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Matthew Oakley: Why the Government is right to take on welfare reform

Oakley MatthewMatthew Oakley is Head of Economics and Social Policy at Policy Exchange.  Follow Matthew on Twitter.

The debate around the government’s welfare reforms is set to rage all week. Whatever the arguments for and against, one undisputable fact that is not used enough is that we are currently paying close to £100 billion a year to working age benefit claimants. Such a large number is hard to quantify. It is roughly equivalent to half of the total public sector pay bill in the UK or the entire New Zealand economy.

That is a staggering amount of money. Just a 5% reduction would pay for a four runway airport at Heathrow in two years or a number of other major capital investment projects such as new schools and hospitals. The sheer scale of expenditure and potential trade-offs warrants a close examination to assess whether it is providing the outcomes we want or whether it might be better spent on other areas.

One thing to make clear from the start is that our benefit system provides a vital and often uncelebrated role in helping those unable to work and supporting families in times of need. It is an institution that, as a country, we should celebrate and be proud of. But 50 years of tinkering and political game playing meant that by 2010 it had become sprawling and unsustainable, paying out tax credits to families earning in excess of £50,000 and transferring tens of thousands of pounds to some families without effective assessment of circumstance or need. As countless surveys have shown this has contributed to a downward spiral in public support for the welfare state. Three in four people now think that we spend too much on welfare.

This is why, despite frenzied opposition from the welfare lobby, church leaders and the Labour party, the government is right to be taking on welfare reform. To re-build trust and support for the welfare state it must be made clear that transfers are going to those most in need and that help is being given to claimants to find and sustain themselves in work. The phrase “a hand-up not a hand-out” is an old one, but it remains as true today as it did when Blair said it in 1999.

However, those opposing welfare reform seem to miss this point. Ultimately, families want to see their earnings rise and to support themselves, not rely on the welfare state to make ends meet. An unsustainable and sprawling benefit system paid for with government debt will never help them do this. Welfare reform is vitally needed to create a system that works.

This is not an argument to end the welfare state and talk of the end of welfare is ridiculously overblown. Families across the UK will continue to receive support for costs of living, housing, children, childcare, school meals, prescriptions and a range of other things. Instead, we must realise that for the welfare state to be sustainable and supported, we must ensure that work pays and that help is targeted at those with the greatest needs.

This involves making difficult decisions. Some families, brought up under an expanding welfare system will see their benefits cut and this will undoubtedly be hard for them. But we should also view this in the broader perspective. Many families have been struggling with pay freezes and reduced working hours for the last five years and each has had to make compromises and sacrifices.  The benefit system has to reflect the realities of the economic situation we are in.

It also needs to reflect the fact that the labour market is changing. Employment, particularly at the bottom end of the labour market, has become more fluid and less permanent with greater competition from across the globe. Reforms to welfare in the last decades have attempted to paper over the cracks: subsiding low wages and supporting low skills while at the same time increasing out of work benefit payments so that work was not seen to pay.


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