2016 02 – Welfare And Work Reform Bill

Welfare And Work Reform Bill :

Interview With Paul Morrison

On 12 October Dick Barry and Chris Winch interviewed Paul Morrison, policy adviser to the Methodist Church, about the Welfare and Work Reform Bill.

 

DB: What is your response to the Government’s claim that the welfare budget is too high and needs to be reduced?

PM: There are a number of responses to that. The first one is really simple. The only real measure of expenditure over time is the proportion of national product. So what proportion of the national wealth are you spending? If you take that measure the high point for working age welfare was 1994 at the end of the second recession of the Conservative government. That’s the high point of the number of people claiming out-of-work benefits. And it’s been basically steady for two generations now. So the first question is if you think it is out of control and it’s too high you can’t justify that statement by saying it’s increased. It just hasn’t. The only part that has substantially increased is that part of the welfare budget that goes towards pensioners. That again is entirely due to government policy and the government doesn’t wish us to challenge that. The other question is whether or not we are being too generous to the people who are out of work or to the people on low incomes. And no measure of their income or of how well the children are doing suggests that they are getting an extraordinary good deal or that the deal is so good the people are choosing to be on out of work benefits. It’s just not true.

We started the welfare state in 1946 because we thought it was worth it and we did spend a lot of money doing it. Now if we can’t afford it it’s because we have made the decision that we don’t want to afford it. That’s another matter entirely. But we can’t convince ourselves that we are being extraordinarily generous to the poor and we need to be less generous. We have been just as generous as we have always been, which isn’t very. And if you want to make it less it’s not because finance is telling you to but because your own instinct is telling you to. And that’s a different matter and one the churches would be entirely against and I personally would be entirely against.

DB: So what you’re really saying is that as a proportion of Gross Domestic Product the welfare budget hasn’t really increased.

PM: It’s flat.

DB: But the total budget has increased because GDP has increased.

PM: Yes, there is a graph in the ‘Lies We Tell Ourselves’, one of our reports, which takes as the base point 1990, and plots the total for each major Departmental budget and how each has changed. You find that the health budget went up most, pensions second, but welfare went up less than the total spending of the government. So as a proportion of  government spending welfare has become less. Health and pensions went up and the only one that substantially went down from 1990 was defence and it went down largely because of the end of the cold war and then it picked up and now spending on defence is increasing as a proportion of GDP.  But the Consumer Price Index or real terms spending is about the price of bread not missiles or scanners in hospitals. So if you use this GDP measure welfare spending is flat.  An argument that the Centre for Social Justice make which has some validity is that when we had economic growth welfare spending didn’t go down very much. That’s because incomes became more unequal and the Brown government through tax credits redistributed wealth, which is why even though there are fewer people unemployed, there are fewer people out of work, benefits had to redistribute a bit of money to top up the incomes of people at the bottom, because the incomes of people at the bottom weren’t going up with economic growth. So since the market didn’t do that the state interfered and did that.

DB: Well that leads us on to another question. What do you think is the likely effect of the House of Lord’s decision to challenge Osborne’s tax credits cuts? And how do you think he will react to it?

PM: The only answer to that is what is the sensible way of reacting to it. Osborne’s motivations are about politics as far as I can see. And they are about positioning the Conservative party for a win in 2020. Some people say it’s about positioning himself to be next Prime Minister, but I wouldn’t want to make a judgement on that. So what is politically expedient is by and large what Osborne will do. What is economically sensible is the only rational answer. And the rational answer is said best by the Institute for Fiscal Studies, that the answer to the problem of tax credits is tax credits. You have to supplement income in some way.  Tax credits supplement family income. Wages supplement individual income. So by increasing wages at the bottom end you will slightly even the playing field. But low paid people tend to live together. People at the bottom of the heap in the lowest paid jobs tend to work the lowest number of hours. So if you increase their hourly rate it will improve their well-being but not a lot. Whereas tax credits look at the entire income of the household and top up the entire income. So that means that by just upping wages a large number of people are not going to be helped. Their standard of living is going to go below what would be unacceptable.

CW: In effect what one element of the tax credits does is provide recognition by the state that people need support in bringing up families.

