A call to arms for Labour on welfare reform

Does Labour want to rebuild the model of the liberal welfare state or try something different?

Today the Welfare Reform Bill returns to the House of Commons to debate the amendments won in the Lords. To mark the occasion, Soundings journal publishes an e-book, Welfare Reform The dread of things to come. It is written by people who have spent years bringing public attention to the impact of welfare reform on the most vulnerable people in society.

Like the 1834 Poor Law Amendment Act, the Labour governments's 2009 Welfare Reform Act was provoked by a moral panic about the feckless poor, and the rising cost of welfare payments. Labour appeared unaware of the squeeze on wages for the bottom half of the working population. Globalisation and the economic boom were not trickling income and wealth down, they were spiralling upward to a small elite. Rising living standards for lower paid families were being sustained only by private borrowing and the growth in women's jobs. The result was growing indebtedness and increasing pressure on individuals and domestic life. Popular resentment toward people on benefits was being stoked by media stories of a dependency culture of welfare cheats. Rising immigration fuelled feelings of unfairness and resentment toward the political class and fed into the clamour against benefit scroungers.

Like the Poor Law, the target of welfare reform was the able-bodied worker who was considered to be shirking his or her duty to work. But Labour and coalition governments excluded the health dimension of the out of work problem. The large number of people living with limiting long term illness and its impact on individuals and their employability was not properly taken into account. It was politically expedient to focus on the supposed moral failings of the individual claimant, and the assumption that, contrary to the evidence, very large numbers were simply avoiding work.

A questionable evidence base and political calculation meant the design of welfare reform was organised around increasing conditionality. The lack of jobs, the inappropriate nature of many jobs for sick or disabled people, the considerable employer resistance to taking on the mentally or physically unwell, were downplayed in favour of a punitive approach to claimants. Like the poor law, welfare reform has ended up punishing the sick and disabled.

In the House of Lords, Labour has succeeded in defeating the government in a series of amendments. But this success masks a problem. Labour peers sprung a litany of amendments but they lacked a shared ideological project about the kind of welfare system they wanted. There was concern for fairness and compassion, a heartfelt fear of the impact on children, and awareness of the spectre of homelessness. But what kind of welfare system does Labour stand for? It seems to boil down to the Conservatives' system but a bit nicer here and there.

Whatever compromises emerge, the larger questions about the future of our welfare state remain. Labour will need to rethink its approach to welfare or risk being sucked into the political slipstream of the Conservatives. It will find itself assenting to measures and then qualifying its assent. It has a political problem because people do not know what it stands for and because it is viewed by many as being soft on welfare. It can never resolve its identity crisis nor sustain longer term popular support by trying to out-nasty the Tories.

By the time the Poor Law came into effect with its workhouses and principle of less eligibility hostility toward the poor had already peaked. Its cruelties and humiliations became notorious and it was met with considerable public resistance. A similar pattern is already emerging around welfare reform and its harsh and humiliating treatment of people who are ill or disabled.

Does Labour want to rebuild the model of the liberal welfare state or try something different? The question needs serious consideration. Beveridge's liberal legacy does not look politically robust today. It is not succeeding in protecting the most vulnerable. It risks being undermined by profit-seeking companies. Its safety net is mean and tattered. Who wants the impoverishment of the Job Seekers Allowance or the humiliation and fear of the Work Capability Assessment? Unlike the NHS, the welfare system lacks public support: in hard times and over longer periods of time, large fractions of the 80 per cent lose their sense of obligation toward paying for the needs of the twenty per cent.

In the coming period of austerity, welfare will be a critical political issue. The challenges of labour market volatility, of the soaring cost of pensions and an aging population, of a tax system in need of redesign, and of restructuring capitalism for wealth creation and jobs, might be better met with a reciprocal, contribution-based system of social insurance which ensures protection and is more politically robust. But it must be one that hard-wires compassion into its structure for those who, through no fault of their own, are unable to contribute. It will involve a massive change, perhaps one that is politically impossible given the liberal traditions of welfare in this country. But the present system is failing and the political prize for changing it would be enduring and historical. The call belongs to Labour, with its traditions of popular mutual aid and reciprocity.

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How will Theresa May meet her commitment to low-earners?

The Prime Minister will soon need to translate generalities into specifics. 

The curtailed Conservative leadership contest (which would not have finished yet) meant that Theresa May had little chance to define her agenda. But of the statements she has made since becoming prime minister, the most notable remains her commitment to lead a government "driven not by the interests of the privileged few, but by yours." 

When parliament returns on 5 September, and the autumn political season begins, May will need to translate this generality into specifics. The defining opportunity to do so will be the Autumn Statement. Originally intended by George Osborne to be a banal update of economic forecasts, this set-piece more often resembled a second Budget. Following the momentous Brexit vote, it certainly will under Philip Hammond. 

The first priority will be to demonstrate how the government will counter the threat of recession. Osborne's target of a budget surplus by 2020 has wisely been abandoned, granting the new Chancellor the freedom to invest more in infrastructure (though insiders make it clear not to expect a Keynesian splurge).

As well as stimulating growth, Hammond will need to reflect May's commitment to those "just managing" rather than the "privileged few". In her speech upon becoming prime minister, she vowed that "when it comes to taxes, we’ll prioritise not the wealthy, but you". A natural means of doing so would be to reduce VAT, which was increased to a record high of 20 per cent in 2010 and hits low-earners hardest. Others will look for the freeze on benefit increases to be lifted (with inflation forecast to rise to 3 per cent next year). May's team are keenly aware of the regressive effect of loose monetary policy (low interest rates and quantitative easing), which benefits wealthy asset-owners, and vow that those who lose out will be "compensated" elsewhere. 

A notable intervention has come from Andrew Tyrie, the Conservative chair of the Treasury select committee. He has called for the government to revive the publication of distributional analyses following Budgets and Autumn Statements, which was ended by George Osborne last year (having been introduced by the coalition in 2010). 

In a letter to Hammond, Tyrie wrote: "I would be grateful for an assurance that you will reinstate the distributional analysis of the effects of the budget and autumn statement measures on household incomes, recently and mistakenly discontinued by your predecessor." He added: "The new prime minister is committing her government to making Britain a country that works 'not for a privileged few, but for every one of us'. A high level of transparency about the effects of tax and welfare policy on households across the income distribution would seem to be a logical, perhaps essential starting point." 

Whether the government meets this demand will be an early test of how explicit it intends to be in reducing disparities. 

George Eaton is political editor of the New Statesman.