Who’d have thought it – ‘real’ welfare is working

We’re all aware that Iain Duncan Smith’s plans to streamline ‘wasteful’ welfare were borne of the aim to tackle the current system’s over-complexity, and inspire ‘work-fullness’ in claimants – saving lots of Treasury funds in the meantime.

However Bristol University economics professor, Paul Gregg, has challenged the government’s main assertion that the benefits system is ‘broken’. On the contrary, he argues, not only have there been positive outcomes of the current system, but the oversimplification of the universal credit could result in the need to replicate it, incurring more costs and unnecessary complication for both claimants and coalition, and undermining the very logic of the reforms.

Professor Gregg, of the University’s Centre for Market and Public Organisation, said that the core tenet of the universal credit system, of a single deduction rate of 65p/£ as incomes rise, is based on joint family income, and not on the “residual entitlement” of individuals applying for tailored benefits such as Jobseekers and Employment and Support Allowance. Instead, these are based on National Insurance Contributions.

With many currently-available benefits catering for specific additional costs, such as Housing and Council Tax Benefit, the higher rate of disability benefits in comparison to Jobseekers, Disability Living Allowance and Attendance Allowance, which apply only to some claimants, simply could not be catered for by the single universal credit: “unless it was very generous and prohibitively costly.”

“Keeping them as extra payments requiring additional claims means that the new system would simply replicate the current system but with extra supplements rather than different benefits,” says Gregg. For the reforms to work, housing benefit and the higher value disability benefits would have to be “inside” the credit system.

Writing in Research in Public Policy’s winter edition, published December 4th, Gregg also tackles talk of the ‘out-of-control’ welfare budget, which he says is not the case:

“This is not a welfare system where spending is out of control, but one that is doing its job in a recession when real spending rises while GDP falls because of increased need for support. Indeed, the real rise in spending through this recession is well below that in previous recessions.

“From [the 1970s] until around 1995, an excess of welfare dependence began to emerge, so that 6.7% (1.2 million) more households were without work – signs of a welfare system that was plausibly ‘broken’. Since then the number has fallen to 5% in 2009, which means that since 1995, 350,000 extra households are working…

“So in terms of worklessness leading to reliance on welfare, the picture is not of a broken system. Rather it is of a system that has been steadily improving since 1995 but masked by the current recession.

“The real picture that emerges for the welfare system is one of long-term declines in numbers of claims and total spending as a share of GDP. So government claims of a broken welfare system and spending out of control simply do not stack up.”

Gregg’s findings flag-up another area where misleading and sensationalist talk of ‘Broken Britain’ evokes an ideological motivation for public-sector shrinkage. While the universal credit proposals represent a “radical administrative change”, the promise of the delivery of a more effective welfare system is as yet untenable.