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23 March 2016

What Iain Duncan Smith got wrong – and what Labour can do right

Iain Duncan Smith's list of mistakes is long. But you have to understand it all to get what went wrong, says Alison McGovern. 

By Alison McGovern

Iain Duncan Smith’s record in government will no doubt be obscured by the current Europe crisis in the Tory party. And while the politically-engaged public will debate the reasons behind his resignation for a long time to come, his record in government may well be overlooked as the Tory psychodrama unfolds.

But it is crucial that we inspect his record. Because without serious thought on what he has done wrong, it will be impossible for the next Labour government to make real the reforms – especially to the world of work – which all progressives want.

This article places Iain Duncan Smith’s mistakes – and poor choices – in the context of a radically changed Department for Work and Pensions. The department achieved much, and was a serious improvement to the old Department for Social Security as Labour found it in 1997. I also consider how Labour can fix the heinous mistakes made, starting with a radical new universal vision for welfare.

I believe Iain Duncan Smith has overseen three great failures at the DWP: on the work programme, sanctions, and universal credit. All of these three mistakes relate to the changing shape of the labour market. They have damaged our economic prospects as a country, likely impacting on our productivity. But worse, the the consequences of Duncan Smith’s mistakes have been borne by one group above all: people with disabilities.

The DWP is huge: ranging over pensions private and public, working age benefits, including labour market intervention, and support for disabled people and lone parents. It’s the biggest spending department of them all.  It’s the department for micro-economics.

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As such, our everyday lives are the subject of its policy making, in a way that is rarely true for other departments.  A person without school age kids, who isn’t a teacher, is largely untroubled by the choices of the Department for Education. But most of us go to work every day.  So the spread of issues over which Iain Duncan Smith has held dominion during the past six years is huge, but it is the issue of disability in particular on which he has failed, time and time again.

Before the last Labour government too office, the Department for Social Security had worked on the assumption that in bad times, people would lose their jobs, claim unemployment benefits, and then good times would return, and they would go back to work. But eventually, it dawned on economists that this was not the case.  People in areas of high unemployment never went back to work during the booms.

Those on the right spoke of “those who make up bogus claims in half a dozen names”. But there is a more serious economic explanation: hysteresis.  This is the technical term for a system (in this case, the labour market) with memory.  Periods of unemployment were not just problematic for workers in the here and now, but also cast a shadow over future employment prospects. That’s why de-industrialisation scarred towns that, once blighted by confidence-sapping unemployment, never grew at the same pace as the rest of the country again. It is this same process that is now gripping hold of some seaside and industrial towns, who are cut off from economic growth in London, Manchester or Edinburgh.

The New Deal was a policy designed specifically to tackle this economic scarring. For the first time in the history of the British government, Labour would intervene in the labour market and proactively help people to gain confidence in finding work. We stopped assuming that everyone had the same capacity to secure employment. So instead of just policing evidence of work-seeking activity, we would provide coaching and then extensive training and access to short-term employment, to make sure all had the skills to get a job.  The longer a person was without a job, the more help they got.

The results of the programme were a success. Academics found that the benefits outweighed the cost, that employability rose, and that unemployment would have been higher without the programs that made up the New Deal.

The macroeconomic results were significant too. The New Deal increased the supply of workers and increased demand on childcare services. Demand for childcare increased supply. Which has made it easier for more parents to work. Add to this a new system of tax credits that boosted work incentives for those with children, and the picture was looking good before the global crash.

When the crash came, most economists expected unemployment to shoot up alarmingly. But in fact, we only witnessed unemployment at half the level that was forecasted to be caused by the global downturn. The DWP, and Job Centre Plus that formed its flagship service, knew how to work with people, and knew their local labour markets. They were able to prevent and tackle worklessness.  It was the department’s mission, and it carried it out expertly, right when we needed it most.

So a DWP that worked proactively with communities blighted by unemployment, and highly successfully helped parents – most especially lone parents – into the labour market, had one major job left by the time Labour left office in 2010.

We desperately needed to change the prospects of work for people with disabilities. They were the last major group facing serious barriers to work. Difficulties both practical, and arising from prejudice, had held people back, despite the Access to Work scheme, started in 1994 but continued under Labour.

Several other support schemes were in place, but, by and large, the labour market was still hostile to those with disabilities, with less that half of all working people with disabilities in work (compared to well over 75 per cent of people without a disability).  Towards the end of the government, we were trying to change culture and processes to improve this. But there was – and still is – a long road to travel.

Meanwhile, the global financial crash had occurred, and cuts to spending became the order of the day.  So, in the DWP, whatever Duncan Smith’s intention for his new back-to-work scheme, the ending of the New Deal was never going to just be about reform. The Tories were also trying to cut the cost of labour market intervention in the short term. This, in my eyes, then, has been IDS’s first great failure: the Work Programme. In short, as most people know, it doesn’t work. And in the name of cost-saving, too little attention has been paid to its effectiveness.

