Friday, 5 June, 2015

As readers may be aware the government is busy preparing to cut £12bn from the social security budget. At this point it makes sense to look back over the recent history of our social security system to see what has worked, to decrease unemployment and the number of people out of work relying on the social security system, and what has not. Thankfully that’s exactly what the Resolution Foundation has done in a report out today comparing the UK and US welfare systems. Perhaps most worryingly is that it suggests there is remarkably little evidence for reforms that are gaining popularity across the political spectrum.

The Resolution Foundation found that whilst the UK has seen falling levels of people claiming out of work social security benefits and falling unemployment since the mid 90s (aside from a blip around the recent recession) the US has seen almost the exact opposite.  The result is that the UK has now over taken the US on both measures, with lower unemployment and fewer people claiming social security benefits. The explanation for this the Resolution Foundation sees as coming from two different policy areas. Firstly they see the expansion of support for people in low incomes as being a massive success. They make a compelling case that tax credits and childcare have helped increased employment amongst parents, especially single parents. This provides a stark warning against cuts to in work support either on the grounds of deficit reduction or the notion that they are subsiding large companies. A decrease in this in work support could lead to higher levels of unemployment rather than higher wages.

They also see that the UK’s conditionality regime i.e. 'the conditions placed on those receiving social security benefits’ has been a great success by encouraging people into work.  Whilst the wider literature does support the importance of social security systems which include some element of conditionality there is some question about the level of sanction needed to support such a system. The evidence just doesn’t support the idea that more severe sanctions improve behaviour. Since 2010 the frequency and severity of sanctions have massively increased whilst the decline of people on unemployment benefits has simply resumed its prerecession trend.

The even more important lesson to be learnt from the US-UK comparison is what has not worked in the US. The US’s income related support for people out of work is even more meagre than the UK’s and is topped up with a contribution based benefits. Rather than these paltry benefits incentivising work they have utterly failed to stop high unemployment and high numbers of people left on out of work social security. Yet strangely from all parts of the political spectrum in the UK there are increasing calls for a contribution based system in the UK and comments about how high out of work support may be deterring people from entering the labour market. That approach isn’t working in the US and there is no reason to believe that it would work here.

Instead it makes sense for the government to build on what works partly by increasing work incentives through further support for people in low-paid work rather than counter-productive cuts. Research from the British Social Attitudes Survey shows that increasing support for in work parents (the main group who receive in work benefits) has been consistently popular even since the financial crisis. When asked if government should be spending more or less on ‘benefits for parent who work on very low incomes’ a majority consistently say the government should spend more.  More people believe the government should spend “much more” in this area than think it should decrease spending at all. Given public disapproval of cuts to in-work benefits, and the Resolution Foundation’s recent work on the ineffectiveness of such measures, perhaps it’s time political parties pay attention to the history of what has worked as they seek to further change the social security system.

Tim Stacey, Senior Policy and Research Advisor