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Welfare reform never comes cheap

October 14, 2010

Welfare reform never comes cheap No one can accuse the government of paucity of ambition as it seeks to overhaul the paralysingly complicated array of welfare benefits. Wisely it also recognises that such wholesale reform cannot be rushed. It will – electorate willing – prove a two-term task.

The holy grail of ending the welfare trap for those in the workplace, who otherwise stand to be better off claiming benefits, has been tantalisingly elusive to generations of politicians. Yet one of the key stumbling blocks in the immediate future is that there may well not be jobs available for many who find themselves transferred from Incapacity Benefit to Jobseekers’ Allowance. These changes all promise to take time.

They will also cost money. Probably far more money than we might think.

I believe the government is spot on in identifying the overriding need to enhance skills as an integral part of this entire agenda.

However, the fact is that many millions of Britons lack the basic skills, aptitude or consistent record of employment to justify the level of workplace earnings they have come to expect as a matter of course in this highly competitive global economy. My concern is that the unskilled – assuming employment of any description can be found for them – will find employers who will regard the statutory minimum wage as a maximum to be paid. Once employers are confident that any shortfall between an individual’s statutory minimum entitlement and the wages he or she requires ‘to be better off in work’ will be covered by the State, they will have precious little incentive to pay more. As with tax credits, the unintended consequence of assisting the less well-paid at work may be a starkly deflationary impact on wages. To repeat, why will many employers pay more when the government has agreed upfront to pick up the tab to cover the gap between the national minimum wage and an employee’s total benefits entitlement?

These reforms to our welfare state are essential. But they are also likely to cost the taxpayer considerably more than is currently envisaged.