A welfare state fit for the 21st century
Setting out a vision for Britain’s welfare state.
Introduction
It is a pleasure to be hosted today by the Centre for Social Justice (CSJ) – setting out a vision for Britain’s welfare state alongside the organisation where, in a sense, it all started.
Within their critique, the CSJ set out a plan for reform for government, and today I want to look at that.
But in 2010, we inherited an economy which had entered the worst recession in living memory, with the deficit rising, costs spiralling, and GDP shrinking. People were losing their jobs and feared for the future.
It was vital that we immediately set out a long-term economic plan to put this right and secure Britain’s future – at the heart of which was the need to cut the deficit.
Some would frame this as a rigid dichotomy:
On one side, those opposing cuts, decrying all savings as an assault on the poor and vulnerable.
On the other, those urging that the whip be cracked harder, clamping down on spending and making deeper cuts.
Yet the reality is rather more complex.
After all, if we didn’t reduce the deficit, the biggest losers in the end would be those who depend most on public services and the welfare safety net.
So today, I want to show that we would have wanted to reform the welfare state, even if we had no deficit.
[Political content removed], we should hate the idea of people with unfulfilled potential languishing on welfare.
Welfare reform is fundamentally about opportunity and life change…
… cutting the cost of social failure by transforming the life chances and outcomes of those on benefits…
… restoring fiscal stability, and restoring lives at the same time.
Hidden reality
10 years ago at the CSJ, our aim was to gain a better understanding of why people found themselves trapped in disadvantage, and to develop solutions for helping them break free and secure their futures.
In visit after visit to some of Britain’s most deprived areas, I came to see how urgently that life change was needed.
In neighbourhoods blighted by worklessness… where gangs were prevalent, debt and drugs the norm… families broken down… those living there had one thing in common; they were for the most part dependent on the state for their daily needs.
[Political content removed] Whilst the middle class majority were aware of the problems in poor communities, they remained largely unaware of the true nature of life on some of our estates.
For too long we let these problems be ghettoised as though they were a different country.
Even now, for the most part they remain out of sight – meaning people are shocked when they are confronted with a TV programme such as Benefits Street.
Failed system
The reality is that our welfare system has become distorted, no longer the safety net it was intended to be.
Too often it is an entrapment – as it has been for a million people left on incapacity benefits for a decade or more, or the more than 4 million abandoned on out-of-work benefits even before the recession.
At its very worst, the present system makes criminals out of those trapped in its clutches. Faced with losing up to 94 pence of every pound they earn because of how benefits are withdrawn, too many end up in the shadow economy or working cash in hand.
Such behaviour can never be condoned, but it is a tragic state of affairs – and a mark of how far the current system has failed – that people should feel pushed into crime by having their aspirations to make a living penalised. Surely the system should deliver for people who want to work hard and play by the rules.
Positive choice
Met with the problem of social breakdown, our critics would have it that a sympathetic approach is to sustain these people on slightly better incomes – [political content removed] that poverty is about money, and more state money should solve it.
As a result, the previous government ratcheted up welfare bills by an enormous 60%.
Yet rarely did they stop to ask what impact that money was having… no matter if it kept individuals from the labour market… if it labelled them ‘incapable’… if it placed them in housing that they could never have afforded if they took a job.
Where for most people, their life’s direction of travel is dictated by the informed decisions they make: can they afford a large family… should they move in order to take up a better-paid job… can they risk a mortgage to get a bigger home?
Yet, too often for those locked in the benefits system, that process of making responsible and positive choices has been skewed – money paid out to pacify them regardless, with no incentive to aspire for a better life.
From dependence to independence
I have long believed there is no kindness in a benefits system that traps people, leaving them in a twilight world where life is dependent on what is given to you, rather than what you are able to create.
Yet casual disapproval of those on benefits is also too easy – it does us as politicians well to remember that it was generations of politicians that created this welfare system that now traps them.
Our single-minded aim has been, and must continue to be, to change a system that has left too many only with short-term, narrow options within parameters set by the state.
Of course in the most severe cases of sickness and disability, it is right that welfare should support individuals, but even then, it must be about more than sustainment alone. It should be about helping people to take greater control over their lives.
For all those who are able, work should be seen as the route to doing so – for work is about more than just money. It is about what shapes us, lifts our families, delivers security, and helps rebuild our communities. Work has to be at the heart of our welfare reform plan, or all we will do is increase dependency not lessen it.