PM: Yes. Tax credits are focused on families with children. They are basically given as an assessment of need. Wages never will be. And when you had a society in which you had one earner or maybe one and a half earners or one main earner anyway, and somebody staying at home looking after the children, wage rates and whether or not families were doing well were quite well linked. Not perfectly linked. You still needed family credit and all the various other things to link them more closely. Beveridge wanted child benefit to be not a subsidy but a subsistence allowance for every child in the country because he recognised that having children was expensive. That was one of the key elements of poverty and still is today. But now wage rates and whether families do well aren’t actually that tightly linked because people work a limited number of hours; there may be one person earning in a family or there may be two. All of these things make it so much more complicated. Beatrice Webb’s concept of a national minimum is vastly more important than that much more complicated and diverse labour market, than it is in a labour market where wage rates and well-being are linked.

CW: One of the things that’s happening is that you don’t have anymore a living wage in the old sense where you had a single household bread winner who earned enough to bring up children as well as support his wife.

PM: For very good reasons that concept’s gone. If a woman wants to earn enough to look after her entire family, brilliant. She has as much right as any male to do that. Resolution Foundation data from about three years ago showed that the increase in the standard of living of British people was linked to the second earner earning more. So the primary earner’s living standards didn’t increase. But family income increased because women became more and more engaged in the labour market. If you are unemployed or you have long term health problems you are more likely to be married to someone who is unemployed or has long term health problems. That means that these problems tend to polarise. People who are doing badly out of the system club together. And people who are doing well out of the system come together. Which means that if you have this idea of a living wage for one person you have a large number of families with twice that. And quite a large number of families who don’t have enough access to the labour market to get anywhere near. So you would still need a benefits system to redistribute income or you would have to accept that some people have a dark and dismal life and the children will do so after them and that is not something any of us would wish to contemplate.

DB: You mentioned the living wage. What is your opinion of Osborne’s national living wage?

PM: You don’t get to call a wage a living wage unless you can live on it. A living wage is based on a measure of how much it costs a person to live. The national living wage is a political trick which ups the minimum wage for over 25 year olds. Nothing wrong with the minimum wage. It’s a good idea, we are all for it. But it’s not a living wage. What they’ve done is stolen the brand of the living wage and thrown away the principle of the living wage. And it’s the principle we care about, not the brand. And the principle is you measure how much it costs someone to live in this society and you work out how much a full-time worker would need to get that. And that is a living wage. Anything else is a minimum wage.

CW: Presumably one of the problems there is that it doesn’t take account of dependents.

PM: The living wage makes assumptions. It has to for all the reasons we have talked about before. It also takes into account whether or not you claim your benefits which means that by cutting tax credits the living wage must go up. So it’s not a perfect measure but it’s a good honest attempt and that’s all you can expect. You can’t expect perfection in those sort of wage rates. And if everybody was paid the living wage you would still need a benefits system to redistribute wealth to people who can’t work full-time or whose needs are extraordinary for some reason or another.

CW: I think one of the things that people don’t understand very well is what happens to different groups of people. Are fairly prosperous people affected or is just people who are on the very bottom end of the wage distribution? Who is actually in receipt of these benefits?

PM: Child benefit goes up to about £50,000 household income. It used to be universal but higher rate taxpayers had it removed from them because there was a hoo-ha about that if you were a couple.

CW: Yes, there were all kinds of anomalies weren’t there?

PM: Yes, so what they ended up introducing was another really strange tapering means testing system. This time for people in the upper rates of income which is just a bizarre way of going on. Child tax credit is best viewed as a means tested supplement to child benefit. It’s given to everybody who has a child if their income is sufficiently low that it needs to be topped up. It goes quite far up the income spectrum but not very far. It tapers away quite quickly. It dies out about half way up the income spectrum. It’s a sizeable portion of the bottom quarter to a third. And then the working family tax credit is for people in work but it means working sixteen hours if they are single, thirty hours if they are couple. And it goes to about the same level, about a third of the way up the income spectrum. If you start losing it there you are in quite a bit of trouble.

What is really clear is that, and there is a graph of it in the ‘Enough’ report, these cuts are structured so pensioners are basically unaffected. There is a small deviation at the bottom end but they are pensioners who are looking after their grandchildren. Then you have families without children. They are losing a middling amount, about 6 per cent of their income. Families with children when you get to the bottom fifth of the population, 12 per cent of income has gone. They are people who are already struggling. So it’s really tightly focused on families with children. It’s those poorest families with children who are hit hardest. The ones out of work are hit very hard indeed. The ones in work and receiving benefits are hit quite hard. But by the time you get to the top half of the income spectrum all of this has no effect.

