Welfare for the 21st Century
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Speech by the Rt Hon Iain Duncan Smith MP.
I am pleased to be here as Secretary of State for Work and Pensions, heading a strong and committed team of Ministers - Lord Freud, Chris Grayling, Steve Webb and Maria Miller.
I would also like to take this opportunity to thank the Permanent Secretary, Leigh Lewis, and his staff for the hard work and dedication they have shown over many years.
Walking around the building I have got some idea of the depth of enthusiasm of the staff who work here. People are keen to be involved in our programme of reform.
In fact, some of the people I have talked to - while in no way commenting on the previous government - have told me that the system they administer with such dedication is indeed breaking and in need of urgent attention.
But then, that is why I took this job.
Six years ago, I launched the Centre for Social Justice, determined to deliver on a promise that I made to a number of people in some of the most deprived areas, that I would work to improve the quality of life of the worst off in Britain.
I had a vision that if people of good will and determination could come together - ignoring party labels and rooted in the most difficult communities in Britain - we could find a way to deliver on that promise.
We wanted to understand the root causes of poverty.
From this starting point, the team refined the work into five pathways to poverty - family breakdown, educational failure, addiction, debt, and the fifth, worklessness and economic dependency.
This, it was agreed, was what drives poverty.
Yet far too often, these pathways have not been reflected in the priorities of successive governments.
You can see that every day right here in London - one of the richest cities in the world where great wealth lives in close proximity to the harsh realities of poverty.
What, perhaps, is most remarkable is the degree of consensus among academics and, most importantly, inspirational leaders and community charities, that we need a new approach to tackling persistent poverty.
How, they asked, can it be right for generations in families to live and die without ever holding down a regular job?
How can it be right that we ask the unemployed to take the greatest risk for the least reward?
And how can we find new ways of breaking the cycle of dependency and re-discover social mobility?
I want this Department to be at the forefront of strategy to improve the quality of life for the worst off.
But this will be no easy task. As last week’s poverty statistics showed, the challenge we face is huge.
Income inequality is at its highest since records began.
Working age poverty, after flat-lining until 2004, has risen sharply and now stands at the highest level seen since 1961.
There are more working age adults living in relative poverty than ever before.
Some 5.3 million people in the UK suffer from multiple disadvantages.
And today, 1.4 million people in the UK have been on out of work benefits for nine or more of the last 10 years.
Crucially, this picture is set against a backdrop of 13 years of continuously increasing expenditure, which has outstripped inflation.
The figures show that at current prices, we spent £28bn in 1978/79, excluding pensions.
By 1996/97, the figure was £62bn.
And today (2009/2010), it stands at £87bn, including tax credits, which takes the overall bill to £185bn once pensions are added.
Worse than the growing expense, though, is the fact that the money is not even making the impact we want it to.
A system that was originally designed to support the poorest in society is now trapping them in very condition it was supposed to alleviate.
Instead of helping, a deeply unfair benefits system too often writes people off.
The proportion of people parked on inactive benefits has almost tripled in the past 30 years to 41% of the inactive working age population.
Some of these people haven’t been employed for years.
Indeed, as John Hutton pointed out when he had this job, “Nine out of 10 people who came on to incapacity benefit expect to get back into work. Yet if you have been on incapacity benefit for more than two years, you are more likely to retire or die than ever get another job.”
That is a tragedy. We must be here to help people improve their lives - not just park them on long-term benefits.
Aspiration, it seems, is in danger of becoming the preserve of the wealthy.
The legacy of the system we have today stands at more than 1.5 million people on Jobseeker’s Allowance; almost 5 million out-of-work benefit claimants; and 1.4 million under-25s who are not working or in full-time education. Nearly 700,000 of those young people are looking for a role in life, but cannot find one.
We literally cannot afford to go on like this.
The need to reduce costs is shared across the government, but here in DWP we always have to be conscious that we are often dealing with some of the most vulnerable members of our society.
That is why I will be guided throughout this process by this question - does what we are doing result in a positive Social Return on Investment?
In short, does this investment decision mean a real life change that will improve outcomes and allow an individual’s life to become more positive and productive?
That is how we will be guided on every decision.
We have to constantly remind ourselves that we are here to help the poorest and most vulnerable in our society.
So we will require that when we implement a programme it has a clear and evidence-based outcome.
We will also discipline ourselves and ensure that we are not tempted to alter it according to which way the political wind is blowing that day.
Fidelity to the original objective is vital in getting the best value for money for the taxpayer. And if a programme is not cost-effective against that criteria, then we must look at a better way to deliver.
Making Work Pay
To do all this, there are a number of key problems we must address.
One of the first is that for too many people work simply does not pay.
Let’s say someone on benefits is offered a relatively low-paid job.
If you factor in the withdrawal of, say, JSA, plus Housing Benefit and Council Tax Benefit - all at different rates - it means that for too many people they are left with little more income in work than they received on benefits.
Add to that normal costs of travelling to work and the loss of any passported benefits, and you soon start to see why work may not be the most financially sensible option.
For a young person, the situation is even worse since they are usually ineligible for Working Tax Credits.
Worse again for some people, the move from welfare into work means they face losing more than 95 pence for every additional £1 they earn.
As a result, the poor are in effect being taxed at an effective rate that far exceeds the wealthy.
The system has become regressive.
Extremely high effective tax rates also impact lone parents who want to work more than 16 hours a week.
So our current benefits system is actually disinincentivising people from work.
These prohibitive marginal tax rates mean that for some people, work simply does not pay.
We have in effect taken away the reward and left people with the risk.
