Benefit reform – a lost opportunity for London

 In Speeches

Posted on November 29, 2010 by Steve Reed MP

The Government has outlined proposals to replace existing benefits with a single ‘Universal Credit’. The idea is to ensure that people are always better of in work rather than on benefits. If implemented properly it should help people out of the poverty trap. It’s an idea that James Purnell pursued when he was Secretary of State for Work and Pensions in the Labour Government – but which it seems, sadly, Gordon Brown over-ruled.

Ed Miliband is right to say Labour should have done more to reform welfare benefits. Credit is due to Purnell’s Tory successor, Iain Duncan-Smith, for persuading the Treasury to stump up some of the billions in up-front costs needed to introduce the Universal Credit. It costs so much because the scheme involves a gradual reduction in benefits, rather than simply cutting them off, when people move into work. That helps ensure people on benefits can move into lower-paid or even temporary jobs that lead to higher-paid jobs later on without suffering a drop in total income. It’s a perfectly sensible approach, but sadly the Government is introducing it in ways that threaten to hobble it right from the start.

The assumption behind the universal credit is that there are enough jobs for people on benefits to take up, and that it will work in the same way right across the country. Neither of these assumptions is correct. The massive cuts in spending announced by George Osborne in October will hit the economy hard from next April. The front-loading of cuts for local councils will see the end of local programmes that help unemployed people back to work, and the cuts more generally will create at least a million job losses. At the same time the Coalition Government has scrapped Labour’s Future Jobs Fund that helped train the long-term unemployed to get back to work. People who’ve been out of work longest find it most difficult to get off benefits and back into employment. They are often people with low level skills, lone parents, or people on incapacity benefit.

Cutting schemes like these at the same time as introducing the Universal Credit will make it less likely to work because the training and jobs the long-term unemployed need will no longer exist. To rub salt into the wound the Government plans to penalise those who can’t find work – through no fault of their own – by cutting their benefits after an extended period of unemployment. While no one supports people able to work who refuse to do so, the Government’s plans threaten people trying desperately to find work.
The Government intends to introduce a single level of payments under the universal credit right across the country. That means elements that pay for housing, travel and childcare will be the same in London as everywhere else despite the fact that these costs are much higher in the capital. That’s why so many jobs include an element called London Weighting – it reflects the higher cost of living in the capital. But the Universal Credit ignores this.

According to London Councils, the Government’s cap on housing benefit means over 80,000 poorer families will be forced out of inner London to live in cheaper areas further away from the centre. But since there are more jobs in central London, that means these people will face much higher transport costs if they want to take up work, costs that the new benefit will not cover. Households with children will find themselves cut off from networks of family and friends. Their children could be forced out of school while there is a growing shortage of places because the Government’s cut the school expansions programme despite a rapid increase in demand.

Despite the Universal Credit, thousands of people in London may still find themselves better off on benefits than in work. That’s not good for households trapped in welfare poverty, and it’s not good for London’s economy if the welfare bill remains artificially high.