REFORM

Reforming welfare

Local solutions and the Big Society A new welfare settlement The unemployment challenge

With speakers including Rt Hon Iain Duncan Smith MP, Steve Webb MP, Rt Hon Yvette Cooper MP, Douglas Carswell MP, David Banks, Tim Breedon, Stephen Bubb, Sally Burton, Janet Daley, David Ellis, Andrew Harrop, Chris Melvin, Michael Smyth CBE and Nicholas Timmins

Clifford Chance 10 Upper Bank Street Canary Wharf E14 5JJ 30 June 2010 Reforming welfare / Reform Contents

Programme The Reform team – setting the agenda 4 Local solutions and the Big Society 6 A new welfare settlement 8 The unemployment challenge 10 Reform – Join us in 2010-11 12

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08.30 – 09.00 Registration and breakfast 09.00 – 09.30 Welcome and Andrew Haldenby, Director, Reform introduction Michael Smyth CBE, Partner, Head of Public Policy, Clifford Chance 09.30 – 10.00 Keynote speech by A keynote speech by Rt Hon Iain Duncan Smith MP, Secretary of State for Work and Pensions, Rt Hon Iain Duncan on the new welfare agenda Smith MP 10.00 – 10.50 Local solutions and the Policies to encourage social mobility and end welfare dependency have moved to the centre of the Big Society political debate. The Government has set out an ambitious agenda to restore civil society and reduce poverty. This requires a new approach to delivering welfare that draws on local initiative and local expertise to deliver innovative solutions Douglas Carswell MP, author of The Plan: Twelve Months to Renew Britain Stephen Bubb, Chief Executive, ACEVO David Ellis, Group Director of Business Development and Marketing, Catalyst Housing Group Sally Burton, Chief Executive, Shaw Trust Chair – Nick Seddon, Deputy Director, Reform

10.50 – 11.40 A new welfare There is a growing demand for public-private partnerships in delivering welfare. In welfare systems settlement throughout the world new insurance products are being introduced to cover risks that have previously been covered by the state. Is there now an opportunity to transform the entitlement state and encourage more people to make their own provision for the risks they face? Steve Webb MP, Minister for Pensions Tim Breedon, Chief Executive, Legal & General Andrew Harrop, Director of Policy and Public Affairs, Age UK Chair – Nicholas Timmins, Public Policy Editor,

11.40 – 12.00 Coffee 12.00 – 12.50 The unemployment How can the UK reduce the rate of long-term unemployment? All political parties recognise the value challenge of innovative private providers and the need for greater conditionality of out-of-work benefits. But a more comprehensive reassessment of the structure of welfare provision is needed. Reducing long-term unemployment and the social and fiscal costs of welfare requires a new approach Rt Hon Yvette Cooper MP, Shadow Secretary of State for Work and Pensions David Banks, Group Managing Director, G4S Care and Justice Services Chris Melvin, Chief Executive, Reed in Partnership Janet Daley, Columnist, The Sunday Telegraph Chair – Dr Patrick Nolan, Chief Economist, Reform

12.50 – 13.00 Closing remarks Reform will sum up and close the conference 13.00 – 13.30 Lunch

www.reform.co.uk 1 Reforming welfare / Reform The Reform team – setting the agenda

Andrew Haldenby, Nick Seddon, Dr Patrick Nolan, Lucy Parsons, Thomas Cawston, Kimberley Trewhitt, Director, Reform Deputy Director, Chief Economist, Senior Economics Researcher, Reform Researcher, Reform Reform Reform Researcher, Reform

