A One Nation Approach to Social Security: Taking the Next Steps
Rachel Reeves MP, Shadow Secretary of State for Work and Pensions
Speech to the ippr, 20th January 2014
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I’d like to thank you all for coming, and thank ippr for hosting us, and also for all the excellent work they do to inform and stimulate thinking and debate on the centre left.
Last week Ed Miliband spoke about the continuing squeeze on family finances, about the growing fears that many feel about the future, and about the need to build a stronger economy that can fulfil the “British promise” of rising living standards for the next generation.
Over recent days we’ve also heard my shadow cabinet colleagues, Emma Reynolds and Tristram Hunt, talk about how a Labour government will ensure we get the house building we need to strengthen our economy and improve people’s quality of life, and about how we raise standards in our schools to ensure our children are equipped to succeed.
And later this week Ed Balls will be saying more about how we ensure we have an economic recovery that benefits all working people, not just a privileged few at the top.
Today I’m going to talk about how the economic reform we need to earn our way out of the cost of living crisis, and social security reform to ensure the system is fair and affordable, go hand in hand.
Because it’s only by getting more people into work and creating better paid and more secure jobs, that we’ll tackle the drivers of rising benefits bills and ensure the system is sustainable for the long term.
And putting the right values at the heart of our system, so that it rewards work, responsibility and contribution, is a critical part of our plan to build that better economy for the future.
It is the Labour Party that is best placed to deliver this, because of our central belief in the value and dignity of work.
As Ed Miliband has reminded us, “the clue is in the name”. We are the party born of the self-respect and solidarity of working communities.
We are the party that has always stood for those men and women who go out to work to earn a living for themselves and their families.
And today our belief in the dignity of work is at the heart of our vision of a “One Nation” Britain - a country in which everybody plays their part, and everybody has a stake.
Now it’s important to say at the outset that there will always be people who cannot do paid work, because of illness or disability.
And it is part of our responsibility to them to make their rights a reality: rights to dignity and respect, to a decent standard of living, and to the resources and support that can empower them to contribute and participate equally and fully in society.
And of course we all have a life beyond our work - as well as being an MP and a Shadow Secretary of State - I am also a mother, a wife, a sister and a daughter, a friend...
But for most of us, the work that we do is integral to and intertwined with the other aspects of our identity - it shapes and is shaped by the other choices we make, and the course our lives take.
It runs like a thread through the story we tell about ourselves.
It was to find work in the shoe factories that my grandparents moved from South Wales to Kettering. My father went to college so he could train to be a teacher, and found a job in a school in South London, where he met my mother.
It was work that took me from South London to Yorkshire where I am now honoured to serve as Member of Parliament for Leeds West.
Work helps define us, and it is how we define ourselves.
That is why the right and responsibility to work, as well as the fight for fair pay and the improvement of working conditions: equal pay for women, the national minimum wage, and now the living wage, has always been so central to the Labour Party’s mission.
And it is why today it remains central to how we meet the deep-rooted aspiration to “earn and belong” that Jon Cruddas has put at the heart of our policy review.
So my argument is that this mission, and the moral values that underpin it, require Labour to lead the way on social security reform.
THE TORIES CAN’T DELIVER THIS
It’s now clear that the Tories cannot deliver this. They promised a new approach to poverty and welfare. And yet four years on, the record is clear: their reforms are running into the sand, hardship and deprivation are increasing, and the economic and fiscal costs of their failure are mounting.
Why is this?
Fundamentally, for all David Cameron’s rebranding, Iain Duncan Smith’s epiphanies and conversions, and George Osborne’s tough talk, the Tories just don’t get it.
They don’t know what it takes to overcome the barriers that many who are unemployed face.
They don’t know what’s like to work hard, but struggle to earn enough to make ends meet.
They can’t see that the spread of insecurity, and over-reliance on of low-paid, poor quality jobs is undermining our country’s ability to earn out way out of the cost of living crisis, and making it harder to get the costs of social security under control.
