The welfare reform bill heralded in the Queen’s Speech this week is likely to prove a watershed in the life of the government. Either the government takes seriously the consultation it is undertaking, in which case the bill is likely to be radically different from the proposals that have been announced. Or the bill will follow those proposals in detail. This will test the mettle of Labour backbenchers.
Part of the bill should prove uncontroversial. The government wishes, for example, to establish a single gateway for benefit. The message of work will thereby be reinforced. All able-bodied claimants of working age will be required to attend an interview to talk about how they are planning the next stage of their lives. But what sanction will be applied against those who, perhaps drawing benefit for 20 years, refuse to turn up at the appointed time? We have not been told. As with much welfare reform, the danger is that the detail will trip up the government.
Other proposals will be more controversial. For example, the government proposes to take benefit away from childless people and from richer claimants, to redraw entitlement to national insurance based benefits, and to force on to means-tested assistance those who lose benefit and cannot survive otherwise.
It may seem right to take money from the childless and give it to families with children. But what happens through the benefit system is insignificant compared with what happens through taxation. And the tax system has been taking money away from families with children for well over 20 years. Moreover, the proposed benefit transfers from the childless will occur largely over a limited income range – there are not many duchesses claiming incapacity benefit, or at least there weren’t the last time I looked into it.
Equally worrying is the further drive into a means-tested morass. Already something like the poorest third of the population is engulfed into means-tested assistance – or is eligible for such help. Under the Financial Services Act, independent financial advisers have to give advice in their customers’ best long-term interests. A third of the population should, therefore, be told not to save, as this would be likely to make them ineligible for, say, the new pension guarantee announced by the Chancellor. Likewise, on no account should lower-paid people join a works pension scheme unless it guarantees a bumper pension. Otherwise, they are likely to be worse off than they would otherwise be when they retire. They will see workmates who, as one constituent put it to me, “pissed all their money up against the wall” living better on means-tested handouts. Yet ministers won’t say how many more people will be pushed on to means tests over the next five years.
Part of thinking the unthinkable was to accept that welfare affects behaviour and thereby the character of recipients. Means tests are powerful teaching agents against working, saving and being honest. Implicit in Labour’s approach before the election was a disengagement from means tests. This could not be achieved overnight. But the understanding was that the reform programme would, step by step, achieve that objective. So far the government has set sail in the opposite direction.
There was another aspect of welfare reform, which divided Labour from the approach of the Tories. Their line was to hack away so that individuals had to seek alternative private provision – a strategy most cleverly presented by Peter Lilley. He never announced a welfare cut without putting the most appetising dish into the shop window. Then, once the unsuspecting purchaser went inside, the most terrible beatings occurred at the back of the shop.
The appetising dish was again offered when the government announced cuts in widows’ benefits. Expecting to lose a case coming before the European courts, ministers sensibly decided to extend some coverage which existing widows get to widowers. But many widows without children will lose out after six months – to the tune, eventually, of £500 million a year.
Similarly, when announcing cuts to incapacity benefits, the government was careful to extend mobility allowance (previously confined to the over-fives) to children aged three and four. But national insurance rights of long-term sick and disabled workers were hacked away for savings of £750 million.
Another distinctive aspect of Labour’s reform programme was that we should build up alternative forms of provision before disengaging from state welfare. That approach will be difficult, if not impossible, if ministers fail to come up with radical proposals on pensions.
I favour the stakeholder scheme which would offer a pension guarantee from a combination of the current national insurance pay-as-you-go scheme and a new stakeholder fund, which would be compulsory but not provided by government.
Once such a universal scheme is in place, it is possible to plan other reforms. Life insurance becomes cheap as there can be no cherry-picking of the “best” customers. All those who entered the stakeholder scheme would be entitled to widow’s and widower’s benefit. Likewise, the stakeholder scheme could form the basis for universal long-term care insurance.
Until now, the government has understandably talked in general terms. Offering hand-ups rather than handouts has been a constant theme. As the welfare bill moves through parliament, MPs will want to be assured that it offers a genuine hand-up and not yet another put-down for the poor.
The writer is Labour MP for Birkenhead and, until July, was minister for welfare reform