The welfare reform that isn't

"Get Britain Working" will keep Britain claiming

The biggest mistake you can make in politics is to judge a policy by its intentions, not its results. This is especially true for welfare, a system that now governs the lives of six million Brits. Liz Kendall has promised a “revolution”, Keir Starmer has pledged to overturn an “unfair” system and seethes about a “wasted generation”. But what both have announced so far changes nothing: it saves £5bn for the Treasury, pushes 250,000 into relative poverty (including 50,000 children), but it does not stop the surge in sickness benefit. In fact, it may even push the caseload far higher.

We know this due to OBR welfare modeling, now honed by years of trial and error. Its new figures suggest the Treasury has saved £5bn by cutting PIP, a separate payment intended to cover the cost of disability whether claimants are working or not. But the OBR sees a sickness benefit caseload which is, if anything, going up. If true, this won’t be reform: it will be a cost-saving exercise masquerading as reform - and, perhaps, a huge missed opportunity. I look at it in my latest column for The Times.

The unspoken part of the Kendall agenda was the decision to abandon the big Tory reform: tightening sickness benefit criteria in the Work Capability Assessment (WCA). When that was struck down by a judicial review in Jan, ministers said they’d let it die and find savings in other ways. A pretty momentous decision, given that the reform was expected to seriously cut costs and onflows. Now that it’s gone, says OBR, there will be £1.6bn more costs and 16,000 fewer jobs.

And new projections for the welfare caseload? That’s the real biggie. The DWP analysis (Table A5) is now forecasting 2.98m on LCWRA (the higher category of sickness benefit - those deemed incapable of doing any work), up from 2.58m forecast only last October! I didn’t mention this 400k upgrade in my column as it looks too bad to be true* (and the DWP has had form recently). But its new official figures do show PIP caseload down and LCWRA up.

Rather than address halt or reverse the problem, the above envisages LCWRA caseload almost doubling to 3m. Much of this will be migrating claimants from old benefits, but the 3m compares to 2.6m previously forecast. It looks very much like a real rise. Many of them will be on less money due to the cuts, but the OBR thinks the new system will not - in and of itself - move anyone into work. So tough love - without the love. People on welfare are not being moved into work, but lower-paying welfare.

The OBR’s behavioural response estimates

If benefits pay less, won’t claimant numbers fall because work is relatively more attractive? The OBR factors in this so-called behavioural change, but sees just 40,000 fewer claims on this basis. But behaviour works both ways. If new sickness benefit pay less, 30,000 fewer people will come off these benefits - fearful that, if they come back on, they’ll be paid less. Meanwhile about 50,000 hit by cuts will claim extra welfare - PIP - to compensate for the lower payment. These are all OBR guesstimates, of course, but you can see the behavioural calculations. It barely dents current 3.3m caseload, heading to 4m in about three years.

Bear in mind that if PIP pays £1,000 a year less, the various combinations - housing, UC Standard, LCWRA, PIP - still add up to be more than the Living Wage. Comparison below:-

Let’s judge all this against what Liz Kendall said on her welfare reform speech last week:-

The social security system we inherited from the Conservatives is failing the very people it is supposed to help, and holding our country back .And it is not like this in most other comparable countries where spending on these benefits since the pandemic is either stable or falling – whilst ours continues to inexorably rise. This is the legacy of 14 years of Tory failure. And today, Mr Speaker, we say – no more.

“We say: no more”. But it looks like there will be plenty more; all too much more. The OBR estimate of costs (bottom column) shows an “inexorable rise” that is, as she says, unaffordable and indefensible.

Have a look at the 4th column from the bottom: £75.7bn currently spent on ‘health and disability benefits’. It surges 30pc, to £98bn, by the end of the Parliament: a trivial improvement on the £101bn forecast under the Tory plans. All this political drama - and austerity - to save just £3bn from a £101bn bill!

So the cuts, the rebellions, a Labour government (as Neil Kinnock might say: a Labour government!) pushing 250,000 into relative poverty - and for what? Hardly any money is saved, the caseload still surges and the scandal remains. This “Get Britain Working” agenda looks, instead, like it will keep Britain claiming - and in far greater numbers.

The big caveat is that a £1bn welfare-to-work scheme has been promised, but the details are so vague that it has not been included in OBR costings. It’s hard to spend a billion quid with no effect at all on caseload numbers - but possible.