And its effectiveness could not be more important as a greater percentage of those whom the government need to help suffer from some kind of disability. In the short term, we have rested our hopes of an inclusive society on a program about which the National Audit Office says that performance for harder-to-help groups is still below expectation, and where “flawed contractual performance measures mean the Department will have to make incentive payments to even the worst performing contractors.”

But the longer term consequences of this Work Programme failure are much worse. Because the Work Programme is badly commissioned, it has robbed our government of the chance to understand, from a practical perspective, how to change the chances of people with disabilities in our country. Recall that the New Deal fundamentally changed the knowledge base of what worked to help the unemployed.  Within the DWP, numbers of analysts were increased so that policy could be led by evidence. Policy and procedure could be refined and changed as analysts learnt more about exactly how their operational colleagues in Job Centre Plus were working with people at the front line. It wasn’t just that the New Deal funded things that hadn’t been funded before, it was teaching the British government how people interacted with the labour market in real life.

The Work Programme, run and managed by large private companies, will not provide the British government with this kind of intellectual capacity. There are several causes. The incentives, contractually, have encouraged companies to focus on those closest to the labour market, not, as it should be, those furthest away, from whom we could learn most.  The contracts are also too large, geographically.  They range over areas that are not economically similar, and so cannot be specific enough to local labour market conditions. And most importantly, there is little reason for large companies to help the DWP research what works in the way that once took place. 

So “what works” has been replaced with dogma.

This brings me to Duncan Smith’s second great failure: sanctions. The rise of sanctions used by the DWP is due to his dogma, not evidence and good policy. Here’s why.

Conditionality has always been a part of our social security system.  Those who wish to do so can debate if the British people would stand for an unconditional benefits system. I do not believe that they would, or should.   But the Tories’ idea of sanctions is different. As IDS has said himself, he thinks sanctions help people “focus and get on”.

So this is the notion that the presence of sanctions, rather than protecting the system from those who would seek to claim regardless of any job opportunity, can be used to pressurise people to take any job or avoid the DWP altogether.  In other words: the New Deal taught Labour that a combination of requirements on the claimant alongside genuine and meaningful help improved people’s prospects in the labour market.  In contrast, the Tories have argued that sanctions force people into the labour market, or at least away from interaction with the DWP.

There is a serious problem here.  Most people understand that the easiest way to get a job is to have a job.  So that’s why we should invest heavily in preventing long-term unemployment. But they will also know that if we as a society take the view that as long people are in any job, whatever the prospects, and are careless about the chances that those jobs offer, the chances of people moving up the ladder will fall. People get stuck in a job that does not pay enough, or helps them make the most of their life.

Our nation’s productivity is stagnating.  Wage growth is extraordinarily sluggish. And rather than a DWP that seeks to get people more skills, more earnings potential, we have a policy that says as long as you are in work, it doesn’t matter what your prospects are. Intervention in the labour market has been replaced with a big stick. And they are not afraid to beat people with it. And because barriers to women’s involvement in the labour market have been lifted, and much long-term unemployment dealt with, this punishing regime has focused on the group left with huge challenges getting into work: those with disabilities, especially mental health conditions.

This is a failure of dogma against reality. A dogmatic belief in the existence of the feckless, in the face of the reality of people with complex barriers to work, that require expert staff to carefully assist them.  It feels as though the DWP has been degraded. Not a place anymore where people can go to get help. But a place where people go to be judged.

Now, if your only aim as Secretary of State for Work was to lower the JSA claimant count, this would be a good way to do it.  Make the system so bad, people stop claiming and live by any means they can.  On the other hand, if you wanted a more skilful, confident country, it’s exactly what you would not do. And it is the policy challenge to which Labour must speedily return.

But first, to Duncan Smith’s third big failure: the universal credit.

Much will be said about this failure. Administratively, changing the benefits systems isn’t easy. But this project has taken the mishandling of process change to a new level. Yet the most important lesson from this is not administrative. It’s about the money in people’s pockets. It was said that the lesson learnt by Duncan Smith in Easterhouse was that clawback rates on benefits were too steep. That because people lost benefit payments as they started to work, the incentive to work wasn’t strong enough. They didn’t really feel the benefit of working, so work wasn’t an attractive enough prospect.

If he really believed in this philosophy, then the design of universal credit would have been very different from how it has turned out. As he arranged it, the change in payments from the existing system to universal credit only ever redistributed money from those on lower incomes to the lowest possible incomes.

This serious error by Duncan Smith, the mis-selling of universal credit as a solution to his Easterhouse experience, stamped on by the Treasury, yet still promoted as his ‘moral cause’, is, in my view, the worst of all three errors. Basic economic understanding of the reality of family life should have told him that it doesn’t matter if you call it “tax credits” or “universal credit”, money is money, and you can’t make people poorer without people noticing.

The tax credit debacle of last year made Duncan Smith’s incompetence on family incomes absolutely clear. He cheered the introduction of the so-called National Living Wage, seemingly not realising that tax credit cuts would leave families in work worse off despite the new wage rate.

