Welfare Reform - the Radical Proposal

Frank Field has once more sketched out what, in his view, a "radical" Government should do in welfare reform. (He has previously discussed a fuller plan for redressing the balance between the individual and the State). He has been critical of Purnell's much heralded reforms to the Welfare system and sets out his own three proposals.

1. All benefits offices should become separate businesses owned by the staff. The logic is that staff have a far greater idea for needs help and who is a shyster and how to get them both back to work in the most productive fashion. This will also lead to competition between different benefit offices as the profits made will be split between the workers, the taxpayer, and investment into re skilling for the unemployed.

2. Field argues that many claimants are not incentivized to try to get a job. For example, if one has been unemployed for three years then gets a job, one loses other benefits such as housing benefit (the poverty trap - high marginal rates of taxation). If one then loses this job one has to go through the whole system of regaining those benefits. In short, for many its simply not worth it. So Field suggests that claimants of 5 years or more should be strongly incentivized to work by allowing them to keep their other benefits for a year, easing them back into work.

3. Time limited benefits. After a certain point on benefits one should have to enter a workfare scheme. This could also be more responsive and flexible to area as a benefits office in an area where many jobs are being created could be firmer on the time allowed on benefits whilst in a high unemployment area the time allowed could be longer and more of an emphasis would be put on re-training.

I think these three proposals are rather good. The freeing of benefits offices to essentially become cooperatives appears a very good move and from the extra power accorded to them and away from the centralized government stems proposal three. Suggestion 2 is a bit basic to be fully given the stamp of approval, but the overall idea appears to be altering the incentive structures. There are two downsides to this. Firstly, by altering the incentives in one place, they will change elsewhere. For example, the five year unemployed will have the high marginal rates offset for one year but then he may be incentivised to lose the job after one year and go back to benefits due to the high marginal rate. Which brings me on to my second concern, whilst of course he may get used to working and stay in work, it remains to be seen how successful this would be in terms of cost. How much would it cost to get one long term unemployed back into work? We have to balance the positives of getting more people out of long term unemployment with the cost. If it, on average, costs £100,000 to get somebody unemployed for 5 years back into long term employment, and off the benefits system until retirement, is that either cost effective or an ethical good which we wish to implement? This argument needs to be had and openly. This is not a simple organizational restructuring, this is about the amount of worth we accord our citizens and how much we are willing to pay. We can't hide behind the mantra that it is efficient to bring everybody into the workforce, regardless of cost.

I really like the idea of freeing of the benefits offices but something inside me whispers that it would just be much more efficient, fairer, and without perverse incentives if we simply brought in a Citizens Income which was higher for the lower paid and lower for the rich (actually swallowed up in their tax bill) and scrapped many benefits all together.

What say you?



P.S. Read Dillow's take on Purnell's reforms