‘Reform’, often overused, is in reality about transformation and life change. Improving people’s lives through the choices they make. A journey from dependence to independence.
Our mission is to put hope back where it has gone, to give people from chaotic lives security through hard work… helping families to improve the quality of their own lives.
In government, the challenge has been to act on this ambition and make changes to restore a creaking and chaotic welfare state into one which delivers on that vision for life change.
Welfare as a journey that people are on, rather than a destination where they stay.
Universal Credit
Let me explain:
This guiding principle underpins the welfare reforms we are driving through now: families should face similar choices, regardless of whether they are on benefits or in work… and the welfare system should both reward the right choices and remove the stumbling blocks in people’s way.
I am not going to list them all but I want to illustrate what I mean by way of some examples.
First and foremost in achieving change is Universal Credit… simplifying a mess of benefits and tax credits… but what’s more, resetting it so that time on benefits resembles life in work.
Take the fact that today, over three-quarters of people in work are paid monthly – a big change from 20 years ago. Yet the benefit system remains unchanged. An archaic arrangement of fortnightly payments reflects a work environment very different to the experience of most, a big upheaval for those used to being in a job.
With the majority of those who fall unemployed back in work in months, why make life so difficult for them? Surely the journey between benefit and work should be simple.
That is why Universal Credit is paid monthly – it comes as no surprise that in the Pathfinder areas, over three-quarters are now confident about managing their money each month.
In turn, this frees up our resources to target help at the vulnerable few who do need supporting.
For those out of work for longer, imagine how hard it is to move into employment and budget monthly, when all you have known is fortnightly money. Surely we should help this minority to develop their budgeting skills, easing that transition into work… instead of simply waiting for them to crash out of a job because they couldn’t cope managing their money over a longer period.
It is the same with getting people online and paying their own rent. With 92% of jobs requiring basic IT skills, there is a real opportunity to prepare people for the world of work.
Most of all, we achieve that by making work pay… allowing the person who has never had a job that moment of incredible realisation – that their first step into work is the first step in the rest of their lives.
Claimant commitment
This, then, is the fundamental cultural change that Universal Credit delivers: welfare should be seen as no different from work itself. For those who are not employed but capable of doing so, whilst you may not have a job, the state supports you – you are ‘in work to find work’.
Through the ‘claimant commitment’, which deliberately mirrors a contract of employment, we are making this deal unequivocal. Those in work have obligations to their employer; so too claimants a responsibility to the taxpayer: in return for support, and where they are able, they must do their bit to find work.
As we roll out Universal Credit, the behavioural effect we are seeing has been remarkable.
Universal Credit claimants are now spending twice as long looking for work, understand their requirements better, and are more assiduous in meeting them.
This is welfare reform in action: changing the dynamics in the system, making things simpler, preparing people for work, ensuring work pays, and rewarding positive behaviour.
Ensuring security through work, just as our pensions reforms help ensure security in retirement.
Changing a culture and changing lives.
Benefit cap
But as well as smoothing people’s journey into work, it is vital that we also remove the obstacles blocking their path.
That is what the benefit cap is all about – another example of striking cultural change… ending the something for nothing entitlement and returning fairness to the system.
Before we implemented the cap, it was possible for people to receive, in some cases, almost twice as much in benefits as the average weekly wage.
This system wasn’t fair on hardworking taxpayers, paying out ever-increasing amounts to sustain others in lifestyles they could barely dream of affording themselves.
But importantly it has not been fair on benefit recipients themselves. How many of us here would want to live trapped in a system where it was more worthwhile sitting benefits than going to work.
Now, having capped the amount paid to some 30,000 households, these families face the same choices about where they live and what they can afford as everyone else.
What’s more, by exempting those on tax credits, we have ended the perverse incentive to remain on welfare as a way of life and left the door open for a return to work.
Since being notified that they potentially stood to be capped, more than 19,000 people have made that positive step into work.
Spare room subsidy
So it is with the removal of spare room subsidy.
For too long, we have been content to subsidise people on Housing Benefit living in homes in the UK which had a million spare bedrooms… taking money from taxpayers, many themselves making difficult decisions about where they can afford to live.