And again.  Ask who is worst off from these changes, and the answer is clear again. Families affected most are those with limited capacity to earn. Lone parents, or those constrained by disability. The greater your needs, the worse off you will be thanks to the Treasury’s cuts.

Now, as I will argue shortly, change is needed. The DWP must become expert in working with people with disabilities. The NHS must play its part. And we have to change the world of work so that those with a disability have equal chance of working.  But meanwhile, we can’t expect families coping with the challenge of disability to take ever greater cuts.

This structural issue has run through every problem Duncan Smith has faced. He has never won the fundamental battle he set out to fight: to help people into work by making work pay.  Working families will be worse off. The Tories have been political free-riders on the back of good employment figures generated by population shifts, women coming into the workplace, and then, have harried people into low paid work without much thought about how they move on.

And in the end, what we heard in the budget was this. Those for whom the labour market offers no chance at all, and the seriously unwell, must face poverty, according to the Tories. As a party that decided it no longer wanted to be the Nasty Party, the Conservatives are a failure. They have not changed.

Duncan Smith’s final sin is one of omission. He has been the Secretary of State for Work and Pensions. And, above, I have written about work, but not about pensions.  But that is for a reason. It isn’t clear that Duncan Smith has had any role in pensions policy. Changes to pension policy in the Conservative government have been made by George Osborne. Pensions freedoms, and now lifetime ISAs represent huge changes to the system. But these were budget day announcements from the Treasury, not signalled or consulted on by DWP.


Worse, there is a deep conflict between the stated pension policy aims of the government.  On the one hand, pursuing auto-enrolment, tying the hands of the population to make sure we all necessarily save for later years. In the flat-rate state pension, they claim to be making life more simple for pensioners; simple to understand, simple to claim.  But on the other hand, they are creating new freedoms and ISAs that give people choice, whatever the potential risks and consequences. Is it Tory policy to take away choice and provide everyone with a good default state and private pension? Or to remove rules and strictures and let individuals choose how to save and what to do with the capital accrued? Who knows?

Someone needs to work out how best the government should help and support people to save. But Duncan Smith has done and said little about pensions (and saving). On this, at least, he has been the silent partner to George Osborne.

Still, I live in hope that the Tory rule won’t last forever. But, if Labour are to change our country, we need more than attack lines on IDS and Osborne. As William Shakespeare said, “if to do were as easy as to know what were good to do, chapels had been churches and poor men’s cottages princes palaces.”   We need more than the analysis I have given of where the Tories have gone wrong. We need a plan that will move our country forward. So where to start for the next Labour government?

First things first. Jobs. Osborne has taken credit for the employment level, despite an increasing working age population, and a long term change in our economy that has seen women able to work with changing social norms and an increase in childcare supply.

But worse than that.  He’s forgotten a crucial fact that surely every other Conservative believes to be true. It’s not government that creates jobs, it’s business growth.

So while the right has traditionally thought that Government’s role in tackling unemployment is to get out of the way, as progressives on the left, our job is to build public institutions to help folk live up to their aspirations. Yes, a decent wage, but also the chance to develop yourself, and to support your family with both money and time.

For example, institutions like state schools, or the health service, underpin the functions of every profit-making business in Britain. So Labour needs an ambitious new vision for the welfare state that truly lives up to the idea of universality. 

So first, on disability, more and more of the DWP’s target group will be those with mental health conditions. This necessitates therefore a more fulsome relationship between DWP officials and NHS experts.  We need to end the antagonistic relationship between the benefits agency and doctors, who see their patients made worse by the anxiety created by dealing with the benefits system. The system is and will remain conditional on efforts made by individuals, but when those conditions are met, the state also owes them more that a tick in a box, or the absence of sanctions. It owes them acknowledgement, encouragement and a range of good options for help.

For example, a reinvigorated Access to Work could provide much more in-work or in-training support for those with disabilities especially mental health conditions. The NHS is struggling to provide basic counselling for those with depression and anxiety. But if everyone in our country knew that part of the social security system was in-work support for mental health troubles, we could give more people the confidence to stay in work, and to go back to work after a crisis. The best companies and organisations have such counselling already.  Labour could aim to make it universal.

I’ve written already about universal childcare, and why this offers a further way to drop barriers to the labour market, tackle child poverty and improve chances of success in education. There is a chance for us to change forever the start kids get in life. We should take it.

To return to the Tories, though, Iain Duncan Smith was correct about one thing.  For those in poverty, help that is for everyone can sometimes – paradoxically – be the most important intervention, rather than those which rely on complex targeting. So the name “universal credit” wasn’t a bad idea.  The problem is, he seems to have been more interested in preserving the idea of his crusade, than, until now, doing much to secure the reality of new universal social security.

Thankfully, there are better ideas, more practical, and, in many ways, more radical, to stop and reverse the spread of poverty. Give us half a chance of getting a Labour government, and we could get on with it.

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