Eliminating the deficit will There is scope for reducing the costs of The desire to use welfare to attract votes welfare without compromising other means that benefits for middle class be the defining issue of this policy objectives. Much welfare spending voters become more generous while poor Parliament. The Emergency does not provide value for money. The families are left with scraps. Transfers to Budget put the cost of UK is spending at European levels for working families now account for nearly welfare at the heart of these poor American results. Although it has twice as much of the welfare budget as one of the most expensive welfare transfers to families out of work. efforts. The government systems in the world, the UK faces rising Improving welfare and sorting out the spends more on welfare income inequality, low levels of social debt will require wealthy families to take than anything else. The bill mobility and poor outcomes for children. greater responsibility for themselves. for “social protection” is Poor quality spending, not a lack of spending, is the problem. As the Bank of International Settlements now approaching £200 has demonstrated, it is the cost of billion. Left unreformed Welfare reform should set out to not only welfare, as well as healthcare, which will these costs will become save money but to support employment largely determine the future state of and social mobility. The Government has public finances. The UK is no exception. crippling with the cost of set out an ambitious agenda to reduce The Emergency Budget announced benefits to pensioners alone poverty through emphasising Big Society policies that would move people off set to increase by £12 billion not big government, while Frank Field has benefits and restrict entitlements, while by the end of the term of this begun a review of poverty and opportunity. the Department for Work and Pensions Progressing this agenda requires now intends a faster rise in the retirement Parliament. Failing to get to focussing on reducing the mobility blocks age. But will these savings be enough to grips with this while total contained in the benefit system and cut the deficit and make the growing government spending is improving educational outcomes for the costs of welfare sustainable? falling will mean much poorest. This also requires seizing local initiative and innovation and moving the deeper cuts to other welfare system from the economics of departmental budgets. redistribution to the economics of growth and mobility. But reforming assistance to the poorest families should only be a part of a reform agenda. Improving the targeting of spending would make the welfare system stronger and more just. Experience shows that poorly targeted spending leads to less generous support for poor families. Even a small increase in the generosity of a universal programme comes at a very large financial cost, meaning resources have to be spread thinly and less is available for poor families.

2 www.reform.co.uk Reforming welfare / Reform A new welfare agenda

Rt Hon Iain Duncan desperate need of reinvigoration We will apply the same Dr Patrick Nolan and millions are failing to save principles to pensions, by Smith MP and enough to fund the retirement developing a fairer, simpler Welfare reform Steve Webb MP they want. system that people can build on that works The case for The legacy of the last with confidence. The “triple fundamental reform Government’s failed regime lies guarantee”, which ensures that all around us. the basic state pension will Across the country, entire increase by the highest of communities are blighted by earnings, inflation or 2.5 per inter-generational cycles of cent, provides the first solid step welfare dependency and in this direction. endemic poverty and today We will also reinvigorate there are more than five million occupational pensions and people on working age benefits encourage personal saving Reforming welfare is one of the and 1.8 million pensioners living through automatic enrolment hardest – but most important in poverty. into pension schemes and we – challenges facing the In the run-up to the recent That is why fundamental will simplify the myriad of other Government. Any reforms will Budget, the Prime Minister laid reform of the welfare state is rules and regulations that tie up face difficult tradeoffs. They will bare just how urgently we need crucial. Not just for the taxpayer pensions. need to chart a course between to get the country’s finances in who has had to shoulder the Equally, we will reappraise providing support to people in order so that we can stimulate financial burden of these failing the assumptions we make about need while ensuring they do not economic growth and get policies, but also for the worst older people in society - not become too dependent on state Britain back to work. off in society who find writing them off, but making the support. Unemployment and However, there was a themselves without a clear path most of their skills and demographic changes will push strong case to be made for out of poverty. experience. That is why it is up costs while large savings will radical welfare reform long Now is not the time for important to phase out the be needed to address the deficit. before Britain was plunged tinkering around the edges of default retirement age, Delivery will have to be simpler into recession and facing reform, but for fundamental empowering those people who and easier for the public to unprecedented levels of change. That is why we are want to continue working with interact with, while efforts to national debt. re-thinking our entire approach the freedom to do so. encourage more innovative and The fact is that for too long to welfare. This is how we will help the diverse providers will mean we have had a welfare system A new Work Programme poorest and create a fairer more, not less, variation in how that actively disincentivises will provide the unemployed Britain where we balance rights people are treated. people from seeking work – the with the tailored support they and responsibilities and The ways in which these most sustainable and effective need to get into long-term, stimulate economic growth, as tradeoffs are reconciled will route out of poverty. sustainable work. well as building a welfare system largely determine the success or At the same time, we have Just as importantly, we will that is fit for the 21st century. otherwise of the Government’s inherited a pensions system that simplify our complex benefit welfare reform agenda. Yet these has allowed the value of the state system so that we re-establish a tradeoffs are not new. Nor are pension to dwindle while adding clear link between work and Rt Hon Iain Duncan Smith MP, they unique to the UK. There more complexity for those reward for the poorest, as well as Secretary of State for Work and are many previous and overseas claiming it. Not only that, but reducing the opportunities for Pensions and Steve Webb MP, examples of welfare reform that private pension provision is in fraud and error. Minister for Pensions provide important lessons.

