Today we launch our Welfare Reform Bill.
It brings the most ambitious, fundamental and radical changes to the welfare system since it began. At the heart of this Bill is a simple idea. Never again will work be the wrong financial choice. Never again will we waste opportunity. We’re finally going to make work pay - especially for the poorest people in society. And we’re going to provide much greater support for unemployed people to find work - and stay in work.
We’re not just recasting the reach, scope and effectiveness of the old system - making it fairer and a genuine ladder of opportunity for everyone. We’re also doing something no government has done before - and that is get to grips with the cost of welfare.
Over the past ten years that bill increased by £56 billion - that’s over and above inflation. Over the next four years we’re reducing it by £5.5 billion - in real terms.
We’re limiting housing benefit. Reforming tax credits. And changing child benefit for the first time in a generation, taking it away from higher-rate taxpayers.
Yes, some elements of this Bill have been amended and rationalised. That’s what happens when policy is open to real debate, and governments listen. And though I know we don’t agree on everything, I welcome the input we’ve had - and will continue to have - from Toynbee Hall as we implement our reforms. The end product is a Bill that is undeniably tough. That is certainly radical. But above all, I would argue that it is really fair.
I’m going to take you through some of the details today. But first I want to make something clear. This Bill is not an exercise in accounting. It’s about changing our culture.
I’ve come to Toynbee Hall to give this speech because of the history here. This building resonates with social responsibility - and that is my theme today.
Nine months ago, on the steps of Downing Street, I said I wanted to help to try and build a more responsible society in Britain - where we don’t ask what am I just owed, but what more what can I give - where those who can, should; but, of course, those who can’t, we always help.
And my point today is that this idea of mutual responsibility is the vital ingredient of a strong, successful, compassionate welfare system. We need responsibility on the part of those who contribute to the system - government and taxpayers.
And responsibility on the part of those who receive from the system. I take the responsibilities of government very seriously.
I passionately believe that the welfare system should be there to support the needy and most vulnerable in our society and provide security and dignity for those in old age. That’s why the system was born, that’s what it’s always done - and with me, that’s the way it will always stay. But that doesn’t mean the welfare system shouldn’t change. It has to change - because it just isn’t working.
A working welfare system should help drive economic growth, with training, with confidence building, with helping people back into work. This welfare system has left more than one in four adults of working age out of work. A working welfare system should be affordable too.
But when we came to office, spending on working age welfare benefits was running at £90 billion - a year accounting for one in every seven pounds government spent. That’s simply not sustainable when we’re trying to get to grips with the biggest budget deficit in post-war history.
We face a choice - make cuts in welfare or cuts elsewhere in those services we rely on like education and health or those things which are so vital for our future, like science and infrastructure.
We’ve made our decision - we will reform welfare and reduce its costs, partly in order to protect vital services and our nation’s future.
So that is the case for change, if you like, in figures and finances.
But to me, creating a working welfare system is not just an economic necessity; it is a moral necessity. Parts of the current system have insidiously drained hope away from swathes of our society, denying people opportunity while taxpayers feel that the welfare system they support is not one they respect, knowing that some of their money does not go to the vulnerable people they want to help.
Now I know you’ve heard politicians promising to get to grips with welfare before - and they never deliver. Today I want to tell you how we’ll be different, why we’ve got an understanding of what’s gone fundamentally wrong and how we will put it right.
Let’s start with our understanding of what’s gone wrong with our welfare system.
Politicians often overcomplicate their analysis, but actually, it’s quite simple. It comes back to responsibility. When the welfare system was born, there was what we might call a collective culture of responsibility. More than today, people’s self-image was not just about their personal status or success it was measured out by what sort of citizen they were; whether they did the decent thing.
That meant that a standardised system of sickness and out-of-work benefits - with limited conditions - was effective. It reached the people who needed that support, and not those who didn’t, in part because fiddling the system would have brought not just public outcry but private shame. In other words, personal responsibility acted as a brake on abuse of the system. And because the ethos of self-betterment was more wide-spread, the system supported aspiration rather than discouraging it.
As the Deputy Prime Minister has argued, the founding values of Beveridge’s welfare state were to provide support and boost individual pride and autonomy, not create dependency on the state.
Now let’s be honest about where we’ve travelled to, from there to here. That collective culture of responsibility - taken for granted sixty years ago - has in many ways been lost. You see it in the people who go off sick when they could work or the people who refuse job off after job offer.
And why has this happened?
Now of course there is a powerful argument about how it is hard for people to do the responsible thing and get into work when there are not enough jobs available. But that argument is less powerful when you consider the recent period of economic growth, with millions of new jobs created yet at the end of that period, nearly five million people remained on out of work benefits. Indeed, between 1997 and 2008, more than forty percent of the increase in employment was accounted for by migrant workers from abroad.
Others make a different argument. They simply point finger of blame at those living on benefits. Yes, there are those who, with no regret or remorse, intentionally rip off the system - and that makes hard-working people, including many on low incomes who pay their taxes, rightly angry.
But I know this country and therefore refuse to believe that there are five million people who are inherently lazy and have no interest in bettering themselves and their families. What I want to argue is that the real fault lies with the system itself.