And when it comes to tough choices, they’ll always put the privileged few before the rest - protecting vested interests, and cutting taxes for those at the top - and letting the majority pay the price.
It’s because of this failure to get our economy working for working people that they’ve overshot their own plans for spending on social security and tax credits this parliament by a shocking £15 billion and are now set to fail to deliver on their central pledge balance the books by 2015.
This means the next government, whatever party wins the election, will have to make tough choices on spending, including spending on social security.
That’s why we have said we would have a cap on structural social security spending, so that government is alert to upward pressures on the benefits bill, and ensures problems are dealt with to keep the budget within limits.
But only a Labour government can deliver the reform we need to ensure our social security system is both fair and affordable.
Today I want to focus on how our belief in the value and dignity of work is at the heart of our plan for change:
- first, making sure all those who can and should be working, are working
- second, improving wages and working conditions, so that work always pays
- and third, rewarding work by ensuring that the contributions people make are properly recognised in the social security system.
1. GETTING MORE PEOPLE INTO WORK
Our first and most fundamental challenge is to ensure that everyone who can and should be working is in a job.
The headline unemployment figures are starting to move in the right direction. But this has taken far too long, and long term unemployment is still at levels not seen since the last time we had a Tory Government in control.
The Tories’ complacency about this crisis has already cost our country dearly. Last year, spending on Jobseeker’s Allowance alone was half a billion pounds higher than when this Government took office.
Over five years the government is spending 1.4 billion pounds more on Jobseekers Allowance than they originally budgeted for.
And we’ll be paying the price of this failure many years into the future - because the scarring effects of long term unemployment have a devastating effect on people’s employment prospects and earnings through the rest of their lives.
The Prince’s Trust recently highlighted the pessimism about the future, and increased risk of mental illness, among the young unemployed. While Professor Michael Marmot has described the current numbers of young people out work as “a public health timebomb waiting to explode”.
And this is not just an injustice for the individuals whose life chances have been stolen; it will cost us all in lost tax revenue, extra social security expenditure, and lost economic output and growth for decades to come.
And this is why the centrepiece and foundation stone of Labour’s economic plan is a compulsory jobs guarantee for young people and the long term unemployed.
This would mean that anyone over 25 who has been receiving JobSeekers Allowance for 2 years or more and anyone under 25 who has been receiving JobSeekers Allowance for 1 year or more would get a guaranteed job, paying at least the minimum wage for 25 hours a week and training of at least 10 hours a week.
Like the Welsh Assembly Government’s Jobs Growth Wales programme we expect most of the jobs to be in small firms. And experience there is showing that once a company has invested six months in a new recruit the chances are they will want to keep them on after the subsidy has ended.
This investment in the compulsory jobs guarantee would be fully funded by repeating the tax on bankers bonuses, and a restriction on pension tax relief for those on the very highest incomes.
Nothing more clearly demonstrates the importance of Labour values in a time of tough choices than the priority we will give to dealing with the waste of youth and long term unemployment.
Taking action to prevent further long term costs to our economy and social security system as well as giving back a chance for a better life to hundreds of thousands of people who under this government have been written off.
The job guarantee will provide a backstop for our social security system, making it impossible for people who could and should be working to remain on benefits for years on end. It puts a strict limit on the amount of time that people can lose touch with the world of work, and so limit the scarring effects that can blight people’s long term employability and earnings potential.
But we also need to improve the support we give to those looking for work at every stage so that we can reduce the number of people who even reach this point.
That means a work programme that actually works. Under this government we’ve seen a billion pounds paid out to contractors on a scheme that has seen more people return to the Jobcentre than find a job. A Labour government will not be renewing those contracts in 2015-16.
In place of the top-down, bigger-is-better model imposed by this government, our replacement will be jointly commissioned by central and local government, so it can be better integrated with local economic strategies more closely connected to local businesses, and make better use of innovative charities and social enterprises.
