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

Photo:Getty
Show Hide image

Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.