As a former secretary of state for Work and Pensions, I watched last summer’s catastrophic U-turn on welfare reform, as the Labour Government caved in to its own back benches on welfare reform leading to a spiralling welfare cost.
Labour was elected with the stated ambition to get welfare spending under control. However, despite that, its first bizarre act was to scrap the reforms planned by the previous Government to legislate to tighten the gateway onto runaway sickness benefits. Yet this failure to tighten up on welfare coupled with a flawed tax policy has led to a significant rise in welfare spending.
The flawed tax policy is the Chancellor’s National Insurance tax hike, which makes the cost of hiring, for particularly small and medium business’s too high. As such, the tax agenda and the welfare agenda are completely at odds. Now young people and taxpayers are paying the price.
Tax policy and welfare policy must go hand in hand, for if, as the Chancellor has done, tax policy makes it more difficult for businesses to employ young and old, this in turn leaves too many languishing on benefits as a result.
Yet welfare reform is possible if the Government is determined enough. As secretary for Work and Pensions reforms I introduced showed what can be done.
A more dynamic system, a hard cap on benefits, tougher conditionality rules: together they saved over £25billion from the bill, cut workless households to a record low, and gave half a million children a parent who went out to work each morning. The principle was simple: work must pay, and welfare reform can transform lives by realising individual potential, without penalising business.
Sadly, during the Covid pandemic, assessments were relaxed, sanctions softened, and meetings shifted online. This led to Claims for long-term sickness rising dramatically. The bill for health-related benefits is now set to hit £100billion by the end of the decade, fuelled by almost 3,000 new claims made every day.
In particular, disability benefit claims for anxiety and depression have soared, more than doubling since 2019, while seven in ten Universal Credit assessments involve a mental health condition. This is despite all the evidence showing, even by the NHS, that work is good for mental health and can protect against conditions like depression and anxiety.
The layering of unreformed entitlements is now also causing serious problems.
Analysis by the Centre for Social Justice (CSJ) shows that an inactive claimant, topped up with health and housing payments, can now receive the equivalent of a pre-tax salary of over £30,000. More than six million full-time workers take home less. That is not fair nor right.
Meanwhile, much of this is now undermined by low skilled migration.
There is no doubt that the challenge to get young people into work has also been held back by significant numbers of low-skilled migration.
The CSJ revealed last week that for every additional young British national added to payrolls since 2020, there have been 27 additional young non-EU migrants in work. The hospitality and retail sectors, also hit disproportionally by the Chancellor’s tax raids, are vanishing as stepping stones into work for young people.
The first task of welfare reform is creating jobs in the first place. Furthermore, as a priority we must get serious about recognising the challenges young British nationals face in the labour market from low skilled migration and prioritising getting migration back under control and helping young people to get there feet on that first rung of employment by prioritising and reforming broken mental health benefits, and slashing the many taxes holding back growth.
