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Wednesday, 21 March, 2001, 18:59 GMT
Strategies of welfare reform

Labour has placed a new emphasis on welfare to work
The new Labour government's self-proclaimed task was modernising the welfare state for the next century.

But what strategies has it sought to use?

And how successful has it been?


The New Labour project for reforming welfare had several elements.

First, there was a recognition of the importance of work, and coupled with that, a fear that people permanently without work would sink into an "underclass" where it would be difficult to escape.

Secondly, there was an acceptance that fraud was widespread and needed to be tackled, and that to some extent the existing welfare system created perverse incentives that encouraged cheating.

Thirdly, there was the firm belief that welfare benefits should to be targeted to those who needed them most, and that universal benefits - like the state pension - were too expensive to be sustainable in the long-run.

Finally, and most fundamentally, there was a belief that any rights or entitlements to benefits had to be accompanied by responsibilities - especially to seek work or training.

The first change introduced by Labour, initially in the context of its New Deal programme for jobless young people, was to insist that in order to qualify for extra help, participants had to take up an offer of training, a job placement, or work in a voluntary organisation.

There was to be no "fourth option" of government- supported idleness, as Employment Secretary David Blunkett put it.

Gradually the penalties for refusing to take up these options have been made harsher, and the eligible groups to whom this applies have been extended.

The New Deal programme has now been extended to include the long-term unemployed up to the age of 50, who face the same penalties should they refuse to take part.

That compulsion builds on, but goes beyond the changes made by the Conservatives when they introduced "jobseekers allowance", which tied the receipt of unemployment benefit more closely to taking part in a series of jobseeking measures.

So it is not surprising that the compulsory principle has their support, and indeed they want to tighten it further.

Most controversial is the question of which other groups - such as single parents and the disabled - should be forced to work or train in order to receive benefit.

So far the government has been treading cautiously over this issue, but there have been discussions whether pressure should be applied on single mothers once their children have reached a certain age - for example, school age.


The other arm of the government's welfare-to-work strategy is to increase the attractiveness of work.

The main strategy has been to increase in-work benefits, notably the Working Families Tax Credit (WFTC), which is paid to employees with children through their pay packet.

The idea is to guarantee an income of about 200 a week to anyone with a full-time job - with additional benefits for childcare.

There are two worries about this approach. One is the problem of take-up, which has been complicated by the fact that employers have to administer the tax credit - and therefore assess the welfare circumstances of their employees.

The other problem with this approach is that as the scheme becomes more generous, ever more people will be dragged into the welfare system. People earning up to 16,000 may now claim under the scheme.

Coupled with the WFTC has been the introduction of a national minimum wage - although it has now been raised to 4.10 hour, that would only yield an income of 8,500 per year.


The government has yet to reform one key benefit that can be a disincentive to work - housing benefit.

The government pays nearly all the rent for people out of work and on benefit, but the subsidy is withdrawn at a rapid rate when people begin earning.

So for those who live in expensive areas, for example in London and other large cities, there would still be a strong disincentive to take a job.

However, any reform of the housing benefit scheme is likely to be politically painful - especially for the government. Many of those who might lose out would be Labour's natural supporters - elderly people living in council housing.

So any reform - which might include moving to a flat-rate system - has been postponed until after the election.


The other strand of New Labour thinking is to target benefits at the needy, rather than expanding the value of universal benefits that are available to all.

This has proved controversial, with both the Conservatives and Liberal Democrats attacking the government for spreading the means test too far - especially for pensioners.

Traditionally it has been the Labour Party that has criticised means-tested benefits.

The government has argued, however, that, with limited resources, it should give more help to those who need it most.

And it has sought to make the income test more generous and less objectionable, in some cases by paying it through the tax system.

One example is the minimum income guarantee for pensioners, which provides a guaranteed but means-tested income of 90 a week for those who cannot live on the state pension alone.

Labour has pledged to increase this means-tested benefit in line with earnings, while the state pension itself is only pegged to prices - and is rising very little in years of low inflation.

Labour is also moving more cautiously towards targeting benefits on children. Although it has increased the universal child benefit, this year sees the introduction of the child tax credit, which is targeted on middle income families and withdrawn for those who pay higher rates of tax.

And it has increased the amount paid through the social security system to help families with children, and appears to be moving towards an integrated child credit, paid through the tax system, combining all these benefits.


There is another kind of targeting going on in Labour's thinking about welfare.

That is to target some of the most vulnerable groups in society for special help, addressing social problems with direct action task forces.

So far teenage mothers, children excluded from school, and homeless people sleeping rough have been the main focus of attention.

The social exclusion unit, located in the Cabinet Office, has tried to coordinate action on these issues across government departments.

And special projects have been set up, for example the Rough Sleepers Initiative.

But critics say that these projects sometimes focus on the most severely disadvantaged groups at the expense of others who have equally valid problems - for example, other homeless people who need hostel accommodation.

The government also has plans to target specific areas where poverty, poor education, and lack of jobs is a particular problem - creating special action zones where business, government and the community are expected to work together.


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