It is no wonder they are so resistant to finger wagging lectures from government.
I have always believed that choice in life is about that balance and the ratio between risk and reward.
Get that ratio right and positive decision making will become the norm. Life chances will improve considerably and cost savings will follow as well.
The Work Programme
There has been much talk about sanctions. But I believe it is only right that if we are helping people to get back into work, then we also have a right to expect that those we support are ready and willing to take on work if it is offered.
That is why reform of the Back to Work programme is so important.
We will create a Work Programme which will move toward a single scheme that will offer targeted, personalised help for those who need it most, sooner rather than later.
My Ministerial team is working on the details and we’ll be hearing more about the Work Programme in the coming weeks.
But it seems obvious to me that if we know a particular older worker is going to struggle to get back into employment, it is only fair that we try to get them on to a welfare-to-work programme immediately, rather than pausing for 12 months as is currently the case.
A greater level of personalised support also means more people will be work-ready as the jobs market picks up, so over time we will get a higher return on investment, as well as producing greater life changes for the individual.
To make sure we get the best value for money, we will also be changing the framework to bring the ideas and energy of the third sector and the private sector to the forefront of the process.
We will reform the regime so that we properly reward the providers who do best at creating sustainable jobs that help people move out of benefits and into work. But we are not prepared to pay for anything less.
At the same time, we will also make sure the system is fair by ensuring that receipt of benefits for those able to work is conditional on their willingness to work.
So to be fair to the taxpayer, we will cut payments if they don’t do the right thing.
In addition, we will re-assess all current claimants of Incapacity Benefit on their readiness to work.
If people genuinely cannot work, then we will make sure they get the unconditional support they need.
However, those assessed as immediately capable of work will be moved on to Jobseeker’s Allowance straight away.
At the same time, those who have the potential to return to work will receive the enhanced support they need through ESA (Employment and Support Allowance) and the Work Programme.
Again, this is about fairness in the same way as ensuring that we get rid of the jobs tax so that employers are not penalised for giving people a chance to get back to work.
The principles of fairness, responsibility and social justice also inform our agenda for pensions.
For example, we are phasing out the default retirement age so that we are not penalising perfectly healthy people who want to keep working and keep contributing.
The idea of someone being fired just because they turned 65 is nonsense.
People who are good at their job and want to work for longer should be able to do so.
In my view, that’s only fair. But of course this policy area rests with BIS, so the detail of how we do this is really their decision.
However, one of the big issues we have to face up to as a society is that we are all living longer and healthier lives.
That has huge implications for the pensions regime.
When the contributory state pension was first introduced in 1926, men were not really expected to live much past their pension age.
In fact, average life expectancy for a boy born in 1926 was just 64 years and 4 months.
By contrast, one in four babies born today will live to 100.
Shifting demographics means that the pensions landscape has changed massively.
That is why we have to make sure that pensions are affordable for the country and that is why we have to increase the pension age.
Another thing we are doing on pensions is to end the rules requiring compulsory annuitisation at 75.
This will simplify some of the rules and regulations around pensions. But it also means we will have a fairer system where people take proper responsibility for the decisions that make best financial sense for them.
And, of course, from April 2011 we are triple-locking the value of the Basic State Pension so that it will rise by the minimum of prices, earnings or 2.5%, whichever is higher.
So if earnings are going up fast, the pension will increase in line with earnings. If prices are going up fast, it will increase in line with prices. And if neither is going up fast, it will go up at least 2.5%.
Next, we also have to find ways to encourage greater personal saving. That means we need a vibrant private system too.
We want to encourage employers to provide high quality pensions for all their employees, and I look forward to working with employers, consumers and the industry to make automatic enrolment and increased pension saving a reality.
Real freedom in retirement comes from planning ahead for the future.
It would be one of the most positive changes we could make in office.
The third strand of reform we have set out covers the welfare system and it reflects my determination to make it simpler and more transparent so that work always pays.
We know that work provides the most sustainable route out of poverty, so it is absolutely vital that we get this right and people see a clear link between work and reward.
Less complexity in the system will also save money in administration costs, as well as cutting back on the opportunities for fraud and error.
However, the biggest savings of all will come from putting clear incentives in place to get people back into work and off benefits altogether.
By putting a dynamic approach to benefits in place, we will make sure that individuals and households are always better off in work so that they can take a sustainable path out of poverty.
However, none of this will be easy.
There are major challenges ahead.
Some are technical - for example, how do we link all the various benefit systems that generate such complexity and confusion?
Some are practical - such as working out how we get the best out of the third sector and private sector providers on the Work Programme.
Some of the most difficult challenges will be cultural though. Because for too long, we have discouraged people from taking up their responsibilities as the Welfare State has pushed in to fill the gap where family and society used to function far more effectively.
Social Justice will define my role as Secretary of State at this Department…from jobseekers in our agencies, to families, carers and pensioners.
Indeed, I am pleased to announce today that I will chair a Cabinet Committee on Social Justice with the cooperation of my Coalition colleagues.
My drive is for social justice to run through the fabric of our government, in all that we do.
I also want to reinforce my personal determination to remove the barriers to social mobility and equal opportunity.
And I wish to set out my determination to build a fairer society.
In doing so, let me underline my personal commitment to equal opportunities for all.
This is my commitment to social justice and a welfare system that is fit for the 21st Century.
And I hope that by working together, we can make social justice a reality for Britain long into the future.
The prize is a welfare system that is simple, more efficient and one that helps to restore the social mobility that should be at the heart of British society.
A welfare system that is fit for the 21st Century.