Opinion & Commentary
For the poor, a job must pay better than handouts
Britain’s Coalition government has embarked on the biggest shake-up of welfare benefits since World War II. Aimed at encouraging some of the five million working-age welfare claimants into jobs, the policy consists of four linked strands.
First, following Australia's example of the Job Network, employment services are being contracted out to businesses and charities. They will be paid according to how many people they get off benefits and into work.
Second, addressing a problem that no government across the world has yet been able to solve, independent assessors are re-examining everybody on welfare who claims to be disabled. It will take three years to work through the list. Claimants found to be potentially capable of working are being referred to Work Program advisers who will develop a personalised plan to get them into employment. Early indications are that more than half of those on incapacity benefits will end up being reclassified.
Third, most existing benefits and tax credits are being merged into a single, new Universal Credit. No longer will claimants be put on unemployment, disability or single parent benefits. Instead, almost every claimant will be on the Universal Credit, with a common means-test taper as they start earning. In Britain, as in Australia, the present, complex benefits system often results in people losing huge slices of their earnings when they try to move off welfare because of the way different benefits overlap. With this change, the government guarantees recipients will always keep at least one-quarter of any new money earned.
Finally, there are plans to introduce tighter activity conditions for people on benefits. The genuinely disabled, their carers and single parents with infants will be exempt, but every other claimant of working age will have to do something, even if (as in the case of single parents with a child between one and five) it is only turning up at the Job Centre for a motivational interview once in a while. Claimants who fail to meet the conditions of their claim will lose some or all of their payments.
The minister responsible for this program, Iain Duncan Smith, is putting most of his faith in the Universal Credit, as he believes people will work once they see that it pays them to do so. This looks optimistic because work incentives will remain weak.
Progressive income tax and benefits means tests will take chunks out of wages, and even under the reformed system someone moving from welfare into a full-time, minimum-wage job will still be working for an effective return of only pound stg. 1.50 an hour.
The success or failure of the package is likely to turn on the fourth strand, the strengthening of activity conditions. Unfortunately, this looks like the weakest link, for although most claimants will have to do something for their benefits, few will have to do very much. There will be a bit of work experience for jobless school-leavers and the de-motivated long-term unemployed, but there will be nothing to compare with the Workfare schemes common in North America.
Instead, claimants will be put through job-search training, skills training, motivational interviews and the rest, much as they are at the moment. But experience tells us that none of this stuff works.
Workfare doesn't work that well either, in the sense that getting people to work for their benefits (in real jobs or on community placements) does not generally make them more employable. But what it does do is encourage those who can find employment to leave welfare and get a job because if you have to work, a wage is preferable to a benefit. In Toronto, Workfare halved welfare numbers. In Wisconsin, it cut them by more than 80 per cent.
Any effective welfare system depends on three principles. The genuinely needy must be supported. People who can work should be required to do so. And the conditions on welfare should not be preferable to those in employment. Full-time Workfare is the best way of delivering all three principles, but the British government has still to learn this lesson.
Peter Saunders is senior fellow at The Centre for Independent Studies.
