26 March 2007
The Rt Hon John Hutton MP
Secretary of State for Work and Pensions
Welfare Reform: International Conference
Welfare Reform in the UK
Monday, 26th March 2007
[Check against delivery]
Good morning everyone and welcome to London. Thank you for responding to our invitation to attend this conference on welfare reform. We have as0ked you here so that we can exchange ideas on how our welfare systems can best respond to the rapid pace of economic, social and demographic change - changes that will inevitably affect the labour markets of every country in the world, and will test the capacity of traditional political, economic and social systems to adapt and respond.
Here in the UK for example, the number of people over State Pension Age is now greater than the number of children. This has never happened before in our history. Today there are 4 people of working age for every person of retirement age. By 2050 there will only be two. In fact scientists predict that the first person to live to 150 has already been born.
It’s a similar story in developed countries across the world. In the next 25 years, the working age population of the EU will fall by 7% while the population aged 65 and over will increase by over 50%. In the same period the number of workers per social security beneficiary could fall in the US by a third.
The fact that we are living longer is of course a cause for celebration. A testament to the ingenuity of mankind; to the tremendous advances in medical science and technology together with a critical shift in the working patterns of many modern economies.
But it also creates seismic pressures on our economic and welfare systems. So too will the phenomenon of mass economic migration. In the UK we want our welfare to work policies to ensure that no one is left behind; that all have the opportunity to acquire the right skills necessary to prosper in the new economies; that every person has the opportunity to develop their talents to the full. And if we will these ends, we have to will the means too.
These pressures we are all facing are intensified by the effect of ever greater global competition. My view is that these pressures can be met in a way that can benefit the many and not just the few. What we cannot do is ignore them or carry on as usual. Business as usual won’t work. The effects of globalisation will make sure of that. All of this has implications for the future of welfare to work policies – here and around the world.
Last year the new emerging economies accounted for well over half of the increase in global output. As China, India and Russia move towards market capitalism, the global labour force is in effect doubling. There is an inevitable shift towards a greater share of our wealth being generated through intellectual capital and services.
In the UK, our transition from an industrial economy to a more service based economy has been rapid and marked. Twenty years ago manufacturing accounted for 33% of GDP. Today it is 16%, while the service economy generates nearly three-quarters of GDP.
This creates a further challenge for our welfare system - how to engender a new sense of confidence in those who fear being left behind by the changing economy they can see all around them.
We know this can’t be done by simply putting people onto long term social security benefits and hoping that things will somehow get better. They won’t. That was the approach in the 1980s and 90s when welfare became a by-word for benefit dependency. The results were stark. Unemployment twice reached 3 million. The number claiming lone parent and incapacity benefits more than trebled. And the proportion of children in relative poverty more than doubled such that by 1997, one in every three babies born in Britain was born poor.
Rather it is only by tackling low aspiration and entrenched poverty head on; and by extending more widely the opportunity to work in the new industries of the future, that we can help people to prosper during this time of change.
Over the last decade, effective welfare reforms across the world have had a number of elements in common. Firstly, they have sought to ensure that people are better off in work than on benefit. Secondly, that the right to welfare is properly matched by personal responsibilities to take up the help that is on offer. And finally, that employers should be fully engaged in the design and operation of active labour market policy. This is the platform upon which we now must build if we are going to meet the challenges of the future.
Over the last 10 years, the number of working age migrants in the UK has increased by around 1.6 million. Net migration over the next 25 years is projected to account for almost 60% of population growth. And the demand for low skills is likely to continue falling with some 850,000 fewer low skilled jobs by 2020.
The creation of the New Deal and Jobcentre Plus, was an important step forwards - for the first time bringing together benefit delivery with new and more tailored employment support.
Over the past decade the UK has seen its longest and most sustained period of economic growth for over two hundred years. There are now more people in work than ever before, with the biggest increases in the areas that started in the poorest position. Long term unemployment is close to a 30-year low. Long term youth unemployment now virtually eradicated. The incomes of the poorest in Britain are now rising faster than those at the top. A marriage of social justice and economic dynamism. Of a strong economy and a strong society.