You’ll be hearing more from me and the rest of Labour’s Work and Pensions team about this, and the better targeted support we need for key groups such as single parents and disabled people over the months to come.
But today I want to say more about how we tackle the skills gaps that are holding individuals and our economy back.
We all know that basic skills are essential in today’s jobs market.
But the shocking levels of English and maths among too many jobseekers are holding them back from getting work, and trapping them in a vicious cycle between low paid work and benefits.
Nearly one in ten people claiming JSA don’t have basic English skills, and over one in ten don’t have basic maths.
And IT skills among jobseekers are even worse; nearly half don’t have the basic email skills which are now essential for almost any job application.
And we know that this keeps people out of jobs: those out of work are twice as likely than those in work to lack basic English and Maths.
When people who lack these skills do get jobs, they too often find themselves in short term or temporary work, with a swift return to benefits. Research shows that nearly one in five of those who have made multiple claims for unemployment benefits have problems with reading or numeracy.
Schools have a critical role to play in ensuring that young people have the skills they need to succeed. That’s why Tristram Hunt’s emphasis on school standards, and Ed Miliband’s call for a renewed focus on the “forgotten fifty per cent”, including compulsory English and Maths up to the age of 18, is critical to ensuring our education system equips everyone to get a job.
But we also need to need to take action to ensure that those who are unemployed now have the skills they need to move into the long term jobs they want, and that the country needs them to take.
So today I am announcing another important plank of our plan to address this problem: a new requirement for jobseekers to take training if they do not meet basic standards of maths, English and IT - training they will be required to take up alongside their jobsearch, or lose their benefits.
We’ve long known that addressing skills gaps is vital to securing Britain’s future success as well as improving individuals’ life chances. That’s why the last Labour government put funding in place so that anyone who needs basic skills training could get it.
The Tories are now proposing that basic skills training should be mandatory for people who leave their failing work programme without finding a job. But that is three years after people first start claiming benefits. Nearly three years that could have been spent in work if the right requirements and support had been in place at the start of their benefits claim.
So will ensure that people’s skills needs are assessed, and basic skills gaps addressed, from the start of a Jobseekers Allowance Claim, not after months and years of neglect.
The difference is clear: the Tory-led government is leaving people on benefits for up to three years without ensuring they have the basic skills they need to get a job.
With the Basic Skills Test I am announcing today, a Labour government will make sure anyone claiming Jobseekers Allowance undertakes the training they need within weeks of signing on.
The Basic Skills Test will help us attack the root causes of worklessness and prevent more people falling into long term unemployment, or “low-pay-no-pay” cycles, that build up more costs to our social security system and undermine the strength of our economy.
As in so many areas, it is early, preventative intervention that is the best way of making savings over the long term.
And the Basic Skills Test I am announcing today follows the same principle of mutual obligation that is at the heart of Labour’s approach to social security reform: the responsibility of government and employers to do what they can to improve the opportunities to those without work; the responsibility of those in receipt of benefits, who can work, to do what they can to prepare for work, look for work, and accept all reasonable offers of work
So on basic skills, we say: - if you need extra training to help you get a job, then it’s our responsibility to make sure the training is there - but it is your responsibility to do the training you need to get off JobSeekers Allowance and into work. If you don’t, then there will be sanctions.
Of course, the vast majority of people on benefits want more than anything else to be in work and are doing all they can to get work.
But it’s right that we retain that principle of reciprocity as the lynchpin of a fair and sustainable system.
2. MAKING WORK PAY
We in the Labour Party are the first to stress that a job is almost always better than no job. But we have to care also about the kind of jobs we are creating, and the kind of recovery we are building. We cannot afford to take an approach that says “any old job will do”. We have to be more ambitious for the future of our country.
