What does it mean to make work pay?

Increasing the amount of better quality jobs in the UK is key to addressing low pay.

A key argument in the welfare debates this week has centred on ‘making work pay’. The Government argues that changes to tax and welfare will improve the lot of low and middle income working households. Though curiously, this came as suggestions surface the minimum wage could be frozen or cut.

Alongside others, we have shown that the increase in the personal tax allowance is roughly cancelled out by reductions in tax credits and other benefits. But there is a more fundamental flaw in the way this argument has been conducted.  It has focused purely on the role of the tax and benefit system with no discussion of how to make work itself pay.

This flaw was also evident in two other inputs into the debate in the last couple of weeks, both of which were otherwise useful and interesting.

First, a report on Improving Progression in the UK labour market by Policy Exchange. It’s encouraging to see work addressing the core issue of how we support people to not only get work but keep it and progress in it. This will let them end up earning enough to live decently, ideally without needing tax credits. The introduction of Universal Credit gives the opportunity for the Welfare to Work system to address this issue for the first time.  The report estimates that, under the new system, around 1.3 million people will become subject to some kind of in work requirements and support. 

This is a diverse group, with a mixture of ages and family types. Most work between 15 and 24 hours a week and over half are in fairly stable employment. Some have characteristics which will restrict the amount of work they can do: around a third have dependent children, over half are over 45, some are likely to have some health or caring related issues. Nearly 45% also have relatively low or no formal qualifications.  Most are apparently not actively looking for more or better work, although the reasons for this are not clear. The report makes some very sensible recommendations for improving the incentives for Jobcentre Plus and Work Programme providers to give real attention to progression in work. It also suggests piloting various other measures, including greater sanctions, to persuade more people to actively try to increase their hours and pay. 

However, the report seems to assume that there are abundant opportunities for more hours and progression, if people could only be motivated to look for them. This contrasts with our research showing that there are already 1.4 million people who want to work full time but are working part time because no full time job is available, the highest figure in 20 years.

At a Resolution Foundation seminar, Conservative MP and Skills Minister Matthew Hancock set out his agenda for tackling low pay. He argued that actively tackling low pay was vital and set out three ways of doing so: defending and strengthening the minimum wage; creating a tax system which supports low paid workers; and increasing productivity - by freeing businesses to compete, having good matching of jobs to applicants and increasing skills and human capital.

Both Mr Hancock and the seminar respondents (Allister Heath, City AM editor, Nicola Smith of the TUC and Ryan Shorthouse of Bright Blue) agreed that increasing the amount of better quality jobs in the UK was key to addressing low pay. But there was almost no discussion about how to do this. The debate was all about supply-side measures – tax, benefits, skills. All this is vitally important, but is highly unlikely to work without getting to grips with the demand side.

Only then can work truly pay – giving the ‘hard working families’ politicians talk so much about a real chance for independence and security.

Photograph: Getty Images

Helen Barnard is a Policy and Research Manager for the Joseph Rowntree Foundation.

Getty Images.
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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.