Welfare reform alone won't solve poverty

Last week, JRF held an event with the Spectator magazine looking at the Conservative approach to tackling poverty and their record on welfare reform since 2010. These are my reflections on what the Government has achieved and where we should go from here.

Since the Conservatives came into power in 2010, the Government has had clear goals on welfare with reform being a major focus. Some of the individual reforms, like the benefit cap, limiting financial support for families with more than two children and the benefit freeze have been controversial, and we've warned of the consequences for the most vulnerable people. Two consistent themes have been at the heart of the welfare reform project: reducing poverty by getting more people into work and making sure it pays to work.

One of the biggest successes of the last seven years has undoubtedly been the employment rate. This is important – the likelihood of being in poverty is much higher when people aren’t working. But evidence shows that work alone is not a reliable route out of poverty. The poverty rate has remained stubbornly stuck at one in five despite employment rising. 

The welcome introduction of the National Living Wage, and cuts to income tax, were attempts to address this issue. But any benefit from these two policies is more than offset by changes to in-work benefits, especially for families with children.

Universal Credit (UC) is one of the boldest and most important reforms, and despite the problems along the way it remains the right thing to do. But the cuts announced in the 2015 Summer Budget fundamentally moved the goal posts. There were originally expected to be more winners than losers in the transition from tax credits to UC, but these cuts mean that there will now be more people left out of pocket than will gain. Working lone parents in particular will lose out.

The context of UK poverty has changed

For too long the Government failed to see that the context had changed. Poverty was once synonymous with being out of work, older, and living in social rented housing. In recent years poverty has grown among people in work, younger people, people living in privately rented housing and disabled people and their families. Indeed, the last set of official statistics showed 55% of people experiencing poverty live in a working household.

The context has changed, but the policy response has been inadequate. This must not be allowed to happen again. We need urgent action to address the issues facing people on low incomes today – alongside deep-rooted problems in the jobs and housing markets, rising inflation, stagnant wages and the benefit freeze mean that many low-income households are facing an immediate financial squeeze. To achieve this, the Government must:

1. make work a genuine route out of poverty. Universal Credit will help to simplify the system, particularly for people moving in and out of work. But to make sure work pays people should be able to keep more of what they earn – especially lone parents
2. provide better support for people trying to increase their earnings by getting on at work: with three in four low-paid people failing to escape low pay in ten years, raising the wage floor has to go hand in hand with supporting people to get on. The Government could do this by investing in tailored training and skills support, including for those already in work
3. make housing costs genuinely affordable to low-income households. This has perhaps been the biggest blind spot for the Government, who have focused on ‘affordable rents’ (with rents linked to the dysfunctional housing market) and starter homes, which are out of reach for struggling families. The Government could adopt a ‘living rents’ model linking rents to local earnings, making them more affordable for people on low wages
4. protect low-income households as rising inflation begins to bite. In the short term, this means ending the freeze on working-age benefits. Looking further ahead, the Government could work with businesses and regulators to make markets fairer and end the poverty premium
5. give a better deal to left-behind places. While the overall employment rate is very strong, the experience varies widely. In places such as Liverpool city region, Greater Birmingham and Tees Valley, one in five of the workforce either wants a job or more hours. And it’s not just about quantity, it’s about quality. In places such as Humberside and Greater Lincolnshire, three in ten are either low paid or in insecure work. The Industrial Strategy has the potential to help. The Government must also look at how it can use public investment to support regional economies, particularly when funding is withdrawn once Britain leaves the European Union.

Perhaps the biggest lesson from the last seven years is that welfare reform on its own cannot solve poverty – it must go hand in hand with good jobs, supporting people to get on and genuinely affordable homes.