Labour’s plan is not just good economics

Over the Christmas break, Alan Johnson, the work and pensions secretary, went to stay with Gordon Brown and his wife Sarah at their home in Queensferry, in Scotland.

It was a welcoming gesture from the chancellor to the recently promoted minister. Both have young toddlers, so there were plenty of parenting tips to exchange. But it was also a signal that the two men are forming a powerful alliance within government.

When Johnson gets up in the Commons in the next couple of weeks to deliver his long-awaited work and pensions five-year plan – a blueprint that will dictate policy following May’s general election – it will have the authority and backing of the Treasury.

It has roughly two essential sections that will have a big impact for employers. First, it will seek to tackle the massive cost to businesses and the taxpayer of people claiming benefit for long-term illness, as well as the ‘sicknote culture’. It will set out how the Government’s Pathways to Work scheme will be expanded, gently easing people claiming incapacity benefit back into work.

Second, it will address the pensions crisis, particularly outlining ways in which confidence can be rebuilt and insurance measures set up in response to a number of company schemes that have gone bust.

The issue of incapacity benefit has divided ministers for several months and was one of the latent festering issues that initially saw Downing Street at odds with the Department for Work and Pensions (DWP) last year.

It is said to be one of the reasons why Andrew Smith resigned as secretary of state. Number 10 wanted a time limit of two to three years on claims for incapacity benefits to reduce the huge bill.

The benefits, with 2.7 million claimants, cost the country 7.7bn every year – the equivalent of nearly 2.5p on the basic rate of income tax.
Under Downing Street’s original plan, people on those benefits would have been transferred to others, such as income support.

Johnson, who has more political clout than Smith, persuaded Blair against time limits. Switch-ing claimants to other benefits would have meant that they would have been counted in the unemployment figures and, with Labour boasting of record unemployment levels, Johnson shrewdly argued that this would not be a clever move.

He said that simply time-limiting incapacity benefit would be a blunt instrument and that figures suggested the number of claimants hads already peaked.

So in his five-year plan, the minister will instead expand the Pathways to Work scheme, which is a carrot rather than stick approach to getting people back to work. Skilled personal advisers work with claimants in the first few months of the claim, when they can be most readily helped back to work. When they have found a job, their pay will be topped up by an extra 40 a week in the form of a ‘return-to-work credit’.

Brown has authorised the expansion of the scheme, which is only as yet active in parts of the country, to one-third of the nation.

The other strand of the work part of the plan is to cut down on sickness absence, both in the private and public sectors – a problem that all HR professionals will be familiar with. Within the Civil Ser-vice, figures show that government officials take an average of 10 days each a year in sick leave, the equivalent of 4.9 million days and 19,000 full-time posts.

Johnson resisted initial plans to adopt a “Tesco-style” scheme, which would see sick pay be docked for the first few days of sick leave. He prefered to emphasise that managers sort out their departments, with more stress management courses and greater monitoring of the prevalence of sick leave.

Brown has called for an end to self-certification in the public sector and has indicated that he would like to extend that to the rest of business.

On the pensions front, the five-year plan will focus on protecting those pensioners who are at risk if their firms collapse. Johnson will hail the creation of the pension protection fund and a new beefed-up pensions regulator with powers to monitor companies’ finances and the management of their schemes.

The new initiatives are being funded by a levy on employers who run final salary schemes, which will do little to prevent that group continuing to diminish.

So why is Labour doing all this? Social conscience or simply good economics? Well, in truth, a bit of both.

The Government has been concerned about Conservative investigations into waste in Whitehall, with Michael Howard promising 35bn of savings if elected.

Downing Street knows that the huge benefits bill, including a large number of people on invalidity benefit who ministers believe could work if given the right push, does not look good on the balance sheet.

There must be an election in the pipeline.

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