Welfare reform and labour market activation

Abstract

In 2010, the UK’s Coalition Government published its White Paper on welfare reform: Universal Credit: Welfare that Works (DWP, 2010). Although mostly a continuation of the reforms of the last Labour Government, the ideas contained in the Department for Work and Pensions (DWP) document were distilled in long gestation during the Conservatives’ period in opposition, led by the Centre for Social Justice (CSJ), a think-tank established by Ian Duncan Smith, the current Secretary of State for Work and Pensions. The CSJ’s views on benefit reform were set out in the doorstep-like publication Dynamic Benefits (CSJ, 2009) which formed the basis for the Conservative Party’s campaign on the issue in the 2010 election. Both the DWP and CSJ documents dwell on a number of shortcomings identified in the existing system of social security, including complexity, poor incentives to work, and unsustainable costs, although in the CSJ document there is also considerable emphasis on the encouragement of desirable behaviour. The proposals formed the basis for the introduction of the Welfare Reform Bill, which received Royal Assent in 2012. Central to the reform is the introduction of Universal Credit, which will begin taking claims in October 2013, with the aim of complete transition by October 2017. It will replace a range of existing means-tested benefits and tax credits for people of working age including Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Housing Benefit, Child Tax Credit, and Working Tax Credit. To serve as a reminder that welfare reform is a never completed task for governments, it can be noted that one of the benefits designed to be replaced by Universal Credit – Employment Support Allowance (ESA) – is barely four years old, itself replacing Incapacity Benefit. The grand design is in the merging of out-of-work and in-work benefits in order to enable the introduction of a single taper rate – the rate at which benefits are