But despite this real progress there is still a significant number of working age people who are effectively excluded from the world of work, people who are often locked into a cycle of poverty that cascades from one generation to the next. Five million people without any qualifications. Over 3 million long term benefit claimants – the vast majority of whom want to work and could work if we provided them with the right support and incentives to get into the labour market.
It was to meet these challenges that I asked David Freud to undertake a major review of our welfare system.
The Freud Report presents a compelling case for future reform. Freud makes the clear case for targetting extra help and support on those who are furthest away from the labour market. And that in future, our labour market interventions must place as much emphasis on job progression as we currently do now on job placement. Our focus should therefore be on careers rather than jobs.
The publication of this Report must now rightly start a process of consultation and debate. We want to hear the views of all those with an interest in shaping the future of welfare in Britain - before we respond as a Government in the summer. We will be arranging a number of consultation events to draw out what I believe are the three main issues.
Firstly, the proposed radical extension of support from private and voluntary sectors focused on helping people to get a job and stay in work; secondly the need for greater benefit simplification; and thirdly the renewal of the contract of rights and responsibilities in our welfare system – with more support for lone parents to get back into work in exchange for a new set of responsibilities to engage in the system.
Let me say just a few words about each.
Firstly, private and voluntary sector support.
My vision of a progressive welfare system is not one that says “the state must do everything” – or indeed one where State institutions are all powerful. Rather I believe we need to empower individuals and create the opportunities for each person to take advantage of their talents. Governments can help people overcome the barriers that hold them back. But individuals have an equal and reciprocal responsibility to help themselves. Effective government in the modern age depends on this partnership between the state and the individual. Everyone who can work should be helped to work. That is the mission of modern active labour market policies. No one should be left behind.
Freud has recommended that once claimants have been supported by Jobcentre Plus for a period of time, back to work support should be delivered through outcome-based, contracted support – drawing on the innovation of specialist providers from the private and voluntary sectors.
He proposed that a contracting regime would set a core standard that everyone would receive, but that beyond this there would be freedom between the provider and the individual to do what works for them; rolling up the existing framework of public, private and voluntary provision, in favour of a more flexible approach focused on the specific barriers facing the individual rather than the specific benefit which they are on.
The UK has valuable experience of introducing greater flexibility and outcome-based contracting into its employment programmes – through, for example, the New Deal for Disabled People and Employment Zones - where complete programmes have been contracted out with the long-term unemployed referred to private providers for a period of 30 weeks and with largely outcome related payments based on job entry and retention for 13 weeks.
Freud’s proposal challenges us to go further and faster – in building a world-class contracting capability with sophisticated performance management tools.
It requires us to develop clearly defined, effective mechanisms for monitoring performance which recognise the importance of the individual client and don’t try to micro-manage from the centre or obstruct local innovation. This will need to include making more effective use of management information to help improve provider performance – including learning from the experience of the provider “Star Rating” system currently used in Australia, where high-performing providers are clearly identified and benefit from a simpler contracting process.
I don’t believe it is possible to simply transfer welfare systems from one country to another. But the key point is that we have to find an appropriate way to take unnecessary bureaucracy out of the contracting system, while maintaining a level playing field that is open to new players.
I’ve seen at first hand the contribution that private and voluntary sector providers can make.
The impact of tailoring support at community level is particularly striking.
When I was in New York last Summer, I visited the Harlem Children’s Zone – an inspirational initiative that offers a comprehensive network of social service, education and community-building programmes to transform opportunities for children and families in some of New York’s most deprived neighbourhoods.
In Central Harlem over three-quarters of children are born into families living below the poverty line. Infant mortality is more than double that of the rest of the city. And foster care placements are among the highest in the city.
Yet, as the initiatives I saw prove, with early intervention and the right support Harlem’s young children are getting the opportunity to acquire the skills they need to break out of the cycle of poverty and lay the foundation for a brighter future for Harlem.