The budget was entirely about removing support from those at the bottom end. The various tweaks in income tax benefit those further up the scale, especially changing the limit to the higher rate threshold. And inheritance tax is for people near the top end. Previously the property taxes meant that you got a curve that went up and then it showed the poorest losing most and by middle income nothing much happening. The richest losing was almost exclusively to do with property tax and stamp duty. People with a £1 million house have already made a lot of money on the asset but in income measurement the asset value doesn’t count. So although they are paying more tax they have made a lot from the asset which is not a part of that calculation. This time there’s not even that. It’s just that by the top ten in the scale there’s not even a tick of them losing.

CW: Before we leave this topic does this mean that some people, perhaps single people with dependents who are on what would be regarded as a reasonable middle income, are actually dependent on tax credits and will lose out?

PM: I was at one of the briefings that was given to members of the House of Lords before the tax credits vote. What changed people’s minds was Gingerbread inviting one of their support group members to come in. She’s a teacher working four days a week on a good salary, £28-29,000. She’s a single parent. One of the important things she did was defuse all the bubbling prejudices about single parents. She said she was two weeks before the birth was due and my husband texted me saying he was wasn’t ready to be a father and then I didn’t see him for six months. So that was her story and that prejudice was defused. And then  someone explained that tax credits meant she was able to work. That she had the resources to pay for the child care and that allowed her to stay in the labour force. Fantastic. We want people to do that. But without tax credits it would be extraordinarily difficult for her to maintain that. So if you think about somebody in London on £26-28,000 who rents accommodation, a single parent doing the best they can, tax credits are needed for them to make their way in the world.

One of my problems talking about this group is that those further back are the worst hit and they not as photogenic. The whole narrative about hard working families makes us care about her because clearly she is a hard working family. People who are hard working but less obviously so are also being hit but we tend not to focus on them. One of the things the church has to say is that we are looking at their stories and they are just as important and just as undeserving of the thump as the person we have decided is deserving.

DB: Ian Duncan Smith says that all these problems will be resolved with the introduction of Universal Credit. What is your take on that?

PM: When you say the words Universal Credit in Caxton House sunlight appears behind one because the world will be marvellous when this happens. It was meant to happen two years ago but now they say it’s definitely happening in two years, so don’t worry. It’s just a nonsense. Straightforward nonsense in many ways. The first nonsense is that universal credit is less generous than the system it replaces. That’s not something government will tell you but it knows it is less generous. They say 3.1 million families will be better off but they don’t say 2.8 million families will be worse off. Why would that be relevant? 200,000 children live in poverty but we don’t know how many children they put into poverty because they didn’t tell us. We asked them but for various reasons we didn’t get a correct answer. The reason they get to say that all will be well is that they make a key assumption that everyone will claim the maximum amount of universal credit. They will have 100% take up. Pensions don’t have 100% take up. The take up of tax credits of males between 25 and 30 is less than 30%. They are assuming it will go from 30% to 100%. That is how they get to say how marvellous this is.

Another reason why it’s nonsense is how you treat people who are self-employed. It makes an assumption about them. The average income of someone who is self employed is about £10,000. Universal credit will assume their income is £13,000. You will get your benefits as if you were earning £13,000 which means that your benefits will be taken away because they are assuming you are earning £3,000 more than you actually are. And remember an average is an average . That means there are as many people earning below £10,000 as are earning above £10,000. Huge numbers of the jobs that are being created are self employed and they will be assumed to be earning a great deal more than they actually are. So they are in real trouble and the mechanisms by which they have to report their income are extraordinarily difficult and a lot of people just won’t bother. They will just fall off the system completely, I would have thought.

A further problem with universal credit is that it is phenomenally complicated. It is called a simplification. It is the most vastly complicated simplification I have ever seen. If you look at the bottom of a bowl of spaghetti it’s quite simple. You just see that bit. But if you look into the bowl of spaghetti it is just everywhere. All those strands interacting with each other in bizarre ways that you don’t quite understand and nobody designed in. You then have monumental calculations because universal credit is not replacing the current six benefits. It is the six benefits. Mashed together with one taper rate. Each benefit has its own taper rate but by mashing them together they will have their own taper rate.

CW: And Osborne wants to increase that taper rate?

PM: Yes, but just with the tax credits. He’s doing that with the system that exists not with the new system in the fullness of time. If I can just finish on the complexity because the complexity is fascinating. By mashing it all together you have a system whereby it’s really hard to know what people get. I know that the job seeker’s allowance is £73. But what I can say what somebody’s income is going to be under universal credit is extraordinarily difficult to tell. With universal credit doing the maths is really difficult and they don’t have a system that is capable of delivering simplicity. And I don’t think anybody believes they will have a system capable of delivering it. The Department for Work and Pensions skirts around the truth with such delicacy it’s hard to know where they lie. They have what is called the universal credit IT solution which sounds as if they have a solution for universal credit IT but it’s not true. They have the old system put together with glue and tape which is why universal credit is extended to different job centres, it’s not actually universal credit that’s there. And it can’t be given to all the claimants because some claimants are very difficult to do the maths for and the universal credit IT solution can’t do it.

