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

Matthew 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.

Matthew Oakley: Child poverty - Government should focus on outcomes as well as incomes.

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

Child poverty matters. Few people would argue that the state does not have a role to play in ensuring that children do not grow up in poverty. The dilemma for policy makers is that “child poverty” means different things to different people. Ask the public to picture what it might mean and many of us will immediately picture famine in Africa or street-living closer to home. Recent polling certainly suggests that many people subscribe to this point of view: 70% of people thought that poverty is when you do not “...have a place to live, or enough to eat or live on”.

This view is in stark contrast to the current approach in the UK. The government is legislatively committed to significantly reducing the number of children living in households with less than 60% of the median household income. The approach is based on measuring relativities, or inequalities, in incomes. It has to change.

This is not because relativities do not matter. They do. In fact, measuring relative incomes should be one element of an effective approach to tackling child poverty. Take, for example, children born into families where parents are not expected to work. Whether they have a disability or illness or caring responsibilities which means they are unable to work, the state has explicitly committed to supporting these families financially. It should ensure that the income it provides is sufficient to both meet their needs and allow them to engage fully in society. As living standards in society rise, we should commit to ensuring that these families keep up, meaning that relative incomes matter.

Matthew Oakley: How's this for a deal? Regional pay restraint...to fund regional infrastructure

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

The last week has been a mixed one for the UK economy and the coalition. Labour market statistics published last Wednesday showed the labour market faring remarkably well with a hat-trick of good news in falling unemployment, falling inactivity and rising employment.

However, possible revisions to the GDP figures aside, it is clear that growth in the UK is not good. The Bank of England has recently cut its growth forecasts for the UK economy and in the context of the UK being in a technical double dip recession, this makes the performance of the labour market unusual. Unsurprisingly, this disparity has led some to question whether we may see significant levels of redundancies in months to come.

This paints a gloomy picture: if continued low growth is coupled with a further downturn of the labour market, living standards will fall further (they are already fallen to their lowest levels since the second quarter of 2005) and any kind of ‘Olympics bounce’ is sure to dwindle. This continues to make growth and jobs the top priorities for government policy. So what should be done?

Matthew Oakley: Workfare is fair. The challenge is to make it effective.

Matthew Oakley, Head of Economics and Social Policy at Policy Exchange.

In recent days there has been a renewed cry of outrage over the use of workfare type schemes for the unemployed. The schemes, which have been in use in the US for decades and have been tried in various guises in the UK since the 1990's, essentially ask claimants of unemployment benefit to work for their benefit. Much of the criticism (for instance, see here) seems to be that the schemes are unfair as they allow the government and firms to exploit people. The argument is that requiring people to work for benefit is akin to slave labour. It is hard to understand this argument.

Firstly, people on these schemes are not getting nothing: while they are on the scheme, their benefits and tax credits are still paid. It does not seem unreasonable to expect that claimants of benefits should do something in return for the money they receive. Indeed, 'something for something' is a theme that we hear repeatedly from both sides of the House. In the case of the recently announced trial of community-based workfare for the very long-term (over three years) unemployed claimants are being asked to help out and put something back into their community. Hardly unreasonable after three years of financial support.

In its other guises (for instance the Mandatory Work Activity and work experience programmes run through Jobcentre Plus) the schemes are about building attachment with the jobs market and ensuring that claimants are not shying away from the requirements to seek work. Indeed, in some cases, claimants are guaranteed an interview for a more permanent paid position after a four week placement. This latter point highlights an important benefit of the schemes. When the labour market is relatively slack, firms have a larger pool of candidates to choose from. This means that long-term unemployed can be pushed to the back of the queue, not because they are unsuitable, but because others have more recent work experience which makes them a surer bet for firms (see this interesting report from CIPD on this issue). The government schemes allow firms to test out workers they might not have previously considered, giving those on the scheme opportunities they might not have otherwise had. This hardly seems unfair.