The benefit system has created a benefit culture. It doesn’t just allow people to act irresponsibly, but often actively encourages them to do so. Sometimes they deliberately follow the signals that are sent out. Other times, they hazily follow them, trapped in a fog of dependency. But either way, whether it’s the sheer complexity and the perverse incentives of the benefits system, whether it’s the failure to penalise those who choose to live off the hard work of others, or whether it’s the failure to offer the right support for people who are desperate to go back into work, we’ve created the bizarre situation where time and again the rational thing for people to do is, quite clearly, the wrong thing to do.
Let me take each of these in turn. First, the perverse signals. When it began, the welfare state was relatively simple, with straightforward benefits for pensions, sickness and unemployment. But today, a dizzying array of benefits, premiums, allowances and credits, each with their own rules and criteria, are administered by several different agencies and departments. In many ways, this growth was well-intentioned.
When there was a lack of affordable housing, the introduction of housing benefit made sense. When people face high council tax bills, the argument for some relief on council tax is also strong. The same arguments have been made for so many other benefits, premiums and allowances. But well-intentioned or not, this complexity is still destructive. It’s not just the fraud, error and waste it encourages - estimated at over £5 billion a year.
When people start navigating their way through this complexity, one of the first things they realise is that sometimes, they can be better off if they act irresponsibly rather than responsibly. Just look at the messages we send out: To the single mother who wants to earn a bit extra each week - we say: work more and we’ll take up to 96p for every extra pound you earn. And to a couple with children - we say: separate from each other you’ll be better off than if you stick together.
You might think, no one would split up because of benefits. But in our country today, there are two million people who ‘live apart together’ - that is couples who maintain separate homes while being economically interdependent. Can we honestly say the signals in the benefit system have nothing do with this?
And these perverse signals, they go even deeper. I’ve had young people in my constituency surgery who come in and say: ‘I’m doing the right thing, saving up for a home with my boyfriend, making sure we’re secure before we have kids but the girl down the road has done none of the above and yet having a baby has got her a flat and benefits that I’m doing without.”
Of course housing - like benefits - has to respond to need. And of course, we have a clear responsibility to safeguard the wellbeing of children. But should we be content with a system that is seen by some as saying: have a baby now get a home and some cash; wait until later, when you’re more secure and stable, and you may get neither?
Second, at the same time as all this, there are totally ineffective sanctions for those who are out to take what they can get and no sense of proportion on what it’s reasonable for people to receive. Under the last Government those cheating the system could often get away with little more than a ticking off, and a polite request not to do it again.
Where fraud was uncovered, people on benefits were required to pay back a maximum of £13 a week. What’s more, they also let certain benefits get completely out of control.
Little has shocked me more since coming into office than the state of housing benefit. We inherited a system that cost £20 billion a year, with some claimants living in property worth £2,000 a week in rent. That’s £104,000 a year. That’s the income taxes and national insurance contributions of sixteen working people on median incomes all going on one benefit for one family.
And to what effect? It’s not just that we’ve been paying people to live in some of the most expensive real estate in London, the UK - indeed, the world. It’s more than that.
We’ve been sending a signal to people that if they’re out of work, or on a low wage, and living in an expensive home in the centre of a city that the decision to go back to work, or take a better paid job could mean having to move to a cheaper home, in a different part of the city, in order to escape benefit dependency. Is it any wonder that people faced with that choice, choose either not to work, or decide not to take higher paid work?
Third, even when people do want to break free from this stranglehold and get into work they are met with another problem that reinforces irresponsibility: the system is too top-down and bureaucratic to help them. People out of work aren’t identikit unemployed with the same needs and problems. There’s the woman who’s been managing a big team for decades, made redundant in the down-turn. The girl who left school with no qualifications whatsoever, who has little idea about the world of work. The man with depression who hasn’t worked for years and is held back by lack of confidence. You can’t serve all these people with a one-size-fits-all system - by the Whitehall blueprint and the national training schemes. But that’s what the last government tried to do.
It’s no wonder that so many people who have been unemployed for years were not just let down but were frankly turned off by the whole process. Taken together we can see how these perverse incentives, the phoney sanctions, the bureaucracy, have turned a system that began with the best intentions into an engine of irresponsibility.
We need to put responsibility back into the welfare system - and that starts with the Welfare Bill today.
First, we’re going to simplify the system and make work pay. Second, we’re going to have tougher sanctions and limits on the amount of certain benefits people can receive. And third we’re going to take apart the top-down bureaucracy and build a welfare to work programme that’s much more responsive to individual needs.
Let’s start with how we simplify the system and make work pay. Instead of a complex patchwork of multiple benefits today’s Welfare Reform Bill will mean we move to just one core income-related benefit - a universal credit and one message - that it will always pay to work. Even if you just work a few hours at first, you’ll see the benefits in the money you keep.
