Observations

Not much disagreement on welfare reform

Date: 21 April 2010
Authors:
Publisher: IFS

Today's labour market figures show a slight rise in overall unemployment in the three months up to February 2010. Looking behind these figures, youth unemployment (amongst 18-24 year olds) has risen particularly strongly since the start of the recession, rising from 12.2% in the first quarter of 2008 to 17.7% in the latest data compared with a rise from 5.2% to 8.0% amongst all individuals. The number of people who have been unemployed for 12 months or more has risen from 400,000 at the start of the recession to reach 730,000 in the latest data.

Sensibly, there is general agreement between the three main parties on the need to tackle the large rise in youth and long-term unemployment caused by the recession, and all parties have policies to help deal with the high number of people who are out of work and receiving disability benefits. Today, the IFS publishes an analysis of the welfare and back-to-work policies proposed by the three main UK parties for welfare reform (the full report is available here).

For the under 25s who are unemployed, the Labour Party propose making work or training compulsory after 10 months, whilst the Conservatives would make it compulsory after 6 months. The Liberal Democrats would introduce voluntary work placements. Both Labour and the Conservatives are offering additional support for the long-term unemployed aged 25 or over and both have plans to make them partake in community work.

Labour has announced that it would move all recipients of incapacity benefits to employment and support allowance (ESA), which has a tougher medical test, by 2014, but the Conservative Party think they can do this by 2012. The Liberal Democrats are keen to stress that they would provide better "practical help" for people with disabilities to get to work, and that funding of disability-related equipment would be "already in place" when disabled people apply for a job, but without more detail it is impossible to assess the likely impact of this.

On top of these changes, the Conservative Party propose to replace all welfare-to-work programmes for the unemployed, lone parents and disabled people with a one mandatory Work Programme, delivered by private and voluntary sector organisations, with payment almost entirely by results. It is keen to present this as a "new welfare contract", but most of the ideas behind it merely go a little further in the direction of policy taken or planned by the current government.

The Conservative Party think the Work Programme and its plans for additional training places would cost £600 million over three years. It also claims that it would save £600 million over three years by moving IB recipients to ESA, providing a revenue neutral package. These savings seem odd given the Government has set out plans to implement the same policy. The Conservative Party has argued that these additional savings are credible because it does not believe that the Government would actually make savings from this reform, but the Government has set out a clear plan for moving recipients of incapacity benefits onto ESA, and announced how much it expects to save from this reform. Fundamentally, this is not a credible way of identifying 'savings' relative to the Government's plans, because any opposition party could identify alleged savings in this way at any time by simply asserting that the Government will not do things that it has publicly committed to.

None of the 3 main parties has proposed a substantial increase in the generosity of social security benefits (although government plans are for the pension credit guarantee and the state pension, from April 2012, to rise in line with average earnings, rather than inflation as is the case for most other benefits). On the other hand, the current state of the public finances may mean that the more likely scenario is for the next Government to implement more substantial cuts in social security spending than any of the 3 main parties have suggested in their manifestos. IFS researchers have found that on current policies the public spending plans set out by Alistair Darling in his last Budget imply departmental spending falling by 11.9 per cent by 2014-15, but social security spending growing by 4.4 per cent over the same period. Productivity improvements mean one might be able to squeeze more public services from a given level of departmental spending, whilst the same is not true for spending on cash benefits But, nonetheless, a post-election government may feel reluctant to allow public services spending to suffer this large a real squeeze while allowing benefit spending to grow that strongly.