In defence of IDS

March 9, 2011 by · 17 Comments
Filed under: Credit crunch, Politics 

I have over the years tried to defend ministers and MPs by arguing that they do difficult jobs and are generally motivated by a sense of public service. In that spirit, I am risking making enemies of old friends by writing today to defend the aims – if not yet the method – of Iain Duncan Smith.

This is not just despite, but – perversely perhaps – because of the amount of misery some of his reforms will cause and the criticisms they will face.  I share the widespread concern that reform of housing benefit and the cap on aggregate family welfare income of £500 a week will cause real hardship and may force poor people out of currently socially mixed areas like central London. I was disturbed by some of the examples of people losing incapacity benefit through the new work focussed interview process (although I should declare a double interest in that (a) I am a non-exec of a company which has a partnership with the company which undertakes the work focussed interviews and (b) the interviews of new claimants started under the last Government which also intended to extend them to existing claimants). Like many other commentators on yesterday’s speech about pensions, I applaud the principle of a universal flat rate payment but fear that the devil may be in the detail.

And yet … when I was working in and around Government there was a pretty regular cycle. Secretaries of State for Welfare would be appointed and agree to a mission of thinking the unthinkable. But as the weeks passed in the Department they would start to understand that any substantial and affordable reform (and this was at a time of rising budgets) would cause noisy losers as well as ungrateful winners.  In the end there was a new pensions policy – but it was exhausting getting it past the Treasury – and the work focussed interviews were put in place (although, as I say only enacted for new claimants). But housing benefit was pretty much a no-go area and I have my doubts that Labour would have pushed ahead with assessing existing IB claimants. And so Labour’s record on welfare reform over the full period of its time in office was well-intentioned but uninspiring and at the time of leaving office it was still the case, for example, that anyone who spent a year on IB was more likely to die on benefit than come off it.

I’m not belittling the hardship and anger being caused by the work focussed interview but I can’t help noticing how often critical journalists cite the fact that around a third of the claimants being found not to be eligible for IB win their appeals. What is less often pointed out is that this is a third of the third who appeal at all. This suggests that more than 4 in 5 are correctly taken off a benefit which is essentially a way of parking people out of work for life.

I know a lot of people who think the Coalition’s welfare reform plans are despicable and some may comment on this blog. In the end, in the court of public opinion and through the mailbags of MPs, it may be that IDS will find he has bitten off more than he can chew. However, no one can question that the system needed reform, and to be a reforming minister with limited budgets means making very tough decisions. Unless we are going to embark on a major process of additional redistribution – and none of the major parties promised that in the election – the choice is either leave things as they are or accept that reform will be painful.

The same people who will have to bear the brunt of welfare reforms are those who will be most hard hit by public service cuts. The Coalition has its work cut out to show it has a compassionate and just side as well as one determined to reform and cut. But having seen from the inside how hard it is to be brave on welfare reform I think IDS deserves credit at least for having the courage of his convictions.

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Why IDS’s plan is right and why it won’t happen

September 17, 2009 by · 2 Comments
Filed under: Politics, Public policy 

Iain Duncan Smith’s ideas for a new benefits regime are coherent and progressive but he can’t avoid the fundamental ‘trilemma’ of welfare reform.

In essence, the Duncan Smith plan – which was published on Tuesday – argues for a massively simplified system in which job seekers and the low paid receive universal flat rate benefits. Unlike existing benefits, recipients will keep a large proportion of their payment if they get work or improve their earnings. Thus people have stronger incentives to work, and there is an end to the manifest injustice that it is among the poorest in our society that we see the highest marginal tax rates (the combination of loss of benefit and tax-paying).

I support this approach. Indeed in a perfect world I would go further and advocate a universal citizen income paid to everyone. Yes, this means we give benefits to the rich but the way to address this is through the tax system. But what can’t be disguised is that this system – and even IDS’ more modest version – costs a great deal more.

IDS’ answer is to recognise the cost – which he puts at £2.7 billion a year but to argue that by providing stronger work incentives he will get an extra 600,000 people back to work. By then factoring in the money saved on the health service and law and order as a consequence of having fewer people unemployed, he shows that within a few years the scheme is saving money.

The problems with this are threefold. First, we don’t currently have this kind of money to pay out upfront. Second, his cost and benefit estimates are almost certainly too generous to his scheme. Third, it is in reality very hard to show that upstream measures like benefit reform have downstream effects like increasing employment and reducing ill-health and criminality; there are just too many intervening variables. I say ‘very hard’ because it is not impossible. A few years ago Quebec instituted an ambitious and integrated enhancement of parental leave and child care provision. The figures do seem to show pretty conclusively that this has led to a significant increase in the employment rate of mothers.

In the short and medium term (which is all that the Treasury cares about when it comes to revenue expenditure) IDS has to face up to the welfare trilemma. Which is simply that out of three main objectives for the welfare system – to incentivise work (or saving), to help the poorest most, and to constrain public expenditure – you can achieve any two but never all three.

IDS’ plan is not dissimilar to the framework developed by Frank Field before his short lived time as minister for welfare reform in 1997-8. Field too was viscerally opposed to the means test and its impact on incentives. When officials worked on Field’s plan they too found that the upfront costs were huge. Feeling that he was being blocked by officials and lacking support from his Secretary of State, Harriet Harman, Field was soon briefing against the department and soon after that he left government to resume his role as contrarian back bencher (it was, by the way, this history which lay behind great amusement when Field recently declared that Harriet would be a good replacement for Gordon Brown).

IDS’ radicalism is to be applauded. In the long term I believe a plan like his would work. But in the time frame that Government’s tend to use there is no escape from the welfare trilemma.

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