New think tank report shows Treasury could save £4.1 billion by helping in-work tax credit claimants earn £30 a week more
Ahead of the spending review a new report, released today by the Social Market Foundation (SMF) and the Joseph Rowntree Foundation (JRF), highlights huge potential savings for government if employment support services are reformed to focus on helping claimants increase their long-term earnings rather than just move off benefits.
Modelling for the report, Employment support for a high-wage economy, shows that, if each in-work tax credit claimant earned just £30 a week extra, savings to the Exchequer could amount to some £4.1 billion. This is the equivalent of a claimant working less than an hour a day extra at the National Minimum Wage.
However, the SMF finds the current system of employment support is focused on reducing the short-term benefit claimant count, meaning it is ‘inadequate’ in helping those furthest from finding work and those caught in the low-pay trap. This leads to lower wages, higher welfare expenditure and greater overall costs to the taxpayer.
- Just one in three Jobseeker’s Allowance claimants find sustainable work within the first six months of being at Jobcentre Plus. The rest either re-claim benefit soon after leaving, move to another benefit or fail to enter work at all.
- While better than what came before, the Work Programme (WP) is currently performing relatively poorly for those viewed as the ‘hardest to help’, with some 70% of claimants referred to the programme simply moving back to Jobcentre Plus (JCP) after the two-year programme has ended.
The SMF shows that significant reforms to employment support system are required if the government is to achieve its goal of a higher wage, lower welfare economy, including:
- Taking a longer-term view and focussing on increasing earnings and reducing poverty in order to improve families’ living standards and drive reductions in the need for welfare.
- Radically reforming the role of Jobcentre Plus – to create “support hubs” that join up a range of government services including benefit claims, housing and advice on issues like childcare and training.
- Introducing a new programme alongside the Work Programme to provide support to those with the greatest barriers to work. The programme would bring in specialist providers and be commissioned in partnership with Local Authorities, Combined Authorities and City Regions.
- Boosting competition between private, public and third sector providers – contracts should move to be based on the merits of the approach, rather than favouring one particular sector.
Employment support for a high-wage economy also recommends new measures of success which are based on household and individual earnings and a new approach to targeting support at those who need it most, including:
- Rather than look at short-term moves off benefit – measure success of all parts of the employment support system on the earnings it helps claimants bring in over a two year period and relate outcome payments for providers of services to these earnings
- Building on the approach in Australia, the USA, Germany, Ireland and a range of other countries, introduce a “segmentation tool” that assesses the extent of barriers to work that individuals face.
- Base access to intensive support and payments to providers on results from this tool, with those with the greatest barriers to work referred much earlier than is currently the case.
Matthew Oakley, report author and senior researcher at the SMF, commented:
“The UK’s system of employment support focusses too much on short-term outcomes. As a result, families’ earnings and living standards are lower and the costs of welfare much higher than they should be. Significant changes to employment support are needed if the Government wants to deliver on its ambitions to deliver a higher-wage, lower-welfare economy, halve the disability employment gap and tackle poverty.
The imminent Spending Review and re-contracting of the Work Programme provide an ideal opportunity for the Government to signal their commitment to this agenda. They must announce ambitious and bold reforms. However, in the context of the Spending Review, it is important to highlight that these reforms are not about spending more money. They are about how to design services and spend money effectively to maximise outcomes, within any budgetary settlement.”
Julia Unwin CBE, chief executive of the JRF, said:
“By reusing current budgets in welfare to work to support people to move into work and earn more, the Chancellor could secure a sustainable long term plan towards a prosperous and poverty free UK – which will see him deliver on his ambition of a high wage low welfare economy. Tailoring support so that it addresses people’s individual circumstances would do more to help people into the long-term, high-quality jobs which provide a permanent route out of poverty. However, these reforms would need to go hand in hand with a strong plan to drive up productivity and improve the quality of work at the bottom end of the labour market in order to deliver a high pay economy with lower need for welfare.”
Notes to Editors:
- A copy of the report, Employment support for a high-wage economy, is available via this link: https://www.jrf.org.uk/report/employment-support-high-wage-economy
- The report author, Matthew Oakley, is senior research at the SMF. Previously he was an economic advisor at HM Treasury. He is also a member of the Social Security Advisory Committee and he led the Independent Review of Jobseeker’s Allowance sanctions that reported to Parliament in 2014. He is a recognised expert on welfare reform, employment and consumer issues.
- The report is a joint publication between the Social Market Foundation and the Joseph Rowntree Foundation. The modelling for this report uses the Institute for Public Policy Research’s tax and benefit model. The SMF retains absolute editorial control over its outputs.
- The Social Market Foundation (SMF) is a leading independent UK think tank which develops innovative ideas across a broad range of economic and social policy, champions policy ideas which marry markets with social justice and takes a pro-market rather than free-market approach smf.jynk.net.
- The Joseph Rowntree Foundation is an independent organisation working to inspire social change through research, policy and practice. For more information visit www.jrf.org.uk This research has been funded by JRF as part of a strategy to end poverty in the UK, due to be published in 2016. The report will be available at this link: https://www.jrf.org.uk/report/employment-support-high-wage-economy
 ONS, 2015
 DWP, 2015