Say for example you’re on Jobseeker’s allowance and you have the chance to do a few hours work. Today after the first £5 you earn, you lose a pound of benefits for every extra pound you take home. But with the universal credit, you would keep 35p of benefit for every extra pound you take home. And because this rate of benefit withdrawal is the same whatever you earn - it’s easy to calculate just how much better off you will be. What’s more, because you don’t have to start claiming a whole set of new benefits and lose your existing ones when you move into work, it makes the whole process far less risky and daunting.
It’s simple. You don’t need a computer model to work it out any more. The more you work, the better off you will be. And the financial rewards for entering work will be improved significantly, particularly if you’re on a low income.
Indeed, we estimate that around 1.5 million low-earning workers will benefit from being able to keep more of their earnings as they increase their hours restoring that culture of respect for work with incentives that are simple, clear and right. This is at the heart of the changes we’re proposing to welfare - and I pay tribute to Iain Duncan-Smith, and all his hard work, in making this possible.
We’re not just saving money, we’re also making the system so much more progressive helping put more money in the pockets of some of the lowest-paid workers in our country. What’s more, by making the system simpler, we will be able to reduce fraud, error and overpayment costs by £1 billion a year.
Second, we’re introducing tougher sanctions and limits on what people can receive. When it comes to limits, we’re going to restrict Housing Benefit rents so they will only cover the cheapest thirty per cent of properties in a local area and limit Housing Benefit in the social rented sector to reflect the size of a family.
When it comes to the sanctions, we’re also going to clamp down on those who deliberately defraud the system. No more cautions. We will seek prosecution whenever we can. And at the very least impose a tough minimum fine on anyone found to have cheated the system and recover the money more quickly. What’s more, we will also going to place some real responsibility on the unemployed to ensure they try to get a job.
So if you’re unemployed and refuse to take either a reasonable job or to do some work in your community in return for your unemployment benefit you will lose your benefits for three months. Do it again, you’ll lose it for 6 months. Refuse a third time and you’ll lose your unemployment benefits for three years.
There’s a simple deal here. If you are vulnerable and in need, we will look after you. And if you hit hard times, we’ll give unprecedented support. But in return, we expect you to do your bit. At the same time, we are going to do something for those who aren’t yet ready for work but who are assessed to be capable of work in the future.
They’ll be offered training, help, support - and again if they refuse that, they too will lose some of their benefits. Now there are some who will say this will pull the plug on benefits for disabled people and that we should not replace lengthy self-assessment for disability benefit with a new objective test.
Let me make clear. The welfare system will always recognise the needs of people who genuinely can’t work. Those who need an Employment Support Allowance because they cannot work - will get it. Those who are assessed as needing the Disability Living Allowance will get it, whether they are in work or not. That’s what’s fair.
But what is also fair is to give those with disabilities who can work the opportunity to work. They shouldn’t be written off - so we will help them find a job and to live a fuller life. And those who can’t work and can’t be expected to work will be supported. Full Stop, end of story. Sanctions for those who abuse the system; real help for those who need it.
Third, we are making welfare much more responsive to individual needs. We’re sweeping away all the old top down centralised bureaucracy that treated people like numbers in a machine. And in its place, we’re saying to the person who is unemployed and desperate to get a job - we will make sure you get the personalised help you want. We will give each of you a proper assessment of your needs. And then, through the Work Programme, we’ll invite our best social enterprises, charities and businesses to come into the welfare system and give you intensive, personal assistance to find work. Not just the big established players, but small, innovative charities and social enterprises too.
I want to make sure that our contracting arrangements do not exclude either by accident or design any organisation that has something to offer. We will then pay these organisations by the good results they achieve. And don’t let anyone tell you this happened before.
Under the last government’s model, some companies still got a large share of their payment - even if they didn’t get someone into work. We’re saying: we will withhold the vast majority of these companies’ payments until they get someone into work - and they stay in work. But to me, the really radical part of this plan is how we’re funding it - paying companies from the actual savings they deliver.
For years people have been saying why leave people stuck on welfare, stuck on incapacity benefit, potentially costing the taxpayer £30,000, £40,000 year after year when we can invest the savings upfront and give these people a better life at the same time?
For all that time, the previous Government said no. We’re saying yes. And there’s something else we need to do.
We don’t just need to help those out of work return we need to help those in work to stay fit, healthy and productive.
Today, half the people who end up on Employment and Support Allowance each year start by being signed off sick from work. We simply have to get to grips with the sicknote culture that means a short spell of sickness absence can far too easily become a gradual slide to a life of long-term benefit dependency.
So today we are asking Dame Carol Black, the government’s national director for health and work and David Frost, the Director General of the British Chambers of Commerce, to review sickness absence and to recommend what else we can do, to end the sick-note culture and improve health and wellbeing at work.
Everything I’ve spoken about today - from universal credit to the Work Programme - is not just a series of technical changes weighing up benefits and tax credits in the Treasury’s scales of what’s affordable and unaffordable.
This is about the beginning of cultural change. A new culture of responsibility.
We say: we will look after the most vulnerable and needy. We will make the system simple. We’ll make work pay. We’ll help those who want to work, find work. But in return we expect people to take their responsibilities seriously too. To look for work. To take work. To contribute where they can. It is a vision of a stronger society, a bigger society, a more responsible society and today, the building of that society starts in earnest.