Labour shortages, benefit sanctions and 'Way to Work'

New Government campaign to fill job vacancies. The Department for Work and Pensions’ ‘Way to Work’ campaign aims to get 500,000 more people to fill mounting job vacancies by the end of June by encouraging Universal Credit claimants to search for work in new ‘booming sectors’, such as social care and construction. DWP secretary Thérèse Coffey said: “As we emerge from Covid, we are going to tackle supply challenges and support the continued economic recovery by getting people into work. Our new approach will help claimants get back into the world of work quickly, while helping ensure that employers get the people they and the economy need.”

Sanctions-led approach. The mechanism by which unemployed people are encouraged to seek work is through the benefit sanctions system. Claimants will now only have 4 weeks (down from 3 months) to find a job within their preferred sector. If claimants fail to make “reasonable efforts” or turn down job offers from any sector, they risk reductions in their benefit payment.

Will this help recovery? A 2016 report from the National Audit Office found no evidence that benefit sanctions are an effective way of helping claimants find a job, while “the overall impact of sanctions on wider public spending is unknown.” A peer reviewed article from economist David Webster concludes that more attention needs to be paid to the flaws in the economic case for benefit conditionality in the UK welfare system. Associate Professor Jo Ingold examined employers’ perspectives on benefit conditionality in the UK and Denmark and concluded that businesses held negative views on conditionality as it led to them “receiving large numbers of unsuitable and unfiltered job applications, with associated negative resource impacts…which undermines their chances of securing employment”.
Threatening benefit cuts during a cost of living crisis. Critics have pointed to the punitive nature of the proposal to cut people’s benefits during a cost of living crisis. Food poverty campaigner Jack Monroe spoke to Times Radio to explain the new changes' impacts on benefit claimants during, pointing out that the 4 week limit is longer than it takes to receive the first benefit payment (5 weeks).
Poverty in the UK. NEF’s Living Income campaign has shown that 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’ this year. Joseph Rowntree Foundation’s #UKPoverty2022 report outlines the latest data on the nature and scale of poverty in the UK. The report of the United Nations’ Special Rapporteur on extreme poverty and human rights (2019) examined the extent of poverty and destitution in the UK and condemned the “great misery… inflicted unnecessarily” on marginalised groups through Universal Credit and cuts to public services.

The UK labour market. Analysing the Government’s proposals, the FT’s Sarah O’Connor noted that “The reason the UK has a shortage of workers is not because jobseekers are too picky. It is because an army of people have left the labour market altogether.” The Way to Work programme targets those who are able to work but are either unemployed or on low wages. But the Institute for Employment Studies’ Tony Wilson points out that there are not large numbers of people who are short term unemployed: only about 130,000 jobseekers claim for less than three months. The much larger problem is a 600,000 increase in people who have dropped out of the labour market altogether, are no longer looking for work and therefore do not receive any support.

Low pay and in-work poverty. Critics of the Way to Work policy have pointed out that it does not address the numbers of those in low paid jobs who have to rely on the benefit system to top up their incomes. The IPPR’s No Longer Managing report on the rise of working poverty found the chance of two parents in work (one part time and one full time) being in poverty have doubled over the past two decades. The authors argue that social security reform must come alongside a wider plan to tackle the root causes of low pay, such as unaffordable rents, expensive childcare and insecure jobs (See ITV’s coverage).

Childcare. The Women’s Budget Group’s Hanna Abid explains why childcare investment should be a key element of social security reform (the ‘Social Guarantee’) as it enables caregivers to rejoin the workforce, amongst other benefits. (Peer reviewed evidence here.)
Real wages. The wider context for low pay is that real earnings have been stagnant since 2008, are projected to remain so until 2026 and, with high inflation, are now falling.
Minimum wage. The TUC is calling for increases in the national minimum wage. An IFS report finds that raising the National Living Wage can have significant spillover impacts on workers earning above the minimum, raising their wages without significant reductions in employment.
Enforcement. Over 200 firms guilty of paying some workers below the minimum wage have recently been named and shamed, with the list including House of Fraser and Waterstones.

Proposals for welfare reform.

Comprehensive income guarantees. NEF’s Social Security for All takes the best elements of a minimum income guarantee (targeted) and universal basic income (simplicity) and proposes a Weekly National Allowance to replace the personal allowance of income tax with a weekly payment of £47.30 to all but the highest earners: “This would effectively reinvest billions spent on a regressive system of personal tax allowances into a redistributive approach to ensuring that everyone has a basic level of income”. It also proposes an auto-enrollment system for everyone onto a reformed model of UC so people can receive top ups to their income whenever it drops below a minimum level, to avoid issues with eligibility, take-up and administration costs. See NEF’s Living Income Campaign for more proposals on social security reform.
User-led proposals for reform. The Commission on Social Security proposes replacing Universal Credit with a Guaranteed Decent Income paid to anyone whose earnings drop below £163.50 a week (half the minimum wage). The proposal was developed by people with lived experience of the current welfare system: carers, the unemployed and people living with disability. (Mirror coverage and video explainer)
More resources. For more options for structural reform of social security see our previous digest on Welfare Innovation. Visit New Economy Brief’s Resource Bank section Improving Work and Welfare for more on What Covid-19 has revealed about our labour market and social security, The future of Universal Credit, and more.