We became accustomed to paying out for this – even when, at the same time, 2 million families were being squeezed into miserably overcrowded accommodation and having to sit on housing waiting lists in the hope of obtaining a home.
Too many lives unnecessarily blighted and insecure.
Whilst we always knew that it would be difficult, we simply could not let it go on like that.
Ending the subsidy has meant that everyone – be they in the social or private sector – faces choices about what they can afford, and others in overcrowded homes can be helped.
What’s more, it has also prompted councils and housing associations to understand their tenants’ needs and make better decisions about managing their resources, instead of building the wrong houses to meet demand – a situation which did too little to help those in need.
Pathways to poverty
It is not enough to manage the symptoms of disadvantage. To make a meaningful and lasting difference requires that we treat the cause.
Whether it be worklessness and welfare dependency… family breakdown… educational failure … debt … or addiction… these are the multiple and overlapping problems that cause people to find themselves in difficulty in the first place – as we defined it at the CSJ, the 5 pathways that lead people into poverty.
In office, I believe we have made real inroads to addressing these pathways, always with the aim of life change… establishing social justice as a priority for government, and paving the way to go even further in future.
We have put families first – looking at the family as a whole and addressing their problems in the round. Now as we look to extend the Troubled Families Programme from 120,000 to another 400,000 families, those once at the hands of piecemeal and inefficient social services will receive the intensive, tailored support that can bring lasting change.
After the family, next comes children’s education. Here, where previously those from poorer backgrounds were allowed to trail behind their peers, now my colleague Michael Gove is ensuring that once again education is seen by struggling families as the route to a better life for their children. A good education policy is one that leaves no child left behind.
Through our welfare reforms, as I have explained, we are getting people into employment – and we have fought so hard for investment in childcare, in order that work pays when they get there.
Through ongoing investment in credit unions and finally clamping down on the predatory practices of payday lenders, we are helping individuals escape the spiral of problem debt.
And through pioneering new approaches across the prison, employment and rehabilitation services, we are pushing ahead with an approach to tackling addiction that delivers lasting life change – meaning individuals getting clean and back on track, free from drugs and alcohol.
It is interventions such as this, and many more, that will make a real difference…
… helping people who might once have been left on the sidelines to turn their own lives around.
Poverty plus a pound
The importance of this historic break from the old ways of approaching social problems cannot be underestimated.
We must learn the lessons of the previous decade, where despite best intentions and despite an unprecedented level of spending, the government failed to meet the poverty target they had set themselves.
I have long maintained that the first problem was the target itself – a fixation on relative income and a moving poverty line ever harder to reach.
But equally problematic was the mechanistic approach, as the government chased that target by hiking income transfers to families and children… spending more on benefits overall, and creating a whole new system of credits which cost four and a half times more than those it replaced.
Between 2003 and 2010, over £170 billion was spent on tax credit. 70% of that spending – some £120 billion – was paid in child tax credits alone.
Yet I believe that spending failed to meet its objective, because it put process ahead of people… failing to ask what impact it was having on changing lives.
To put it another way, what more could have been achieved had that money been invested in a more focused way to create lasting improvements to people’s chances… be it higher attainment in schools, better budgeting skills, recovery from addiction, and so on.
That is why the government’s child poverty strategy recognises that money matters – but, also, that other factors are fundamental to children’s current wellbeing and their future life chances.
In the past, whilst some families may have moved over an arbitrary poverty line as a result of more welfare spending, sadly, too often their lives remained unproductive and insecure.
Life change
This terrible waste of human potential showed itself not only in the child poverty figures, but also in the labour market.
Common sense should tell us that Britain cannot run a modern flexible economy, if at the same time, so many of the people who service that economy are trapped in dependency on the state, unwilling or unable to play a productive part.
But millions were left on out of work benefits unchallenged.
This in turn, helped to create a demand for foreign workers, as business looked to fill the jobs that British people didn’t want or couldn’t get.
In just 5 years between 2005 and 2010, the number of British people in jobs fell by some 400,000, while the number of foreigners in British jobs soared by more than 700,000.
In other words, for every British person who fell out of work, almost 2 foreign nationals gained employment.
Short-term policy making created damaging long-term consequences…
… destroying the ethos of a whole section of our society, left behind in workless households and those deprived estates that I described at the start.