www.reform.co.uk 3 Reforming welfare / Reform

These include: makes the problem worse. General Election that all the Save money through Reducing disincentives and principal political parties cutting entitlements that complexity requires simplifying accepted the need for fiscal are poor value for money: old programmes, not adding constraint and retrenchment. Although having one of the most new ones. The limits to what can Few if any mainstream expensive welfare systems in the be achieved through welfare politicians deny that the OECD the UK’s system is one transfers also need to be nation’s deficit and debt burden of the worst performing. This recognised. Often the more need to be substantially mismatch between inputs and effective approach is to reform reduced. On this score at least, outcomes reflects the poorly other areas, such as education or the Government and targeted nature of much welfare regulation of the labour market. Opposition appear divided not spending – with around Deliver welfare in by ideology but managerial £31 billion going to wealthier different ways: The UK has a approach: not so much a households. Savings that could heavily centralised welfare question of “whether” but be made in this area dwarf system. Yet understanding the rather “how”. savings that could be made in long-term interest of welfare But if it is agreed that “we other parts of the welfare recipients often requires local cannot go on like this”, how budget. These savings could be information, such as the do we genuinely ensure that made without compromising conditions of local labour “we are all in it together”? the living standards of poorer markets or efforts that people The five giant evils identified families. make to find work. In recent by Beveridge of squalor, Decide where the poor years some moves have been ignorance, want, idleness and incentives should go: made to better employ local disease have not disappeared The only welfare system that is knowledge, through greater but their extirpation needs to free of poor incentives, such as public-private partnerships, but be paid for. Can the post-War poverty traps and marriage transforming the delivery of welfare state settlement any penalties, is one that provides no welfare also requires handing longer be regarded as fit for transfers at all. Even universal over the power to set some purpose when there are so transfers discourage labour benefit rules. Increasing the many more of us living longer supply and lead to higher tax requirement for individuals to and protective of benefits rates. Yet as all real world systems prepare for their own future, universal in nature? require transfers to be provided through the use of insurance or Clifford Chance has an the crucial questions are how personal protection accounts, interest in these matters, much poor incentives can be kept to a can also transform the delivery like its clients. The firm’s minimum and how their of welfare and encourage people headquarters are in east economic and social harm can to make decisions in their London, within the borough be reduced. This requires long-term interest. of Tower Hamlets, which has judgement on whether emphasis one of the youngest and should be on ensuring every fastest-growing populations family has at least one worker Dr Patrick Nolan, Chief in the UK, a high proportion attached to the labour market or Economist, Reform of unemployed graduates and whether second earners in enduring levels of poverty. couples should be encouraged to Private institutions like mine work. How assistance and have their own role to play in entitlement vary with the age assisting our neighbours to and number of children also Michael Smyth CBE migrate from welfare to work. requires judgement. Welfare reform and Our view is that that transition Simplify old must be managed in a way programmes, do not add the new politics that optimises social mobility new ones: Many problems and ensures that no one gets facing the welfare system reflect left behind. the complex interaction of the We are delighted to be maze of welfare programmes. hosting today’s conference Many programmes have been which aims to address these developed and reformed in issues and pay tribute to Reform isolation and contain complex, and its Director Andrew conflicting and confusing rules. Haldenby for conceiving it. In the UK previous efforts to address these problems, There could surely be no more Michael Smyth CBE, Partner, especially the disincentives to trite observation regarding the Head of Public Policy, work they create, have state of the UK public realm Clifford Chance emphasised the provision of new than to say that the next few forms of assistance, such as years will be difficult. Of that, employment tax credits. Yet few citizens appear to be in any layering new programmes onto doubt. The same is true of those an already complex maze they elect. It was indeed a increases the welfare mess and noteworthy feature of the 2010

4 www.reform.co.uk Reforming welfare / Reform

Spending on welfare has grown far and fast and is unaffordable in the face of demographic pressures like population Local ageing. Previous efforts to manage the costs of welfare have focussed on creating an “enabling state” but rather than delivering a smaller and smarter solutions government this has encouraged less focussed and ever-increasing spending. A new approach to delivering welfare is and needed that empowers individuals and harnesses the potential of local solutions and social enterprises. This requires curbing the ambitions of government the Big and redefining the boundary between the State and individual responsibility. The State cannot do it all – individuals and communities must play a central role Society in creating a Big Society.