And we shouldn’t allow welcome falls in headline unemployment figures to conceal deeper problems in our labour market. Problems that will undermine our ability to earn our way out of the cost of living crisis and ensure our social security system is affordable for the long term
People used to understand a basic bargain: get a job and you’ll be able to support your family. But today, the majority of people below the poverty line are in work.
And two thirds of the children growing up in poverty live in a household where someone works. Parents trying to do their best to support their kids, but struggling in a jobs market that seems stacked against them.
Now our social security system has a critical role to play in ensuring that work pays and helping those on the lowest earnings keep their heads above water.
Indeed, one of the most striking features of this government’s unfair approach to deficit reduction, for all their nasty, divisive rhetoric about “skivers”, has been its attacks on support for people in work - punishing people who are trying to do the right thing.
But just as you can’t control the cost of unemployment if you’re just cutting benefits but not doing what’s needed to get people into work; you can’t control spending on in-work benefits and tax credits if you’re just cutting the level of support that working people are entitled to without doing anything to make sure they can earn enough to cover the rising cost of living.
That’s why, despite cuts that have seen in-work families more heavily targeted than out-of-work families total spending on in-work benefits is set to rise in real terms over the coming years - because the number of people who can’t earn enough to live on is going up faster than even this government is able to take away the support that people are entitled to.
The record number of workers paid less than the living wage, now more than 5 million, is costing an estimated £2.2bn a year in extra spending and lost revenue according to analysis published by the IPPR with the Resolution Foundation.
And there are also now record numbers people who want to be working full time but can only get a part-time job - 1.47 million people according to the latest statistics. Figures I commissioned from the House of Commons Library suggest that this could be costing us £4.7 billion pounds a year in lost tax and national insurance revenue, and extra benefits and tax credits including 1.8 billion pounds a year on Housing Benefit alone.
Despite the upturn in growth that is now finally forecast government figures published alongside last month’s Autumn Statement show: - spending on Housing Benefit for people in work set to rise by over £1bn over the next three years; - and downgraded projections for wage growth between 2015 and 2018 adding £500m to the tax credit bill.
And the increasing insecurity we see, with too many stuck in temporary jobs, and rising numbers of zero hours contracts, makes it harder for people to get a mortgage to buy their own home, or save for a pension, all of which adds to the pressure on our social security system.
The costs to the country of low pay, under-employment and insecurity go far beyond the annual social security bill. Because our economy’s over-reliance on a long tail of low wage, low productivity, insecure jobs is a massive weakness and missed opportunity.
It means we’re failing to develop and make full use of the talents and energies of our people and we’re failing to build the competitive businesses and sectors that we will need to pay our way in world in future.
The action on skills that I’ve already outlined would make an immediate difference to this problem, as well as tackling worklessness and reducing spending on unemployment benefit.
Because ensuring people have the skills they need to get a job and keep a job will also give them a better chance of earning a better wage and building a career.
And it adds to and reinforces the programme Labour are setting out to improve the availability of good quality jobs, offering security, progression and decent wages.
A Labour government will mean a strengthened minimum wage, toughening up enforcement, restoring its real value, and asking those sectors who can afford to pay more to do so.
A Labour government will mean more workers paid a living wage, (as many enlightened employers and, I’m proud to say, increasing numbers of Labour councils, are already doing) -offering temporary tax breaks to employers that commit to paying it, and requiring transparency of large companies, so employees, consumers and campaigners can hold them to account.
A Labour government will mean new rules to prevent the abuse of zero hours contracts, and the closure of legal loopholes that allow migrant workers to be exploited and used to undercut all workers’ wages and working conditions.
A Labour government will drive forward the economic and industrial policy that Ed Miliband, Ed Balls and Chuka Umunna have been developing to create more high quality jobs in every region of the country by reforming our banking sector, modernising our infrastructure, and working with businesses to get the long-term investment we need in growing SMEs and the high productivity, growth industries of the future.
So as well as raising living standards and expanding opportunities, this agenda is also critical to controlling the costs of our social security system - relieving and reducing our reliance on tax credits and housing benefits to make up for inadequate or irregular wages.