The simple truth is that we should never have been prepared to see a growing number of our fellow citizens fall into dependency, hopelessness and despair. For without their active contribution we will be unable to create that modern economy.
It is not only migration that rises as a result. Crime and health costs are high in such difficult communities.
[Political content removed]
Imagine the damage done to some 2 million children living in households where no one worked.
Employment
No – leaving people behind is not a long-term economic model.
Instead we have stuck to our economic plan, and now, the economy is growing.
This growth has produced a rise of more than one and a half million people in private sector jobs, and, this quarter, the largest increase in employment for 40 years.
Importantly, we are also seeing promising signs that the trend of bringing in migrant workers at the expense of British workers is being reversed.
As we reach record levels of people in work, the latest data that shows that of the rise in employment over the past year, over 90% went to UK nationals.
What’s more, the number of people unavailable for work – having dropped out of the labour market altogether – is at its lowest level for 2 decades, driven by falling numbers claiming the main out-of-work benefits – down by over half a million since 2010.
Britain now has a lower proportion of workless households than at any time under the last government…
… and 274,000 fewer children are living in workless households – meaning children who now have a role model to look up to, offering hope and self-worth, with aspirations for their own future transformed.
As the economy recovers, this is where the real effect of our reforms is felt: British people having a fair chance to access the jobs being created… taking up work that pays… ensuring everyone can begin to see the benefits of Britain’s growth.
This is not just about those who are on welfare it is also vital reform for those who are not.
They will benefit not just from reduced costs but perhaps more importantly, from a long-term social settlement… which, in turn, will lead to a settled society in which all are acknowledged to play a full part.
Economic plan
Nothing illustrates the government’s commitment to this process of life change more than the Chancellor’s confidence that, because our economic plan is working, Britain can afford a rise in the National Minimum Wage.
He is absolutely right – for restoring the value of the Minimum Wage would send a powerful positive message.
His recommendation shows that we care that people on low incomes should see a better level of pay to give them greater security.
A stable economic settlement requires a strong social settlement.
You cannot reform one without the other, and thus welfare reform is one very important part of a larger, long-term economic plan.
[Political content removed]
Working closely with the Chancellor, as part of cutting the deficit – by a third already, by half next year – we have set the welfare state on a sustainable footing for the future.
That is achieved by helping people move towards self-sufficiency – in order that the demand on welfare itself lessens.
As a result, welfare spending is now falling as a percentage of GDP…
… and our reforms are forecast to save a total of around £50 billion by the end of this Parliament.
Yet, our real success, I believe, has been to reframe the argument – challenging a narrative beloved by some of our critics… which focuses so exclusively on how much is being spent on welfare that it risks overlooking the real question… that it is not about how much goes into the benefit system, but what difference it makes to people at the other end.
Further reform
We all accept the need to continue the process of welfare reform – and the next government will have to make further changes.
But more than that, we are committed to making a lasting difference, preventing spending from simply popping back up further down the line – which is why we will remain focussed on life change.
A reformed welfare system that will catch you when you fall, but lift you, when you can rise.
Our vital reforms are a major undertaking that reaches beyond this Parliament.
Thus as we look towards establishing a manifesto for the next election, it is a case of looking at which parts of the system promote productive choices, and which are actually limiting people’s horizons…
… asking how best we can lift people up, urging them forwards on the journey to independence and security.
Conclusion
Britain will only be great again if all in our society are part of our economic recovery and growth.
As we modernise our work practices and create a more flexible and responsive economy, it is important that this is underpinned by social change.
Everyone who can playing a productive role…
… individuals in control of their own lives…
… and the next generation of children aspiring to even more.
In other words, reform that is not just about state institutions, but about social renewal – part of a vision of strong families with hope for their children’s future, but who also care about their communities.
The task that we have set out to achieve is hardly a small undertaking.
And it is not easy, as those arrayed against us do all they can to misrepresent what we are doing…
…. angling for a return to the failed and expensive policies of the past, when success was measured by the amount of money you spent, not the lives you improved.
The purpose
So, the purpose for government is not radical but balanced… not grand but simple.
It is that through our economic and welfare changes we will have helped people feel that bit more secure about their lives and their grandparent’s lives…
… feel more hopeful about their children’s futures…
… and rekindle their pride in their communities, as their neighbours also begin to thrive.
That is the human dimension of all that we do.