Douglas Carswell MP tried has been to devolve control Stephen Bubb Rooted in communities, civil over welfare from central to local society organisations can do Local welfare government – a change which Civil society – what the State finds so hard: when implemented overseas has a solution to long- inter-generational support, reduced both poverty and term unemployment support built around families welfare spending. and individuals, support that It is time to break with the cuts across the silos of state principle of universal provision, delivery and addresses people’s and to localise control over problems in the round. welfare. This would involve: Unlocking the third sector’s potential to solve the problem of • Replacing the principle of long-term unemployment must The welfare state is not working. universal provision, on which be central, then, to David Billions of pounds are spent the welfare state was founded, Cameron’s cross-governmental each year on supporting millions with the principle of localised drive to build a Big Society, to of people, yet rather than welfare provision. It has been all too easy to see revitalise civic life and to deliver alleviating poverty that money is • Providing welfare and social the big story relating to more public services through the helping to sustain it. More than security budgets not through unemployment as being the third sector. 50 years after the introduction national agencies (as at present) number of people out of work as In welfare reform, that will of universal welfare provision, but through local county and a result of the recession. But mean having a clear underlying today more households depend metropolitan authorities. there is another story just as ambition to leave no one behind on some form of welfare than at • Transferring control and pressing: the millions of people and a resultant focus on the any time in our history. accountability for how welfare is who have been unemployed for harder to help. Creating an The problem is that the provided within the years, sometimes generation environment in which third British welfare system, built on communities they serve to after generation, who suffer the sector organisations (no matter the model of universal provision, locally elected councillors. results of long-term what their size) are able to is highly centralised, and • Enabling local, not central, unemployment at great cost to contribute must also be a presided over by remote authorities to commission the public purse and who are not priority. So, for instance, we technocrats. There is little scope charities and other bodies for able to contribute to society to must have a powerful and for pluralism, or innovation, and welfare work. their full potential. Over the past well-capitalised Big Society almost no pressure to seek better • Enabling and encouraging decade and more, the State has Bank and a strong Social ways of alleviating poverty. different town halls to offer tried to help them into work. Investment Business to enable Both Labour and different levels of welfare Despite some marginal third sector organisations to Conservative Governments have support, using variable criteria successes, it has largely failed. deliver by raising capital. If tried their hand at welfare for assessing need. The problem remains. moving to payment by results; reform, but none of the steps Where the State has failed, we must have payment they have introduced has Douglas Carswell MP, Member civil society (third sector mechanisms that reward significantly cut levels of welfare of Parliament for Clacton and organisations like charities and providers for getting the most dependency. This is because the author of The Plan: Twelve social enterprises) can succeed difficult clients into work. We one policy change they have not Months to Renew Britain in partnership with the State. must also have a State prepared