Such local initiatives are crucial in the UK if we are to reach our historic goal of eliminating child poverty by 2020. They bring together the community in providing solutions tailored to their specific needs and tackle the remaining pockets of poverty and worklessness that stand in our way – localised areas of deprivation that are especially prevalent within some of our major towns and cities.
Secondly, while supporting greater flexibility Freud has also argued that we should look in detail at the potential for greater simplification of the benefits system – moving towards a single system, or even potentially a single benefit. And he cited international evidence that complexity in the benefit system can act as a disincentive for entering work.
In 1989 the Child Poverty Action Group’s benefits handbook was a mere 429 pages. Today it reaches to 1594 pages – and the index alone is 70 pages. If benefit reform was simple then it would have been done by now. The system is complex because people lead complicated lives and have diverse needs. But there is no doubt that a complex and fragmented system can often be hard to navigate for claimants and bureaucratic for our providers too.
In getting this balance between flexibility and simplification, I was interested to hear of New Zealand’s experience in combining a Single Core Benefit system – including portable payments for children and childcare to provide a bridge to work - with the flexibility that has been key to New Zealand’s progress.
Regional Commissioners for Social Development are given considerable authority to use funds as they see fit – and given the resource, flexibility and authority to pull together partnerships with other agencies that cut across all issues.
One family in South Auckland was supported through a programme involving police, schools, community leaders and the family themselves – including cutting truancy, improving housing conditions and supporting steps to return to work.
There are strong parallels here with the new flexibilities we are developing with the UK’s Cities Strategy – but I believe we need to go much further in looking across traditional boundaries whether in Government or outside.
Thirdly, in providing new and more tailored support, Freud argued that we should also expect more work-related activity from those on benefit. Specifically, that we should introduce stronger conditionality in line with Jobseeker’s Allowance for lone parents with a youngest child aged 12 – and as wrap-around childcare becomes more widely available from 2010, consider whether further reductions would be desirable.
We know that children of lone parents not in work are over five times more likely to be in poverty than children of lone parents in full time employment. And three times more likely to be in poverty than children of lone parents in part time work. Around 40 per cent of poor children live in lone parent households – the majority of which are non-working.
The UK has one of the highest proportions of families headed by a lone parent in Europe. And yet despite the progress we have made in increasing the lone parent employment rate since 1997 – now up over 11 percentage points to 56.5 per cent - we still have the lowest lone parent employment rate of any major European country.
Coupled with this, we ask very little of lone parents on benefit – with a requirement to look for work that only begins when the youngest child reaches 16.
By contrast countries such as Sweden and Denmark, make little distinction between lone parents and other benefit recipients in terms of the obligation to look for work. It is no coincidence that they have lone parent employment rates as high as 80 per cent.
Tomorrow I am publishing new proposals which will help more parents to move off benefit and into work.
I am clear that this strengthening of rights and responsibilities is the right directon of travel and the right way to proceed. We will not be cutting the general level of benefits – this would be wrong in principle and damaging to the health and well-being of children in lone parent families. But equally, we must be prepared to learn from other progressive countries; to raise our aspirations for every family in Britain; and help all those who can work to get work.
We face a moment of great opportunity as well as challenge. I believe we must look to the future with confidence, a sense of purpose, energy, vigour and humility. To reflect on what we have got right – but also to be honest enough to say “we should have done that differently”; and to learn from each other’s experiences. In politics this is never easy, but it is essential nonetheless.
Modern welfare systems must lift their sights and ambitions. No longer content just to help people get a job; but helping them to get a career.
Through our collective endeavours we can change the future for the better; delivering fairness, prosperity and decency in our societies – with no-one left behind. That is the mission of modern welfare.
So let us today discuss the way forwards for welfare in our respective countries; share experiences and learn from each other. But above all, let us leave here united in our common goals and bound together even more strongly in our commitment to creating modern welfare systems that can advance social justice and help individuals, families and communities to prosper.
