Seven Conservative MPs have teamed up with the Centre for Policy Studies and ConHome to propose ideas to turbo charge the UK economy. Yesterday Karen Bradley recommended a set of tax cuts. Today Harriett Baldwin outlines controversial reforms to welfare.
Harriett Baldwin is MP for West Worcestershire and a member of the Work and Pensions Select Committee.
Taxing those in work to pay out of work benefits that act as a disincentive to work is not helpful to growth.
The complexity of benefits is well known. It can take a Job Centre Plus advisor 45 minutes to calculate whether a claimant would be better off in work. Often they are not.
The welfare system has a range of deterrents to work: in some cases, a single mother would be 4 pence better off for every additional £1 she earned. The welfare system incentivises a leap from 0 hours to 16 hours but no further.
An out of work housing benefit recipient has the comfort of knowing that the rent is going to be covered. Once work starts, there would be a real fear of the risk of arrears if the move into work turned out to be unsuccessful.
Welfare Reform will start sweeping this away. It is estimated by the government that it will make 2.7 million households better off and lift 1 million people out of poverty, including 350,000 children. From 2013 onwards, all new claimants for JSA, Housing benefit, Child Tax Credit, Working Tax Credit, Income Support and ESA will receive a single Universal Credit. Each hour they work and each pound they earn will have a clear, direct link with additional net income.
The positive impact on child poverty is especially welcome. The previous Government’s approach to child poverty was to pay low income parents more whenever they have a child or additional children. Child Tax credits of £2,555 per child are paid to all households with incomes under £16,000. This is in addition to tax free child benefit and an entitlement to a larger home through the housing benefit subsidy.
Although I have never met an out of work teenager who chooses pregnancy, the availability of benefits linked to the number of children could be seen as an attractive incentive to a 16 year old, who might not otherwise have many ways of earning more than £3.64 an hour. With one child and a range of child benefits, rent and council tax paid, a teenage girl can have a net household income of over £9,000 per annum.
At a time when we need to focus amore support and help on getting young people into work, the incentives to work at the point where a young woman leaves education are not strong enough.
In 2009, 38,259 young women in England and Wales had teenage pregnancies, the highest level in Europe. Half of all under 18 conceptions occur in the 20% most deprived wards. One fifth of births among under 18s are repeat pregnancies.
Even after Universal Credit, there will still give a strong incentive for more children to be born into households which do not have the financial capacity to raise them outside poverty.
How can the incentives be reformed so that fewer choose to have children at a point when they cannot support them without welfare?
President Bill Clinton brought in the Personal Responsibility and Work Opportunity Act in 1996 which allowed the US states to impose “family caps” on children born to families on welfare.
The Coalition has started a system of “caps” on benefit payments. Housing benefit rates have been capped and the size of property has been limited to four bedrooms. A further reform might prevent anyone who is receiving housing benefit in a workless household from having an entitlement to a larger property by increasing family size. Once the family has a working family member, this could then change, as a way of increasing the reward for work.
22 US states used the “family cap” to rule that any family on state welfare is not eligible for any additional support for children conceived while on state benefits. If those who are in a workless household were told that they would not receive additional benefits for any new babies until such time as the household has a wage-earner, work incentives would be stronger.
Perhaps the child tax credit element itself should be capped in a workless household? For example, should non-working parents be able to claim child tax credits for an additional child if they already have four children?
US welfare reform created a requirement for parents under 18 to live with adults and stay in full time education in order to receive benefits. In 2009, Gordon Brown announced that teenage mothers aged 16 and 17 should not be entitled to council flats but should be sent to live in supervised homes. This provoked an outcry at the time, but schemes like the Barking Foyer and Save the Family have been shown to deliver excellent outcomes.
US welfare was also localised. The economics of being on benefits varies across the UK. With median weekly earnings of £432 in Jarrow and median earnings of £733 in Chelsea, the benefits of working relative to one national rate of benefit is much clearer in Chelsea. Localising Universal Credit to a labour market’s median average wage could be a sensible next step.
These are all clearly controversial ideas. Discuss.