www.reform.co.uk 5 Reforming welfare / Reform

to intervene to ensure that entrepreneurial philanthropy, Sally Burton Of course many already do have partnerships or subcontracting tackling poverty using a huge council contracts. arrangements between providers powerful synergy of charity and Trust in the Big However, I am keen to see a are based on the interests of enterprise. Society combination of service delivery jobseekers and taxpayers, not on Big names like Rowntree and and social enterprise. One those of larger providers. Bourneville, the Peabody Trust example is the horticultural Long-term unemployment is and Guinness, backed by cash enterprises run by charities a scourge on our society. Where and a moral purpose, which could extend and manage the State has failed to solve it, the spontaneously took on poverty parks and other public spaces, third sector can. As part of in the UK. They weren’t told employing disabled people and building a Big Society we must what to do and how to do it engaging volunteers. However, now work together, State and – they just did it. Here at in the drive for efficiencies, third sector, to design a system Catalyst we go beyond housing, councils have awarded ever that enables that to happen. challenging gang culture, Thousands of charities and social bigger contracts to large national creating innovative ways to get enterprises, big and small, stand organisations and may not be people off housing waiting lists, ready to deliver a more responsive able to break them down to Stephen Bubb, Chief Executive, delivering the NHS and other range of public services, involving stimulate local commissioning ACEVO support to people who are the volunteers to help forge new styles and delivery. How should we most marginalised in our of public involvement. However, counter the shift to ever bigger communities. We have started we are also deeply concerned contracts with the need to to cut the housing waiting list in about doing things well, and being involve local people in designing David Ellis the London borough of measured by the impact we make. and delivering services? Where Big Society Westminster by focussing our As Chief Executive of Shaw We all recognise the time and resources of Trust, a charity with 28 years profound change that is upon us is already working understanding the problems at experience in helping disabled in this economic climate. a very local and tailoring the and disadvantaged people to Politicians and managers realise solution to the local and gain employment, skills and that they have a long way to go individual need. It is a new independence, I am committed to restore public trust. On the project, but we expect see a to ensuring that the Big Society whole, charities have that trust. 10 per cent drop in waiting list is big enough to leave nobody Many can use this as a positive applicants. Innovative behind and to place the most force to lead a renaissance in partnerships have been formed, disadvantaged and excluded local involvement, and an bringing the NHS to at the centre of the system. engagement and a new means of marginalised communities who I want the Big Society to be connecting with the community. Big society is already happening can not easily access health about everyone, not those who – for many housing associations services, improving their shout loudest. across the UK, it is what we do. healthcare and saving cash A strong society and a strong Sally Burton, Chief Executive, The best housing through prevention rather than state are not mutually exclusive. Shaw Trust associations work at a grassroots cure. And we have cut crime on A strong state should not be level, building communities with some of our estates by up to 38 a monolithic provider of services and for the people who live in per cent – saving millions for but it does need to be clear them, supported by central the tax payer in prisons and about purpose, equity, government. We know our local court costs alone. outcomes, safety and the wise communities and customers and This is Big Society – local use of resources. are already delivering the “big solutions harnessing local There are several tensions in stuff” to them in a way that they knowledge to national need and the government’s emerging can use. But it is imperative that resources. It works. Moving the strategies. we get the balance right. If we go poorest and most vulnerable, The Work Programme is too local, we risk turning into a who conversely can be the most welcomed for its approach to bunch of parish councils, fussing expensive in our society, to investing more in those furthest around the edges of things, not being active participants in a from work. However, the seeing the big picture. If we go productive economy, rather financial model could mean that Big Brother command and than part of the contribution to organisations that work within control, we lose the energy, the the deficit, is a goal that is being communities, supporting the innovation and the sensitivity realized and delivered already. hardest to help, may be unable that delivers a local solution for Our challenge is to keep to compete, reduced to “sub the local problem. Central listening and keep adapting to contractor status” and excluded strategy needs to set the local what we see at a local level and from implementing the model of free – not crush it. There are to co-ordinate better on a service which they know to be many housing associations national stage to bring about effective. How do we ensure that embedded in our communities tremendous change. Big Society doesn’t just mean holistically delivering and Big Business, but means adapting the national agenda to harnessing local knowledge and local needs. Housing David Ellis, Group Director energy and integration of associations are the forerunner of Business Development services at the front line? of Big Society. For two centuries and Marketing, Catalyst What about the idea of we have been at the forefront of Housing Group charities running local services?

6 www.reform.co.uk Welfare to work

G4S are the second largest private G4S already work with over 100,000 offenders and young people each year - transforming their life chances through care, sector employer in the world supervision, training and rehabilitation. We want to take that work further. We are therefore investing heavily in creating the very best delivering critical services in over solutions to support the 5.5 million people of working age who 110 countries. We are looking to are currently on benefits to move from dependency into self- sufficiency and a decent, lasting job. apply our extensive knowledge and Our model is to partner with the very best local and specialist experience to help tens of thousands providers from the third, public and private sectors to create an of excluded unemployed people to integrated network of support that responds to each person’s individual needs. The power of our approach comes from the find worthwhile, sustainable jobs. strength and diversity of our delivery partners. We believe that we have the ideas, skills and experience to revolutionise welfare to work delivery in the UK making a significant and lasting difference ADVERTISING SPACEto the number of people out of work and claiming benefits.

For further information please contact:

Pat Roach Business Development Director G4S Care & Justice Services Tel: +44 (0)1909 513403 Carlton House, Carlton Road Fax: +44 (0)1909 501031 Worksop, Nottinghamshire Email: [email protected] S81 7QF www.g4s.com/uk Reforming welfare / Reform A new welfare settlement

