
Even worse, around 600,000 individuals face a Participation Tax Rate of over 90%.
For some people choosing not to work is a rational choice.
Long term dependency
And then there is the challenge of long-term dependency.
Many people on Incapacity Benefit suffer from temporary conditions, and could be supported to return to work.
But instead many have remained on the benefit for years, self-esteem often damaged and skills often rendered obsolete.
And we shouldn’t forget that, in 2007/2008, almost half of all claimants who underwent a Personal Capability Assessment for Incapacity Benefit did so by paper-based assessment - they remained on benefit without their condition being assessed in person.
This isn’t about being ‘tough’ on claimants by making them attend face-to-face interviews.
It’s about helping them to keep in touch with the labour market and access the support they need.
And there’s another issue we need to tackle back along the line - we need to do more to stop people falling out of work in the first place and on to sickness benefits.
Principles of reform
So we needed to take a fundamental look at the support being provided - and that is what we have done.
In a sense this is about creating a contract with people.
We have to make the system simple.
We have to make work pay.
We have to help the most disadvantaged to find and take work.
And in return, we expect them to take the work when it is available.
First, make the system simple and make work pay.
The Universal Credit is at the heart of this.
The Universal Credit will be tapered away at a clear and consistent rate - around 65% before tax - making it easier for people to see how their earnings will change as they move into work.
Clarifying the taper rate will mean that in the future politicians will have to have a more open debate about where they believe the taper level should be set.
Bear in mind that, right now, some people currently lose 96p in every pound they earn.
The Universal Credit will also use variable disregards to allow for different groups, such as lone parents and those with disabilities.
We estimate that the Universal Credit will improve work incentives for around 700,000 people currently in low-paid work, and will pull around 850,000 children and working-age adults out of poverty.
We are now developing our delivery plan for the Universal Credit.
We expect to start introducing the Universal Credit from 2013, testing the system in the Spring before beginning roll-out in October.
From October 2013 all new claims for out-of-work support will be treated as claims for Universal Credit.
And from April 2014 to October 2017 we will work through existing cases.
This will be given the highest priority in my Department, and we are already deploying a strong management team and our most capable and experienced people onto the programme.
There has been speculation about the IT which will be used to deliver this programme.
But the fact is the scale of the IT delivery is similar to that for Employment Support Allowance, which was successfully delivered on time and within budget.
DWP and HMRC are working closely together to ensure the IT required to support Universal Credit is delivered on time, and that customers and employers are transitioned to the new systems in a co-ordinated way.
The timescales we are working to were endorsed by a number of leading IT practitioners at a recent workshop, where the overwhelming view was that with appropriate governance the IT is deliverable in 2013.
The Work Programme
Tackling incentives is important, but it is only one part of the story - we must also offer appropriate work support.
That is where the Work Programme comes in.
We are creating an integrated programme, making the best use of the private and voluntary sectors.
Providers will be paid an attachment fee when a claimant starts on the programme.
Thereafter, they will be paid by results.
We will pay a job outcome fee, rewarding those who manage to get claimants into work.
And, perhaps most importantly, we will pay a sustainment fee, paid to a provider for managing to keep someone in work.
Too often we’ve seen too much churn of people in and out of work. We need to support people as they develop the work habit.
Claimants will be referred to the Work Programme at different times according to the level of support needed.
For example, we expect the majority of customers to be referred after a year, but to make sure we limit wage scarring in the young those aged 18-24 will be referred after 9 months.
Those most in need of support, for example ex-offenders, will be offered early access to the Work Programme to ensure they receive it within a timescale that is most appropriate to them - this could be as early as three months.
We are also continuing with the previous Government’s plans to reassess those on Incapacity Benefit.
This process is already underway with trial reassessments in Burnley and Aberdeen, and we plan to have reassessed 1.5 million claimants by 2014.
But we know that the Work Capability Assessment isn’t perfect, and that’s why we asked Professor Malcolm Harrington to recommend reforms.
Professor Harrington’s report made a number of helpful recommendations, including proposals for the provision of mental health champions in medical examination centres to help better account for mental and cognitive conditions.
We have accepted all of his recommendations, and will be working closely with his team going forward.
We are also looking to intervene earlier, to stop people falling out of work and on to sickness benefits in the first place.
This is being driven by the Fit for Work Service Pilots, which provide return-to-work services aimed at employees who have been absent from work through ill health for 4-6 weeks.
And when employers need it, they can access professional occupational health advice from national telephone helplines.
I know that there will be debates as we take these reforms forward - we’ve already seen that with our changes to Housing Benefit.
But we can’t avoid the facts.
Since 2000, private sector Housing Benefit awards have grown by between 70% and 80%, while average earnings have grown by only 30% to 40%, and expenditure has nearly doubled in cash terms in the last decade.
Without reform expenditure is expected to rise to £24bn by 2014/15.
So taxpayers are increasingly seeing people on benefits living in houses they couldn’t hope to afford themselves.
And, most importantly, there is a growing dependency trap, with people on benefits stuck in housing which they would struggle to afford in work.
So we’ve had to make changes.
But we’ve also made sure the most vulnerable are protected:
We’ve introduced a transitional period for those already on Housing Benefit
We’ve made extra money available for Discretionary Housing Payments
And we have a strategy to drive rents down by temporarily widening discretion for payments to be made direct to landlords.
This isn’t just about creating jobs
The claim made in response to our reforms is that they won’t work because there aren’t enough jobs for people to move into.
In fact there are jobs even now, in difficult times - Jobcentre Plus alone took around one million new vacancies over the last quarter.
And the Office for Budget Responsibility recently forecast that employment in the whole economy will rise by 1.1m between 2010 and 2015.
But creating jobs isn’t the whole story.
From 1992 to 2008 this country saw 63 consecutive quarters of growth, across two governments, with 4 million more people in employment by the end of that period.
And yet before the recession had even started we had around 4.5 million people on out of work benefits - up to around 5 million today.
But we know that for much of this period of growth the majority of the rise in employment was accounted for by foreign nationals.
This isn’t about pointing the finger - it’s a simple question of supply and demand.
The demand for workers was there, but not the supply.
This is, in a sense, an indictment of our country’s ability to prepare its own citizens for the world of work, or to make work worthwhile.
Our reforms are about reaching the residual unemployed and helping to make sure they are available for work.
These are difficult times, but my concern is that unless we make these changes now, when the economy grows again we will see a repeat story of too many British people written off.
Too many people unable or unwilling to take the work that is on offer, with businesses unable to find what they need in this country and so having to look overseas.
We have to break into this residual group, and start to give them the hope and opportunity that we would all expect.