Welfare reform speech at Fisherwick Place
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Welfare reform speech by the Rt Hon Owen Paterson MP, Secretary of State for Northern Ireland
In Northern Ireland I want to create the conditions for a dynamic, private sector led, economy. To achieve that we must promote enterprise and reform our broken welfare system so that work pays.
Of course dealing with the record deficit we inherited is just as essential for Northern Ireland as it is the rest of the United Kingdom. As a result of that deficit the Government is currently borrowing £242,000 a minute. For every £4 spent by government, £1 is borrowed. And we are currently paying well over £120 million a day in interest.
That is dead money that will never be spent on a single hospital, school, day-care centre or welfare benefit. In fact the money being paid out in interest on our debt this year alone could pay for… 48,600 MRI scanners, 1.5 million nurses, 1.2 million teachers, 1.1 million police officer, or 399,000 doctors.
The Government cannot go on spending money we do not have. So we must stick to the course the Prime Minister and the Chancellor have set.
The only plan B offered by Labour is bankruptcy.
We also need to rebalance the UK economy. We have been worryingly over-reliant on financial services, though it is vital that we retain our position as a world leader in a sector worth billions to our economy.
Our economy has also been too dependent on government spending and unsustainable debt. In Northern Ireland, according to one survey, public spending accounts for the equivalent of around 77.6 per cent of GDP.
Ultimately, it’s not the State that creates sustainable employment, it’s businesses. So we need to promote an enterprise culture across the United Kingdom. We need to foster an environment that encourages wealth creation. And we need to end the anti-business culture.
In Northern Ireland we have two unique challenges - the economic legacy of the troubles and a land border with the Republic of Ireland that has a significantly lower rate of corporation tax. That’s why we are examining the possibility of devolving corporation tax to the Northern Ireland Executive, though no decisions have yet been taken.
Until recently Northern Ireland was renowned for innovation and enterprise. I see no reason why, given the right business environment, we cannot once again become an economic powerhouse.
As a Conservative I am convinced that capitalism is the best system for producing wealth and creating prosperity. No other system in human history has produced more prosperity for more people consistent with the maintenance of liberty and order.
But of course capitalism is not perfect. It produces inequalities. Left entirely to its own devices it can not only produce great wealth, but also great disparities in wealth.
As far back as the 1840s, looking at the social consequences of the industrial revolution, Disraeli wrote about the ‘two nations - the rich and the poor’.
As a Conservative I believe that the State does have a positive duty to intervene, in order to help the most vulnerable in society. Hence my support for a welfare system financed out of taxation.
It has been a vital safety net for millions of people. Yet today our welfare system is broken.
As a result, throughout the United Kingdom we see…around five million people currently on out of work benefits, one million of them for a decade or more. Almost two million children are living in households where nobody works, 65,000 of them in Northern Ireland. And there are more than 10,000 households across the UK where no one has ever worked.
The economic and social costs of this are enormous. The UK Government spends almost £100 billion annually on working age benefits and tax credits - an amount that rocketed by almost 25 per cent in real terms during the decade before the economic downturn. Here in Northern Ireland we will spend almost £1.5 billion on out of work benefits this year. And the money has to come from somewhere.
So every working family in the UK is currently paying £3,000 a year simply to support the benefits system.
The entrenched poverty and ingrained, long-term worklessness we see in too many parts of the UK cannot simply be put down to the present state of the economy. Even during the boom years, with employment levels up by some 2 million, nearly half the rise in employment in the UK was accounted for by foreign nationals.
Meanwhile in Northern Ireland 200,000 people are stuck on out of work benefits unable or unwilling to take advantage of the job opportunities that are being created. Or take those who are just parked on disability benefits without regular checks to see if their condition has changed. Across the UK, some 900,000 people have been on incapacity benefits for a decade or more.
In Northern Ireland 1 in 10 of the population claims Disability Living Allowance - double the UK average. That can’t just be down to the legacy of the troubles; the number of people claiming DLA has actually increased by 25 per cent since 2002.
As the highly respected Centre for Social Justice put it in its authoritative survey of social breakdown in Northern Ireland:
“While the hallmarks of conflict remain important factors …many people face issues entirely in common with social problems across the UK as a whole. Increasing family breakdown, third-generation educational underachievement, perpetual and widespread worklessness, cycles of addiction and serious personal debt are often entrenched in our poorest communities and trap some of our most vulnerable people”.