3. REWARDING EFFORT AND CONTRIBUTION
Finally, as well as getting people into work, and taking action to improve wages and working conditions, a social security system built on our belief in the dignity of work, must ensure that people are rewarded for the effort and contribution they make throughout their working lives.
The importance of recognising work and contribution and reinforcing the contributory principle in our social security system is why we must do what we can to ensure that those who come to live in Britain from other countries work and contribute to our social security system before taking out of it.
The overwhelming majority of those who come to Britain from the EU or beyond make a significant net contribution to our public finances and economy as well as enriching our society.
But it’s right that we protect the integrity of our social security system and reassure people that is not open to abuse - which is why I am glad that the government belatedly responded to Labour’s call to ensure that people could not arrive in Britain and start claiming Jobseekers Allowance from day one.
And it’s why we will look at any practical proposals they come up with to extend the period new migrants have to work and contribute before becoming entitled to full support and addressing the anomaly that allows child benefit to be paid out for children not living in this country.
But we also need to address more directly people’s worries about whether the economy and social security system is working for them.
Last week Ed Miliband spoke about the sense of insecurity, and gnawing anxiety about the future, that is felt today by increasing numbers of people, whatever their line of work, and risks sapping our confidence as a country.
As well as the failure of wages to keep up with prices that has seen the average worker lose £1,600 in annual income since the Tory-led government took office more workers are worried about losing their job than at any time since these records began.
And many of those who lost their jobs in the wake of the global financial crisis and the continuing restructuring we see in many sectors, are shocked when they discover how little help they were entitled to, despite the contributions they had made over the course of their working lives.
It’s worth bearing in mind when we talk about the unemployed today, on the latest figures, this includes 134,000 former managers, 107,000 professionals, and 172,000 who previously worked in skilled trades such as engineers, electricians or IT technicians.
But far too many of these people feel that the social security system offers little for them when they need it.
We are developing plans to improve the help that the system gives to older workers who lose their jobs.
And we also need to look at how we can better reflect records of contribution in the benefits people are entitled to.
Now of course there are those who move in and out of work and I’ve set out how we want to do more to get them into long-term jobs. But in recent years we’ve also seen more people rely on the system who’ve not claimed in years.
The ippr have today announced that they will be looking at options and costings for increasing the initial rate of Jobseekers Allowance paid to those who have built up a sufficient record of contribution.
If this can be done in a cost neutral way by extending the period people need to be working and paying national insurance to qualify for contributory JSA it would be a very valuable step forward.
For example, a higher rate of Jobseekers Allowance paid for the first six weeks of unemployment to those who have lost their jobs after perhaps four or five years in work could be a big help in cushioning the immediate financial impact of redundancy and give them a better chance of getting back into work and back on their feet sooner.
And it would be a powerful way of restoring that understanding of collective insurance against unemployment that was such an important impulse behind Beveridge’s original plan but which today has been all but lost from sight.
So I welcome the ippr’s plan to look at this area, and look forward to the conclusion of this work in the coming months.
Restoring a sense of “something for something” across the social security system, and over a working life must be part of a One Nation agenda for social security.
Let me bring what I’ve said to a conclusion.
Working families want a social security system that is fair and affordable: - one that meets genuine need and rewards responsibility, - while keeping costs under control over the long term.
It is the Labour Party, based on its belief on the dignity of work, that will deliver this
- by tackling unemployment, with measures like our compulsory jobs guarantee and the basic skills test I am announcing today;
- by making sure that work always pays, with measures to strengthen the minimum wage, promote the living wage, and support the creation of more high quality jobs;
- and by making sure that work is rewarded over the long term, by reinforcing and renewing the contributory principle in our social security system.
This is the right agenda for the times we face. It’s an agenda based on Labour values, and the values of the British people.
It’s an agenda we need to get started on as soon as possible, so we can all work and earn our way to a better future.