The UK’s welfare state is beyond the limits Tim Breedon and here it overlaps with the private sector. In 2007, insurers of affordability. The government is already Public-private risk paid some £121 billion in spending £77 billion on pension benefits sharing pensions, accident, health and and, according to the Department for Work income protection benefits. The and Pensions, this will increase to £240 same year, government spending on similar risk billion by 2050. An increase in tax burdens management and welfare on this scale will not be sustainable. provision (including pensions, unemployment benefit, Reform is needed to transform the statutory sick pay and entitlement state and seize the insurance healthcare) was estimated at opportunity. Quietly, and rightly, the UK has £219 billion. The split is roughly begun to increase the level of welfare risk This year, the UK faces a 65 per cent to 35 per cent with welfare bill of around £87 the public sector taking the lion’s borne by individuals, such as through the billion (including tax credits). If share. A 5 per cent public to introduction of university tuition fees. you add pensions this figure private sector shift would reduce rises to £185 billion. With deficit public spending by £17 billion. With individuals taking a new approach to reduction heading the political So policymakers need to ask work, family and retirement, there is also agenda, addressing the welfare themselves: which current state growing demand for more flexible forms bill should be a major priority. insurance activities could be Ideally this should be done partly or wholly transferred to of support. Yet the existing welfare state without penalising vulnerable the private sector, and how? remains highly rigid and the private sector individuals, while delivering There are many examples, is yet to fully embrace the opportunities long term reform – for example but to look at just one: 41 per provided by the new welfare agenda. by introducing slower benefit cent of the inactive working age withdrawal rates and helping to population is parked on A new approach is needed. This approach lift people out of benefit and Incapacity Benefit. Nine out of requires greater use of public-private poverty traps. ten people falling into incapacity Inevitably, achieving this will benefit expect to work again, but partnerships in delivering welfare and entail more selective government if you stay on incapacity benefit individuals to take greater responsibility expenditure and an increased over two years, you are more for preparing for periods of life when they role for private sector providers. likely to retire or die than ever are in need. This does not necessarily equate get another job. to wholesale privatisation: third Sometimes, sadly, illness or sector, social finance or accident will lead to long commercial alternatives could term-unemployment. help refocus benefit provision, Alternatively, employers can use leaving the state to concentrate commercial group risk policies on areas of most need and to fund employees’ sickness reducing the strain on taxpayers. absences. Results have been very Much of the Department for positive, especially for stress, Work and Pensions’ mandate mild depression, and similar consists of providing insurance, conditions which if not checked

8 www.reform.co.uk Reforming welfare / Reform quickly can cause long-term Government’s 1998 pensions will be what impact reforms that 65 per cent of the exclusion. It works because it Green Paper talked of shifting have on people from low income addressable risk market was serves all parties’ interests to pension provision from 60:40 backgrounds in their late 50s provided for by the State with arrange quick, good treatment public-private to 40:60.Twelve and 60s who often face a the remainder taken by the private sector through products facilitating an early return to years later only limited progress combination of low skills, poor such as private pensions, health work. These policies, though, are had been made, but in 2012 the health and age discrimination. insurance and protection disincentivised both for introduction of auto-enrolment If welfare-to-work works for this insurance. A five per cent shift employers and employees into employer pensions will group it will work for everyone; towards the private sector, the through the tax system. This provide suitable saving but if it does not, welfare reform report estimated, could save the cannot be right. opportunities for many for the must not penalise them. We Government and taxpayers We need a holistic approach first time. This will gradually should not be pushing up the £17 billion annually – more based on what works best for the replace much of what the old state pension age and reducing than the budgets of the Home claimant, at the least cost for the state-controlled SERPS scheme payments from working age Office, Foreign Office and taxpayer with the lowest drain was designed to do, but will take benefits in the name of work Defra combined. So both main parties have on economic potential. By decades to build up. However incentives, if the result is agreed something should be delivering this we can reduce many commentators from the hundreds of thousands of done but how do we make future claims, helping the pensions industry and elsewhere over-55s cast into poverty with progress from here? Department for Work and are adamant that to work, this little realistic chance of finding From the market side, Pensions focus on vital new system of private pension work. insurers will need time to get structural reforms to welfare. saving will still need the platform this right. Taking on the extra Our industry has expertise, and of a higher, simpler and more five per cent of risk identified is willing to help. universal state pension above would require an entitlement. estimated £9.7 billion of extra Tim Breedon, Chief Executive, Many of the same principles Andrew Harrop, Director of Policy capital – at a time when the EU Solvency II directive will Legal & General apply to the funding of care and and Public Affairs, Age UK already be adding very support. We will need to significantly to capital maintain a state-funded safety requirements. Time will also be Andrew Harrop net for those without their own Kerrie Kelly needed to develop the right A better pensions means, but for everyone else we A new welfare products, with the risk priced must promote responsibility by accurately and designed in a system offering attractive private settlement – the way that will be attractive to payment options including insurance industry customers and meet the insurance, saving and the view approval of regulators. unlocking of capital. From Government and regulators, the industry will Universal pensioner benefits need a commitment to a such as Winter Fuel Payments, long-term framework covering so called middle class benefits, regulation, tax incentives and are currently under attack, but it certainty about what the state is worth remembering they form expects to provide. Cross-party just one part of a state pension support would be even better. There is probably a degree of system which was described by Certainty would allow the public acquiescence for Adair Turner’s Pensions market to design products that short-term welfare belt- Commission as “among the lest would be attractive to groups of tightening. But this should not generous in the developed How the State, the insurance customers for whom state protection was no longer be confused with long term world”. We can debate the industry and consumers necessary or desirable. In some consensus for a significant shift balance between universal and respond to the welfare cases, this would almost of the risks of old age from means-tested entitlements, with challenges of the next decade certainly involve partnership collective to individual all the complexities and and beyond is one of the most – most obviously in designing responsibility. In any event, the cliff-edges the latter entail, but important issues the new products for long-term care. costs of public spending on later the key test is whether the coalition government must So insurers potentially have life, although set to rise over the pension system as a whole address. If current standards of a vital role to play in designing a next 50 years, are quite reduces poverty and, for more welfare protection and new welfare settlement. There containable if all we aspire for is affluent groups, replaces an pensioner prosperity are to be are benefits as well as risks for a rolling forward of existing improved share of previous maintained or improved then all concerned, but only with bold leadership and a will to levels of support. However Age earnings. Government, industry and the genuinely take long-term UK is more ambitious than that. Turning to pre-pension age public alike need to wrestle with decisions will we find a We want better pensions, care benefits, everyone can sign-up difficult challenges. meaningful solution for the and support for future to the principle of a much The insurance industry future. generations than those simpler benefit system, which welcomes the new experienced by today’s older does not discourage work; and Government’s stated aim to people. To make that happen we alongside this, greatly improved re-examine the balance between state provision of Kerrie Kelly, Director General, do not want to see personal welfare-to-work support. But if welfare and private insurance- Association of British Insurers responsibility replace state these aims were easy to achieve based solutions, echoing the activity, but build on it. the previous government might report on a vision for 2020 The aim of increasing private have made more progress. co-authored by the previous pension provision is not new. Getting the detail right is government and the industry in Indeed the Labour everything. For Age UK, the test 2009. That report identified