As a constituency MP I constantly see people who want to work but who would be worse off if they actually took a job. Some claimants face losing as much as 96p in every pound they earn through tax and benefit withdrawals. Would any of us here be willing to accept 96 per cent tax rates? Yet this is what we are asking of some of the poorest members of society. To me, this points to a system that is failing and which in far too many cases discourages work and simply parks people on benefits.
There is nothing remotely fair, moral or progressive about any of this. It’s bad for benefit recipients, bad for communities and bad for society as a whole. And, as the Centre for Social Justice has shown, it frequently leads to higher levels of debt, family breakdown, alcohol and drug addiction - and crime. Added to this, the welfare system has become mind bogglingly complex and confusing.
There are now over 30 different benefits, paid by separate departments and split between out-of-work benefits and tax credits. So is it any wonder that some people are put off moving into work for fear of losing out? None of this was intended by Beveridge when he set out his blueprint for the welfare state in 1942.
He was clear that the system should not be allowed to ‘stifle incentive, opportunity or responsibility’. Yet that is a warning that successive governments, of both main parties, have failed to heed. As a result the public have become disillusioned with a system that often seems more concerned with propping up people on benefits than helping them to change their lives.
In a fair society, there should be a link between what you put in and what you take out. Successive governments have embarked on piecemeal reforms of the welfare system. The previous government shifted billions of pounds around the tax and benefits system in an attempt to address poverty, all of it well intentioned. Yet it had the perverse effect of trapping thousands of families on benefits, while income inequality increased to its highest-ever level. The reality is that no amount of tinkering can deal with a system that is now so obviously failing the very people it was set up to help.
Only a root and branch reform will do; and that’s why the Coalition has embarked on the most radical shake up of welfare for sixty years.
We came into office committed to building a new welfare contract with the people of the United Kingdom based on clear principles.
First, for those who are able to work, the contract has a simple message: we will make work pay. And if you take steps with us to find and stay in employment you will receive our support in return.
Second, we will continue to protect the most vulnerable. Those who are too sick or disabled to work will always receive support from the State, as they should.
Third, we will deliver to the UK taxpayer a fairer system. Fair to those on benefits and fair to those who pay for them.
Let me briefly take each of these in turn.
First, we will replace all income related out of work benefits and tax credits with a single Universal Credit. It will be delivered by one department and it will be withdrawn at a clear and consistent rate as people move into work. Crucially, the maximum withdrawal rate will be reduced so that people know that if they move into work it will pay to do so.
Unlike the current system it will ensure that people are consistently and transparently better-off for each hour they work and for every pound they earn. We estimate that the introduction of the Universal Credit will pull around 550,000 adults and 350,000 children out of poverty…and 80 per cent of the gains from this reform will go to those in the bottom 40 per cent of the income distribution. So this is a progressive reform.
It will also massively simplify the system.
At the same time a strengthened conditionality regime and robust set of sanctions will make it clear that claimants are also expected to do their bit. So this is not only about increasing financial support, but also taking a much more dynamic approach to supporting claimants back to work.
People in work tend to live longer and are better able to provide for their children.
So there’s a moral imperative to what we are doing.
That also includes disabled people.
We need a much more positive and proactive approach to disability, breaking a culture which sees people as fundamentally static.
Thats why we are reforming the Disability Living Allowance, introducing a simpler system based on clearer and more regular assessments.
And it’s why we are reassessing all claimants on Incapacity Benefit, enabling us to build up a much more accurate picture of who needs unconditional support and who could be helped to move into work.
These reforms are not about reducing or removing benefits from those who are genuinely in need of support.
They are about looking more carefully at how a condition affects someone’s life…
…and ensuring that, where they can, people are encouraged to move towards financial independence.
Fairness to taxpayers
We also need to be fair to hard pressed taxpayers, by ending the something for nothing culture that has grown in recent years.
So the Government will also introduce a welfare cap.
It is simply not fair that households on out-of-work benefits should receive a greater income from the state than the average working household receives in wages.
So a cap, linked to average weekly earnings, will limit the amount of benefits a household can receive to a maximum of £26,000.
That’s the equivalent of a gross salary of £35,000 at a time when here in Northern Ireland the median full-time public sector salary is nearly £29,000 and in the private sector it’s just over £20,000.