• The Work Choice programme cost about £5,000 per participant - they were just 2.3 percentage points less likely to be a NEET after a year

• Jobcentre Plus Work Coach Support: about 30 mins of coaching offered every month. Studies show after 12 months, just 11pc were in work. Higher than the 8pc comparison group, but that may be because the scheme was voluntary - and participants may just have been more motivated.

Moving claimants off benefits is hard, and becomes harder the longer go without work. The most effective time to intervene is before they are signed on - which they are being right now, at just over 2,000 a day and with an 80pc approval rate (as shown below). This is the fire that is burning: this is what first needs to be extinguished.

The most obvious and politically-easiest reform is stop making it worse. But under Kendall’s plan this process, the notorious Work Capability Assessment is being left alone for three years! Go back to the top graph and you see that most of the damage will be done by 2028. The 3.3m on sickness benefits will be touching 4m. I have written, in another post, about nine reforms that can be made immediately.

My feeling is that Liz Kendall was bounced into publishing her agenda early by a savings-hungry Treasury- and what we gave seen so far is not welfare reform. The savings trumpeted now - like £3bn or £5bn - sound large in the abstract. But let’s look at this compared to the Oct24 projections for defining sickness benefit cost under various definitions:-

But - again - the money is not the worst of it. This social damage is very hard to repair: someone who claims sickness benefit for six months is far harder to help than one who has just started. Two-year claimants are especially hard to help. So waiting three years to reform the assessment process will take a serious toll on the most heavily-affected communities.

Our view of sickness benefit claimants will have to change: it’s now young women as well as middle-aged men. They’re now more likely to be long-term sick than caring for a family or home: a big societal change over 20 years.

And the blackspots? A few years ago, they were well-known: places like Blackpool, where the DWP thought career benefits claimants moved to because it’s a struggling seaside with cheap accommodation and not many vacancies. But now Birmingham, our country’s second city, is conforming to Blackpool levels of welfare.

The above chart, using DWP definitions, shows that unemployment in Birmingham - ie, all out-of-work benefits - is 25pc. This is where unemployment peaked in 1930s America: we called that the “great depression”. Now, we call it contemporary Britain: if we think about it at all. We have become slowly inured to what Beveridge called the “giant evil” of idleness. I doubt anyone has ever quoted the Birmingham figure. When I mentioned the 20pc figure to Andy Burnham, Mayor of Manchester, he said he had not heard of it.

Denial is part of the problem. We’ll not solve it if we can’t see it. And it’s harder to see in London: a failure to reform welfare won’t really hurt our flourishing, crane-strewn capital. But it will disfigure other areas, in a way that threatens to push us further apart as a country and send inequality cascading down the generations - and leaving many of our cities with problems that Londoners struggle to recognise.

I’m spending a week in Blackpool next month, working with a charity that works there, in hope of learning a bit more from the people affected by the dynamics outlined above. I hope to do the same in Grimsby, where 50pc in its Port area are now on out-of-work benefits. The welfare state is reshaping the socioeconomic map (below). If you’re reading online, the graph is interactive.

Liz Kendall’s great get-out clause is that the Green Paper is just a consultation. The OBR has given its feedback: this will do almost nothing to cost or caseload and leave sickness benefit growing like an economic cancer - at its most pernicious in the very communities that Labour was set up to serve.

If the Prime Minister is going to go to war with his party over this, it should be with a solution that would actually address the problem. As it stands, this risks being an historic missed opportunity that will leave him having to go back a second time after much more damage has been inflicted (and half a million more immigrants imported to cover up that damage).

The OBR models provide an invaluable early-warning system which vastly improves the potential for course correction - and I’m hoping Keir Starmer realises this now. He’ll hate its verdict, but he should heed its advice. This is the Ghost of Christmas Future: a view of what will happen unless he tackles WCA immediately. Millions of people and hundreds of communities depend on him getting the right. Britain deserves serious welfare reform. This isn’t it.

UPDATE Chris Smyth, whose reporting on this at The Times has been streets ahead of everyone else, stood up the story. It’s the result of abandoning the WCA reform: the figure still seems steep to me but this is the DWP’s verdict. Again, with the caveat that Kendall’s £1bn reform package has not yet been agreed upon so its effects are not scored.