www.reform.co.uk 9 Reforming welfare / Reform The unemployment challenge

The failure to reform the welfare system David Banks reasonably widely understood and accepted. There are three while times were good means that it is now The unemployment primary areas where research necessary to reform welfare in the face of challenge suggests that we can make an greater demands on the system. Yet enormous difference. ignoring the need for reform is not an First, work should pay. People need to know that they option. Without reform it is more likely that will be financially better off by a legacy of the recent recession will be being in work. A re-imagining of higher rates of persistent and long-term the benefits and tax system for unemployment. low-income groups would help many people escape All political parties recognise the value of worklessness. In the past the innovative private providers and the need There are almost five million necessity of this task has been people of working age who are outweighed by the complexity of for receipt of out-of-work benefits to be not in employment. This achieving it. In meeting the made more conditional on work effort. represents an enormous cost to complexity challenge we will However, welfare providers continue to the taxpayer, to society and, most make a critical step in reducing operate with one hand tied behind their significantly, to the unemployed unemployment. individuals. If you are Secondly, we need a unified, back. Social enterprises and companies unemployed then you are more effective, Active Labour Market are improving services for unemployed likely to suffer from ill-health, Programme that best deploys people, but their impact is limited because you are more likely to be the resources available to help they do not have full control of the full unhappy and you are more likely the maximum people find to die early. And this sustained employment. range of benefits and programmes for the disadvantage is passed on to the Underpinning this is the unemployed. A new approach is needed. next generation – the children of creation and maintenance of workless individuals are more a vibrant and diverse supplier likely to leave school with no market in which contractors qualifications, are more likely to are paid only when they be victims or perpetrators of achieve results. crime and are more likely Thirdly, the potential benefit themselves to be unable to hold savings that will be made by down a job. Intergenerational helping people into work need to unemployment kills social be leveraged in order to generate mobility and perpetuates social those savings. Many exclusion. We have a moral unemployed people have imperative to do more to help complex constraints to unemployed people to find employment that require decent, meaningful employment. significant investment to We also have a financial overcome. Only by releasing the imperative. The UK spends over spending power of future benefit £40 billion a year on primary savings will we be able to make benefits for unemployed people the transformative investment of working age. required to significantly reduce The Unemployment unemployment numbers. There Challenge is not intractable. are very real complexities in Indeed the solutions are solving the AME/DEL riddle.

