“The purpose of my life here is to improve the quality of life of the worst off in society.” Such ambitious rhetoric is not unusual for new incumbents at the Department for Work and Pensions. The difference with Iain Duncan Smith is that he means it, having advocated an overhaul of Britain’s rotten welfare system for years while being far away from the lure of power. If IDS is to deliver on his goals of tackling poverty, chronic welfare dependency and low intergenerational mobility, he will not just need zeal but also a good deal of stoicism, because he will make enemies.
The issues he raises featured high in the early years of the New Labour project as well, but today, not even staunch Labour supporters would claim that much of it has been delivered. Yet, between 1997 and 2007, external conditions could hardly have been more favourable for welfare reform. The labour market performed robustly and unemployment rates fell steadily. Tax revenue was rising, enabling the government to pick the low-hanging fruit: making low-paid work more attractive through tax credits, instead of applying sanctions to those who turned down suitable job offers. Also, the government was backed by a largely sympathetic community of anti-poverty campaigners.
As far as the first two points are concerned, it goes without saying that IDS will not be in a similarly favourable position. And if he follows up on his announcements to apply sanctions to people who do not take up work, he will soon find himself confronted with an angry campaigner community.
In his account of Wisconsin’s welfare reforms, Lawrence M. Mead describes the initial opposition to the work-first approach there: “most intellectuals […] view work as a threat to poor families”. It would be unfair to claim that this was also true for the poverty advocacy community in the UK. But my impression is that they are more concerned with the dangers of low-paid work than with worklessness. They frequently emphasise that 59% of all children in poverty live in households were at least one adult works.
This figure tells us next to nothing. First of all, it includes children whose parents are self-employed (12%), which means that their income is volatile and not reflective of their living standards. Secondly, it defines anyone who works a few hours per week as ‘in work’ (16%). Measuring child poverty by the consumption-based Material Deprivation Index, the profile is a bit different: 76% of all children in MD-poverty live in households with no adult in full-time work; while 3% of them live in households with all adults in full-time work.
The 59% figure partly reflects the structure of Working Tax Credit, which is payable to parents who work at least 16 hours per week, and which is then withdrawn with earnings. WTC makes it relatively attractive to work at or just above this threshold, but is punitive to those who extend their weekly working hours from then on. Unsurprisingly, then, half of all lone parents (the key target group) in receipt of WTC get stuck at or just above the threshold.
IDS has criticised this trap-like nature of the present welfare system, and pointed out the absurdity of levying the highest effective marginal tax rates on the weakest groups in the labour market. Spot on. Yet, reducing those rates will cost money, and since this is hardly the time for spending increases, other parts of the benefit system will have to be made stingier. The poverty campaigner community will not like it, but work requirements, with effective sanctions for non-compliance, are the most suitable candidate.