Full employment and rising wages are the key to welfare reform

Iain Duncan Smith was once right about the need for drastic change - then he got everything else wrong.

When Iain Duncan Smith starting visiting to Easterhouse and steered the new Centre for Social Justice (CSJ) towards a Tory-analysis of poverty, he was hailed by many as a prophet. Finally, wrote breathless commentators, the ‘nasty party’ had found a route-map to Compassionate Converatism. Five years later, IDS is part of a government that is plunging one million children into poverty and is ramming through the House of Lords new laws that will cut help for 3.5 million disabled people. The Saint of Easterhouse has become the punch-bag of the Treasury. The route-map, is turns out, was a chimera.

But IDS is still standing in part because he stands on the foundations of the CSJ’s study. I might disagree about lots of their conclusions but I can respect the fact that they actually bothered to look at the problem. Reform of social security – currently one-third of public spending – is a big question. It demands and deserves deep thinking not a casual look. And that’s why the launch on 14 February of the Commission on the Condition of Britain is so welcome, and why I’ll be following its work so closely. Back in the 1990s, the Commission on Social Justice at the IPPR was critical to Labour’s social security reforms in office. I hope we’ll learn just as much from the IPPR’s second big look two decades later.

The truth is major reform of the welfare state is mission critical to rebuilding Britain after the global financial crash; it’s crucial to creating a country where we end the trauma of the living standards crisis, and it’s crucial to renewing a shared sense that we really are all in this together. This is the frame that Jon Cruddas set out for One Nation Labour in an important speech at the Resolution Foundation this week; ‘earning and belonging’.

When the Beveridge Report was published seventy years ago in the middle of World War Two, it was swept off the shelves by a British public thirsty for a vision of what would come when peace was won. At the heart of Beveridge’s argument was the idea we needed social insurance to help working families deal with the exigencies of life that caused new pressures (like the costs of children) or caused a loss of earnings , like the mass unemployment of the 1930s.

Today, the challenge for social security is not simply to minimise disruption to earnings, it is to help families maximise the potential of earnings. Beveridge’s world-view was set during the Devil’s Decade of the 1930s. Our world-view must be shaped by the gigantic squeeze on earnings that means living standards for ordinary working families might not recover, according to the Resolution Foundation, until the 2020s.

The reality for Britain today is that right now, productivity is going up; corporate profits are going up; companies are piling up cash in their bank accounts at a rapid rate of knots. Yet real wages are falling. In other words, workers are producing more and earning less. If we’re to reverse this giant trend, we are going to need new strategies for full employment – because full employment is the best guarantee of rising wages. We’re going to need new strategies to help working parents – especially mums – juggle childcare and sustain their careers. We need new ways to help the over 50s stay in work. And we need a radically new approach to disability policy so that government actually puts a team behind disabled people helping them get on in life, not a bureaucracy against them locking away help.

The IPPR’s work couldn’t come at a better time. Half way through the Parliament it’s now clear, the Conservatives so-called welfare revolution is collapsing in chaos. It doesn’t help working families get on. Its making poverty worse. The DWP is no longer even able to organise work experience in Poundland, never mind complex change like Universal Credit. We’re determined to offer a bold alternative, that staunches the cost of failures and puts social security once more, back on the side of working people.

The Easterhouse estate, Glasgow. Source: Getty

Liam Byrne is shadow work and pensions secretary and Labour MP for Birmingham Hodge Hill.

Getty Images.
Show Hide image

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.