Industry reacts to welfare reform proposals

The Government has unveiled its White Paper on welfare reform, which includes proposals to launch a single universal credit to replace work-related benefits, ensure that work always pays more than benefits, and force some long-term unemployed claimants to take on mandatory work placements. Daniel Thomas analyses the reaction.

Attempts at welfare reform are not new. The first powers to dock the benefits of the “workshy” were introduced in the 1913 Bill that created unemployment benefit. However, the coalition Government remains convinced that its proposals, announced by work and pensions secretary Iain Duncan Smith, will go a long way to getting more people into work. Duncan Smith said that the reforms would reduce the number of workless households by 300,000 and make work pay for 700,000 low-earning employees.

Nigel Meager, director of the Institute for Employment Studies, described the plans as “highly ambitious” and welcomed the introduction of a universal credit and the greater flexibility of financial incentives to help make sure that work pays.

But while he admitted that mandatory work placements could prove useful, Meager warned that the scheme had inherent risks.

“To be of real benefit to the unemployed, and to add credibility to their CVs in the eyes of employers, the activities need to be as similar as possible to ‘real jobs’,” he said.

“However, if they are too similar, there is a risk that they will displace real jobs, undercutting with free or cheap labour, activities which would otherwise be undertaken by employees of public or private sector organisations.

“It is easy to imagine that, in the current climate of financial stringency, local authorities and others will be tempted to substitute ‘volunteers’ to cover the activities of redundant public servants.”

John Cridland, CBI deputy director-general, said that employers would support the Government’s plans to make work pay by getting more people into the jobs market.

“As the economy recovers and the private sector creates jobs, companies must be able to access people with the right skills and work ethic,” he said. “The Government should make the most of private and voluntary sector expertise in helping the long-term unemployed back into work.”

However, Cridland warned that the administration of the universal credit must be simple. “We would be concerned about any moves to take away responsibility for paying staff from companies, as this could undermine the relationship between employers and employees,” he said.

Meager sounded a further note of caution, stressing that the reforms rely entirely on supply-side interventions; encouraging or compelling those out of work to take the available jobs.

“As the country slowly emerges from the deepest recession in living memory, and job losses in the public sector begin to bite, the main challenge will be whether sufficient numbers of new jobs can be created in the private sector to provide opportunities for the workless groups targeted by the welfare reform,” he said.

Unions are not convinced that this challenge will be met. TUC general secretary Brendan Barber said: “With five people already chasing every job, the problem is not workshy scroungers but a shortage of jobs.

“It looks very much as if the Government is trying to blame the victims, while covering up the spending cuts that have already ended the Future Jobs Fund and that will throw up to a million extra people on the dole.”

Those on the other end of the political spectrum argue that the proposals do not go far enough. The Institute of Economic Affairs (IEA), a right-wing think tank, said that the reforms will only work if the minimum wage is abolished or drastically reduced.

“Iain Duncan Smith has rightly analysed the welfare problem, but is only part of the way to a welfare solution,” said Mark Littlewood, IEA’s director general. “Of course, we need to ensure that it pays to work. It’s insane that it can be more profitable to be on welfare than in employment.”

HR professionals will be essential in ensuring the success of the welfare reform agenda, according to employment minister Chris Grayling.

Speaking at the Chartered Institute of Personnel and Development annual conference in Manchester, he said: “We can only do it in partnership with employers. It’s a big challenge, it can make a big social difference, but you, perhaps more than any group in the country, if we get it right, your addition really can make a difference.”

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