Politicians want to be ‘tough on welfare’ but welfare is a stubborn opponent

Everybody wants to be tough on welfare these days. Even the new shadow work and pensions secretary felt the need to frame her party’s jobs guarantee scheme as tough on welfare.

The thing is, you can’t be tough on an abstraction. It’s a bit like the War on Terror – eventually you have to decide who terror is and fight them. Likewise, you need to decide who counts as ‘welfare’ before you can be tough on them.

When it comes to being tough on welfare, most people think of dole scroungers sitting at home doing nothing. Politicians’ rhetoric reinforces this view. It’s all about getting people back to work, using a mix of persuasion and coercion.

However, the unemployment rate has started to fall and is projected to fall significantly over the next few years. In any case, unemployment benefits are only around 3 percent of the benefits bill so even if the next government, whatever colour it is, can get all those idlers back to work, it’s only going to be tough on a small proportion of welfare costs.

But if the unemployed start going back to work, won’t the cost of all the other benefits they are entitled to come down too?

Not necessarily, which is why welfare is a more stubborn opponent than the politicians would have us believe.

Earlier this month, Parliament published its latest research briefing on social security benefits and expenditure.

Screen Shot 2013-10-22 at 17.35.38

As you would expect, especially given the recent better-than-expected growth forecasts, spending on benefits is forecast to reduce from 13.2 percent of GDP last year to 11.8 percent in 2017-18. But look at the real-terms HMRC figures. They reduce slightly, then rise again by the end of the period.

The graph shows this more clearly.

Screen Shot 2013-10-22 at 17.44.04

Even though the economy is set to improve, the forecast suggests that there will still be a lot of people receiving tax credits and most probably, therefore, housing benefit too. A study by the Resolution Foundation earlier this year was less optimistic, forecasting a slight increase in the cost of social security, with spending on pensions (obviously) and housing benefit rising even as that for other benefits falls.

This suggests that, even five years from now, a number of people will still be on wages that are low enough to entitle them to claim social security. Many of the unemployed, when they get work, may simply transfer from one benefit to another.

Another recent study from the Resolution Foundation shows why this might be. Although 2018 should be the year that real per capita GDP gets back to where it was before the recession, that doesn’t mean that wages will do the same, especially not for those at the lower end of the pay scale.

The median wage has crashed and shows no sign of getting back to its mid-2000s level.

Screen Shot 2013-10-22 at 18.12.30

Wherever the projected increase in GDP goes, it doesn’t look as though the lower paid will see much of it. Given that a fifth of the UK’s workforce earns less that two-thirds of the median wage (one of the highest proportions in the OECD), it is probable that a lot of the lower paid will not see much movement in their wages over the next five years.

Screen Shot 2013-10-22 at 18.25.37

Is it any wonder, then, that in-work benefits are likely to remain high for some time to come. Last week, the Social Mobility Commission warned that the working poor are bearing the brunt of government spending cuts. That shouldn’t come as a surprise. If politicians declare war on welfare, the low paid are going to get wounded.

It’s going to be a difficult war to win, though. Even with reductions in entitlement and in the number of unemployed, it still looks as though significant numbers of people will be claiming benefits for a while yet. There isn’t much sign of a the recovery easing the pressure on social security costs.  ‘Tough on welfare’ might be a good soundbite but welfare may be a tough opponent to crack.

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5 Responses to Politicians want to be ‘tough on welfare’ but welfare is a stubborn opponent

  1. Pingback: Politicians want to be ‘tough on welfare’ but welfare is a stubborn opponent - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. J.St.Clair says:

    welfare for ALL unemployed

  3. Pingback: The demise of LibCon and the future of political blogging | Alex's Archives

  4. Pingback: Government Spending Squeeze: Simply Undeliverable | ToUChstone blog: A public policy blog from the TUC

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