Why the government’s welfare reform can’t work

Photo credit:   Harshil.Shah

August 16, 2013 // By: Joe Penny

Two years ago, we set out to explore how local communities are coping in the face of sustained public spending cuts and welfare reform. A bewildering array of changes has made benefits and tax credits more paltry, punitive and precarious than ever before.

The social and human costs of these reforms are shocking, and as our new report shows, it will only get worse in years to come.

The government likens this suffering to painful medicine we need to grin and bear if we're going to get the economy back on track and improve an antiquated welfare system. But is the prescribed medicine working, even on its own terms?

There are three main aims to the Government’s welfare reform, as stated repeatedly by ministers such as the Secretary for Work and Pensions:

Welfare reform that actually achieved these aims would be widely popular. But Iain Duncan Smith’s welfare reforms won’t help people into work, they won’t make work pay and many aren’t even going to save money. They are doomed to fail on their own terms.

1. Welfare reform is making people less capable of working

We hear a great deal from the government about a pernicious culture of dependency and entitlement, and about the countless ‘skivers’ who are “sleeping off a life on benefits”. They say that these people need a wakeup call – something that will force them into doing the right thing and get work. Punitive welfare sanctions and meaner benefits are supposed to do just that.

But putting aside the rhetoric, what might an evidence based approach to supporting people into work look like? The self-determination theory (SDT), a psychological theory of motivation and well-being, is instructive here. The SDT shows that we all have three innate psychological needs which, if met, enable us to function well, to be proactive and to grow as people. These three needs are:

If we truly want to support people into work we need welfare reform and work programmes that help people to develop these functionings.

Unfortunately, our research with people in Birmingham and Haringey shows that welfare reform, in the current context of economic uncertainty, is undermining each of these three psychological needs.

It is making people feel insecure in their daily lives. It is making people feel like they are losing control over what happens to them now and in future. It makes them feel stigmatised and as though public opinion is turning against them. It is also making people feel more socially isolated, as they turn in on themselves to try and cope – going out less often and seeing their friends less frequently.

Current welfare reform is making people less able to take on work.

2. Work isn't paying

A cap on benefits enjoys high levels of public approval, largely because it claims to ensure no one will earn more in benefits that in work. It is about making work pay, we are told, and this seems perfectly reasonable.

However this is also perfectly misleading. In real terms, wages for those at the bottom end of the labour market have been steadily falling. The types of jobs that are being created at the moment are predominantly precarious, part-time and poorly paid – see the rise in zero-hours contracts - and the number of people experiencing in-work poverty is now higher than those in out of work poverty.

Until the government addresses the ‘demand’ side of the jobs market - by investing in an economy that provides secure, well paid and satisfying jobs - they will, at best, be moving people out of a life of unemployment and reduced benefits to in-work poverty. Work won’t actually pay.

3. Welfare cuts are a false economy

We are frequently told a reformed welfare state will cost us less and so will help reduce the deficit. Current reforms will indeed cut around £19bn a year from the welfare bill, but these ‘savings’ are a false economy. Money saved in one place will increase costs elsewhere.

In a Local Government Chronicle survey of 156 local authority officers, 95 per cent expected social security changes to increase costs of providing services such as housing, social care, and customer services (including welfare advice).

In some cases these additional costs are expected due to increased demand. In other cases it is feared that the reductions in people’s incomes will mean they will be able to contribute less – for example, the cuts in Disability Living Allowance will have a knock-on effect on some care and support services. Changes such as the benefit cap will also cost local authorities money.

In Haringey, where the benefit cap is being piloted, the potential cost of people being unable to pay their rents in council housing and the cost of having to move these families into temporary accommodation is estimated to be as high as £7 million a year.

Cutting welfare payments is also problematic at a macro-economic level. Economists suggest that, during a recession, welfare payments have a multiplier effect of around 1.6. Put another way, every £1 in social security spent generates £1.6 to the national economy. Cutting social security has a negative multiplier effect. Research by Sheffield Hallam University shows that reducing welfare by £19 billion a year may depress the economy by as much as £30.4 billion a year.

The government’s confidence on welfare reform is clear to see. They have gone about it with remarkable zeal and speed. They congratulate themselves for the scale and reach of their efforts. Yet this confidence is wholly without empirical grounds. IDS said it himself, the governments reforms are not based on evidence based policy; they are based on the ‘belief’ that they are right.

Given the scale of reform, and the associated human, social and economic costs that our research today shows, this is some leap of faith indeed.   

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