Weekly Updates

Regulation

Lord Agnew resignation. Conservative peer Lord Agnew resigned last week as Minister of State for Efficiency and Transformation over what he described as ”desperately inadequate” efforts by the Treasury to tackle fraud. Over the course of the pandemic, £5.8 billion has been stolen via fraudulent claims as part of the furlough, self-employed income support and Eat Out to Help Out schemes. Only £1.5 billion of this sum is likely to be retrieved.

Economic Crime Bill. In his resignation speech, Lord Agnew described the Government’s reported decision to scrap the Economic Crime Bill as “foolish”. The bill was due to bring forward measures to tackle corruption, such as the introduction of a register of individuals whose offshore companies are used to hold UK homes and land. The government’s anti-corruption champion, Conservative MP John Penrose, said that dropping the bill would be “about as popular as a cold cup of sick”. The Prime Minister denied that the bill had been abandoned.
Growing pressure. Calls for the government to get a proper handle on economic crime and to introduce the bill have been widespread. Tax Justice UK, Transparency International UK, Martin Williams at openDemocracy and Alice Thompson in the Times have all called for action.

International corruption. Transparency International’s Corruption Perception Index (CPI) ranks countries based on perceived levels of public sector corruption using a scale from 0 to 100. According to the index, the three least corrupt European countries were Denmark, Finland and Norway and the most were Bulgaria, Hungary and Romania. The report cited weak procurement rules used to speed up purchases during the pandemic were a huge cause of corruption.

Energy

Russian gas. A Russian invasion of Ukraine could reduce energy supplies to Europe and put further strain on energy prices, reports the New Statesman’s Philippa Nuttall. Russia accounts for 43% of Europe’s imported gas. Experts warn that an invasion could derail plans to synchronise Ukraine’s grid with Europe, with significant implications for energy transition and the phasing out of coal.

Net zero as foreign policy? Conservative MP Henry Smith writes in Conservative Home that as well as tackling climate change, net zero will also reduce the UK’s reliance on gas from Russia. Although Russian gas makes up far less of the UK’s energy supply than it does in other EU countries,”‘this does not mean the UK is safe from this malign use of energy markets to cause harm”, Smith argues.

Green Homes Grant. Data from the Department of Business, Energy and Industrial Strategy (BEIS) shows that the Green Homes Grant has resulted in savings of £1,200,000 per year for low-income households, with most savings from solid wall insulation & heat pumps. Coining a phrase, Shadow Minister for Energy and the Green New Deal, Alan Whitehead, said that this was “proof [that] retrofit is the future”.

Housing

Financialisation of housing. The Greens/European Free Alliance in the European Parliament have published a report on the ‘financialisation of housing’. The study examines the ‘growing footprint’ of residential landlords in European residential housing and the effect this has on affordability, overcrowding and transparency in the housing market. Recommendations include the introduction of a European Housing Fund, a ‘Red Flag Rule’ ensuring housing is ring-fenced from any regulatory easing initiatives, and a mandate for central banks to react to housing inflation through tighter regulation of mortgage lending.

Land and property taxation. The Scottish Land Commission has made recommendations to Scottish ministers on property and land tax reform. Recommendations include bringing all land onto the valuation roll, considering a Land and Buildings Transaction Tax and reforms to increasing the role of land values in the tax system need to have a strong level of public understanding and consensus.

Inflation

Measuring inflation. The Office for National Statistics (ONS) has said that it will do more to capture the impact of price increases on different income groups. The head of inflation statistics at the ONS said in a blog that ‘one inflation rate doesn’t fit all’.

Vimes Boots. The announcement comes following a campaign by food writer and activist Jack Monroe. Monroe is in the process of developing a new price index. With the permission of the estate of Terry Pratchett, it is named in honour of Pratchett character Sam Vimes and the “Sam Vimes ‘Boots’ theory of socio-economic unfairness”.
Real Britain Index (RBI). NEF’s Real Britain Index was an attempt to provide an alternative measure to the CPI to calculate inflation for lower income households. This could inform government policy targeted at the poorest households, such as a rise in benefits or the minimum wage.

Price controls. The debate around price controls continues to gather traction, with economist James K. Galbraith calling for ‘strategic price policies’ in the US. He looks at the history of price controls and pricing ‘guideposts’ and argues that such measures could be introduced to tackle ‘sky-high drug prices’

Tax

Conservatives support greater taxation of wealth. Centre-right think tank Bright Blue has come out in support of wealth tax reform. In its report Rightfully Rewarded, it proposes that the Government “should increase taxes on an individual’s wealth… to offset in part the losses in revenue from lowering taxes on work, as well as respond to rising wealth levels and the increasing role of luck and inheritance in life outcomes.” (Guardian coverage)

Wealth taxes. A number of organisations such as Tax Justice UK, the Women’s Budget Group, the TUC, IPPR and Patriotic Millionaires argue that taxes on income from wealth, such as dividends and Capital Gains Tax, should be equalised with income tax rates. This would end the unfairness of wealth being taxed less than work and won’t harm economic recovery.

Cost of living support distributed by Council Tax bands? The Chancellor is reportedly considering offering financial support for the cost of living crisis by targeting Council Tax bands. The IPPR’s Henry Parkes argues that council tax bands are a poor predictor of income levels; he calculated that 5 million low-income people would miss out on the tax break, whilst a quarter of top earners would benefit. (Twitter thread summary.)