So whenever anyone talks about the universal credit IT solution as they did a while back. It was christened the enhanced universal credit IT solution. But the enhanced universal credit IT solution simply doesn’t work. And it may never work. If it doesn’t universal credit is dead. It’s very difficult to see that it’s going to happen and it will bring real problems. Budgetary problems but also problems for the poor people who are going to be left without benefits. So universal credit is less generous and vastly complicated. Awful things can be done inside universal credit because nobody understands what they do. A key example of that is something called work allowances which was absolutely integral to the design of universal credit. When I get a job I can earn some money before the taper rate kicks in. Universal credit won’t be taken from me for the first £200 I earn. Similar to an income tax allowance. The idea being that when most people go to work they have to pay bus fares, buy new clothes, so they don’t feel better off  because the benefit is tapered away and they are putting money into expenses. And they might not want to take a job for a couple of hours because the benefits start being cut and they will have to tell people and it will all be too complicated. So, absolutely fundamental to the design was that I can earn this much, I can start a new job without feeling any worse off. That’s gone! Work allowances gone! About £4 billion of cuts, just gone! Universal credit now looks less and less like anything revolutionary. It looks essentially like a bureaucratic process that is failing slightly. It might be rescued from the fire, but it depends how good their IT contractor is.

DB: You mentioned earlier the ‘Enough’ report. Is that a response by the Christian churches to Osborne’s proposals?

PM: I am the main author of ‘Enough.’ It was written with Quakers, Scots Episcopals, Baptists, United Reform, Methodists. The thing that we saw was the most dangerous in the Welfare and Work Reform Bill was the disconnect between the needs of the family and the amount of support that was being offered. It’s never been good and it’s never been done in a systematic way but by and large the stated aim of the welfare state was to provide a family with a basic income, a safety net, or with enough money to survive. The Welfare Reform and Work Bill deliberately says we recognise your family has these needs but because we disapprove of your behaviour or wish to encourage different behaviour we are not going to help. And that fundamentally changes what the welfare state is about.

We did some polling and that said that the British public doesn’t believe that that is what the welfare state is about. The British public believes that the basic minimum should be maintained, regardless of the behaviour of the claimant, especially for families with children. This disconnect is happening only for families with children. It’s happening in two places. The first is the two child rule. That if you have a third or a fourth child you have to live on the same level of tax credits as if you had two children. So, the government are recognising that families have more need. They know they have more children but because they disapprove that they have more children they are not getting any help. Which is extraordinary. It is utterly against what the welfare state was about.

The other is the benefit cap. The benefit cap was linked to average earnings. The new benefit cap is linked to nothing at all. The only thing the government has to take into account is the state of the economy. Which is extraordinary. The benefit cap saves around one quarter of a billion pounds a year. The British economy is around £1.7 trillion. It’s spin rather than anything sensible. And the Secretary of State doesn’t have to take into account whether people can live on it. This is a welfare benefit that is meant to be safety net and it doesn’t take into account whether or not people can live on it. That disconnect is appalling. One of the things that the report says is that it is ineffective. Finally the government published sensible data on the benefit cap and the best analysis is that of all the people capped 4.7% responded in the way the government wanted. That means that 95.3% of families who had huge losses, in some cases an average loss of about £3,500 a year, it had no affect on their behaviour. And when you look at the demographics of the people you find that the reason they weren’t in work was because they were sick or were unfit for work or they were looking after children but the cap was applied to them.

On the two child rule we looked at whether or not welfare and child bearing were related and the DWP’s own research says it won’t have any effect. So they are doing this knowing that it won’t have any effect. It’s about making a moral statement. You make your moral statement by depriving children. It’s ineffective. It will not work. In fact in the United States where you remove benefits from women what you find is that they tend to have more children. Because disempowered women are less able to say no, are less able to control their own fertility. Women with money, with control over their lives, control their lives without the state telling them what to do. Our moral position is that you have to be fair to the child. That child did not choose to be the third or fourth child. To be fair to that child you have to ensure that they have a standard of living that is sufficient. Not to do so is being unfair to the child and that is immoral.