10 www.reform.co.uk Reforming welfare / Reform

It will require the collective self-perpetuating. As Arther The criticism on the Left of books, as the last Government imagination and resource of Laffer has said, “If you pay American welfare reforms has was already doing, another government, prime contractors, people to be poor you will never centred on the argument that entirely telling a 56 year old man providers and other key run out of poor people.” And if they “force people into low paid with no qualifications and no stakeholders to overcome them. you penalise people for going to jobs”. It is true that far more recent employment record that work, you will make the decision people have taken on low wage he is losing a sizable chunk of David Banks, Group Managing not to work an eminently employment in the US since the the livelihood he has relied on Director, Care and Justice rational – sometimes welfare reforms of the 1990s. for a decade. Providing high Services, G4S unavoidable – option. Paid But all the evidence shows that quality services so that this is a unemployment as a lifetime most people do not remain in transition into employment has condition is unsustainable low or minimum wage positions to be the minimum expectation. Janet Daley economically because it is for long: once they start The simplest route is sheer Self-perpetuating hugely expensive and wasteful working, they move up the compulsion but there can be of human resources, and socially employment ladder quite little doubt that this will cause a poverty because it creates a permanent quickly. While there may be, at major backlash, and not just in underclass locked into any given moment, a proportion Labour seats. But how do you hopelessness with all the of the working population in low sugar the pill when the attendant problems of wage employment, they are not Chancellor has screwed the lid criminality, drug addiction and the same people from one year of the sugar jar tight shut? With irresponsibility that follow. to the next. Work, as many proper funding and realistic At a time of recession, reform statistical studies have shown, is targets, there are plenty of is almost certainly going to the best and most lasting cure providers who would be willing involve a “workfare” for poverty. to have a go at getting the rolls programme in which those who down, and the moves to ensure The absurdity of a benefits have received unemployment Janet Daley, Columnist, providers are paid by results in system which penalises those benefit for more than a The Sunday Telegraph terms of savings to the who take paid employment by minimum amount of time are Exchequer is one way to ensure making them worse off than if required to do community this happens. they had remained out of work service of some kind. This Matthew Taylor The alternative is to wheel has been clear for many years. activity need not be seen as IB or not IB: is that out lots of tough rhetoric but to Even Labour ministers admitted punitive or shaming but as an accept a slowly downward curve its failings in private (and attempt to introduce the the question? as fewer new claimants are occasionally in public). Welfare concept of reciprocity and social allowed on IB and long term dependency perpetuates participation. It would, if claimants leave the labour force. defeatism, despair and civic anything, tend to reduce the But this will not generate the exclusion. It condemns people stigma of prolonged benefit- savings upon which the who are not necessarily the dependency by addressing the Coalition seems to be relying. wilful “scroungers” of tabloid sense of unfairness – of So it will be fascinating to see notoriety to a futile dead-end non-working people being how the Department for Work existence in which the possibility supported by the rest of the and Pensions intend to pull off of self-reliance (let alone population indefinitely. More the conjuring trick. self-improvement) becomes importantly, it would give A major welfare challenge for further and further out of reach. recipients some experience of the Coalition will be getting As well as the damage to structure and purpose in their long-term Incapacity Benefit individuals and the waste of daily lives. In practical terms, it claimants back into work or personal potential, it creates would virtually eliminate the starting to actively think about long-term economic and social possibility of claimants working doing so. It is one thing stopping Matthew Taylor, problems by making poverty in the black economy. new claimants coming on to the Chief Executive, RSA

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Reform is an independent, charitable, Comment on Reform non-party think tank whose mission is to set out a better way to deliver public services “The exciting and intelligent think tank, Reform” and economic prosperity. We believe that , 16 June 2010 by liberalising the public sector, breaking “With the exception of Reform, which has outlined big monopoly and extending choice, high cuts to middle-class welfare, the think-tanks have been almost equally silent” quality services can be made available Financial Times, 29 April 2010 for everyone. “Can this cosy consensus survive the storm clouds brewing In 2009 we stepped up our activities, over the state of the UK economy? History suggests not. Today the centre-right think-tank Reform attempts to gaining significant media coverage and puncture the prevailing complacency with a radical making an impact with leading politicians. programme of cuts to shift more NHS care into the In 2010 our programme has continued to community, obtain more bang and save extra bucks” focus on public policy solutions to the Jeremy Laurence, , 17 March 2010 deepening fiscal crisis and reform of public “I read with interest the tax reform proposals unveiled last services to achieve value for money and night by Reform, the think-tank… one of the few organisations in the UK with the guts to call for the scrapping better outcomes. of the vindictive and counterproductive 50p tax rate” Allister Heath, City AM, 5 March 2010 “The most detailed contribution to the debate yesterday – a report from Reform” [on public spending] Financial Times, 16 September 2009 Anna Calvert, Communications and Events Manager, Reform

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