Where are the jobs?
Of course we often hear it said that our plans won’t work because there are no jobs around. I do not for one second underestimate how difficult things are at the moment. I see it here in Northern Ireland and in my own constituency in England. Unemployment is an incredibly difficult time for everyone affected. And I also know that competition for jobs is extremely tough. That’s why the Government will do everything it can to help people back into work. Yet there are still some 450,000 vacancies available at any one time across the UK.
Northern Ireland’s local Jobcentres - which only cover some of the opportunities - have taken nearly 50,000 new vacancies over the last year. The latest labour market report shows 26,000 more people in work here than a year ago. But remember that even when growth was booming, and employment levels were rising, millions of UK nationals were still stuck on benefits. So there is more to this than just the state of the labour market itself.
Blaming a lack of jobs erroneously assumes that the number of jobs in the economy is static. And it ignores the dynamic nature of welfare reform which will change lifestyles. Universal Credit will give clear incentives for people to move into work, stay in work and progress in work.
We estimate that its introduction could reduce the number of workless households across the UK by some 300,000.
Yet the Government has recognised that additional support is needed both to help people prepare for work and to assist those who are able to work immediately in looking for employment.
That’s why, in GB, we have introduced the Work Programme, the largest single welfare to work initiative seen since the 1930s. It replaces a hotchpotch of previous well meaning but ultimately failed schemes, such as the Future Jobs Fund.
By harnessing the knowledge, skills and experience of voluntary and private sector organisations, it offers providers the flexibility to decide how to deliver support. It’s built around the needs of individuals, and focused on achieving long-term, sustainable jobs.
Of course the Work Programme does not currently apply here in Northern Ireland. It is, however, a key element in getting people into employment and Executive ministers are discussing with the Department for Work and Pensions how it might be introduced.
Northern Ireland a special case
There are some who argue that these changes are all well and good for GB, but Northern Ireland is a special case and needs insulating from reform. I am the last person to ignore Northern Ireland’s history or the legacy of the troubles. But if anything I would argue that Northern Ireland is a special case precisely because the reforms are so badly needed here.
Northern Ireland has proportionately one third more households living on out of work benefits as the rest of the UK…meaning a greater proportion of people have been cut adrift from the jobs market altogether. They are not stuck on the sidelines simply because of the state of the economy…they are there because they’ve been let down by a welfare system that has failed to promote and support work.
And of course in Northern Ireland it is among those for whom worklessness has become a way of life that paramilitaries, on both sides, continue to prey and recruit.
Let me be clear.
It’s for the Executive to bring forward legislation on welfare reform here, once the Bill currently before Parliament receives Royal Assent.
But breaking parity with GB is simply not an option, for practical and financial reasons.
There will, however, be areas where the Executive will want local flexibility to suit local circumstances.
These could include recognising different housing arrangements here and most obviously taking account of the fact that Council Tax doesn’t apply in Northern Ireland.
The UK Government is clear that it is more than prepared to do whatever it can to accommodate specific requests from the Executive.
So the Northern Ireland Office and the Department for Work and Pensions will continue to work closely and constructively with the Department for Social Development.
I invited Iain Duncan Smith here a number of times in Opposition.
Similarly Lord Freud has been a regular visitor. He has held a number of meetings with local politicians, church leaders, charities and voluntary groups.
And I have had frequent discussions with Executive Ministers, including the First and deputy First Minsters, the latest today.
I want to help deliver the best outcome for Northern Ireland.
But on this I am convinced.
We cannot as a country go on increasing out of work benefits - spending up, dependency up - without ever tackling the root causes of deprivation.
That only stores up problems further down the line, with catastrophic consequences for society.
It isn’t kind, moral or progressive to park people on benefits with no support or incentive to move into work.
Yet for too long we have accepted the assumption that it is and we are now reaping the social and economic consequences.
We now have an opportunity to turn these assumptions on their head…
…to preserve unconditional support for the most vulnerable while building a simpler, clearer and fairer system based on moving people back into work and transforming their lives.
Most people want to work but they want work that is both rewarded and worthwhile.
And I firmly believe that through a combination of economic reform, a dynamic private-enterprise economy, combined with welfare reform that makes work pay, we can create a fairer and more prosperous society.