Tory welfare reforms are misguided

The Universal Credit will make work cost, not pay.

There is much to praise in Iain Duncan Smith's aspirations for welfare reform, outlined in the bill his department has published today. He wants to make it certain that work pays more than benefits and ensure there are clear obligations to work in the welfare system. The theories behind his big ideas – the Universal Credit and the Work Programme – have the potential to make a real difference to people's lives.

However, the problem for the Work and Pensions Secretary is that he gives the impression of thinking that amending taper rates in the benefits system and devising a smart contracting structure for employment support will be a silver bullet for problems as varied and complex as everything from worklessness to poverty to family breakdown. And he tries to pretend his reforms are taking place in isolation from the rest of government policy and the state of the economy. This is why his good intentions could, sadly, run aground.

The first point is the obvious one. It is much harder for people to find jobs when unemployment is rising. To be fair, this point is sometimes overstated. There is vastly greater movement of people in and out of work than the static monthly employment figures suggest (a point all too rarely reflected in public and media debate). For instance, in January, 325,000 people made a new claim for Jobseeker's Allowance and 344,000 left benefit.

Much more worrying is the staggering 93,000 rise in inactivity during the last quarter – these are people who have basically given up looking for work, many choosing to retire early. These people are the equivalent of the "lost generation" that was left on the scrapheap by the recessions of the 1980s and 1990s. And these are the people who need the government to focus its economic policy on job creation (to increase the overall supply of work) and to entrench a job guarantee as a backstop in the welfare state (to ensure no one drifts into long-term unemployment).

The second problem for Duncan Smith is the cuts to support for low- and middle-income families that he was forced to swallow by the Chancellor as the price for winning Treasury support for his reform plans. An £18bn squeeze on the benefits bill would cause any welfare minister a political headache, but the biggest difficulty is that the impact of these reductions directly contradicts his own policy goals. For a start, over £5bn of the cuts hit working families, reducing their living standards and their incentive to continue working.

And it's not just the measures announced in the Budget and on the Spending Review scorecard that are poised to bite. First, the IFS has confirmed that the Universal Credit will weaken the incentive for potential second earners to work, relative to the current system of tax credits. And now it is reported that the "capital limits" (the level of savings you can hold while still receiving state support) that currently apply to out-of-work benefits will be extended to working families in the Universal Credit.

This means that 400,000 families on a low wage will be stripped of the help they get to top up their wages (and make work pay), simply because they have done the right thing and put some money aside. A further 200,000 will be newly subject to a means test on in-work support for the crime of having savings. This measure will save the government shedloads of cash, but it is disastrous for incentives to work and save. In fact it will make work cost, not pay.

A technical change with a palpable impact on low earners. A measure that is slipped in by stealth and not declared openly by the government. A reform whose impact is directly contrary to the stated goals of ministers. Does that remind you of anything?

If the Social Market Foundation analysis is right – that working families with two children, an annual income of £25,000 and savings of over £16,000 could be £2,600 worse off a year – we could be looking at a Tory 10p tax debacle in the run-up to this year's Budget and local elections.

Graeme Cooke is a senior researcher at the Institute for Public Policy Research.

Graeme Cooke is Associate Director at IPPR

Getty
Show Hide image

Our union backed Brexit, but that doesn't mean scrapping freedom of movement

We can only improve the lives of our members, like those planning stike action at McDonalds, through solidarity.

The campaign to defend and extend free movement – highlighted by the launch of the Labour Campaign for Free Movement this month – is being seen in some circles as a back door strategy to re-run the EU referendum. If that was truly the case, then I don't think Unions like mine (the BFAWU) would be involved, especially as we campaigned to leave the EU ourselves.

In stark contrast to the rhetoric used by many sections of the Leave campaign, our argument wasn’t driven by fear and paranoia about migrant workers. A good number of the BFAWU’s membership is made up of workers not just from the EU, but from all corners of the world. They make a positive contribution to the industry that we represent. These people make a far larger and important contribution to our society and our communities than the wealthy Brexiteers, who sought to do nothing other than de-humanise them, cheered along by a rabid, right-wing press. 

Those who are calling for end to freedom of movement fail to realise that it’s people, rather than land and borders that makes the world we live in. Division works only in the interest of those that want to hold power, control, influence and wealth. Unfortunately, despite a rich history in terms of where division leads us, a good chunk of the UK population still falls for it. We believe that those who live and work here or in other countries should have their skills recognised and enjoy the same rights as those born in that country, including the democratic right to vote. 

Workers born outside of the UK contribute more than £328 million to the UK economy every day. Our NHS depends on their labour in order to keep it running; the leisure and hospitality industries depend on them in order to function; the food industry (including farming to a degree) is often propped up by their work.

The real architects of our misery and hardship reside in Westminster. It is they who introduced legislation designed to allow bosses to act with impunity and pay poverty wages. The only way we can really improve our lives is not as some would have you believe, by blaming other poor workers from other countries, it is through standing together in solidarity. By organising and combining that we become stronger as our fabulous members are showing through their decision to ballot for strike action in McDonalds.

Our members in McDonalds are both born in the UK and outside the UK, and where the bosses have separated groups of workers by pitting certain nationalities against each other, the workers organised have stood together and fought to win change for all, even organising themed social events to welcome each other in the face of the bosses ‘attempts to create divisions in the workplace.

Our union has held the long term view that we should have a planned economy with an ability to own and control the means of production. Our members saw the EU as a gravy train, working in the interests of wealthy elites and industrial scale tax avoidance. They felt that leaving the EU would give the UK the best opportunity to renationalise our key industries and begin a programme of manufacturing on a scale that would allow us to be self-sufficient and independent while enjoying solid trading relationships with other countries. Obviously, a key component in terms of facilitating this is continued freedom of movement.

Many of our members come from communities that voted to leave the EU. They are a reflection of real life that the movers and shakers in both the Leave and Remain campaigns took for granted. We weren’t surprised by the outcome of the EU referendum; after decades of politicians heaping blame on the EU for everything from the shape of fruit to personal hardship, what else could we possibly expect? However, we cannot allow migrant labour to remain as a political football to give succour to the prejudices of the uninformed. Given the same rights and freedoms as UK citizens, foreign workers have the ability to ensure that the UK actually makes a success of Brexit, one that benefits the many, rather than the few.

Ian Hodon is President of the Bakers and Allied Food Workers Union and founding signatory of the Labour Campaign for Free Movement.