Britain: New Labour's Tory Cuts

The recent rebellion against the Lbour government's decission to cut single parent benefit and the growing disquiet about proposals to cut benefits for the sick and disabled have brought the welfare to work programme into sharp focus. Mick Brooks looks at what is all about, adn asks the important question: can it create real jobs or is just another way of massaging the statistics and reducing the social security budget?

The welfare state is the greatest achievement of the working class under capitalism. It is a basic principle of the welfare state that, in a rich country such as Britain, nobody should starve. Implicitly the existence of benefits for the unemployed is an acceptance of the fact that unemployment is not the fault of the unemployed but a problem of the system.

It is an irony that the Labour Party has been the main instrument for the reform of capitalism through working class pressure. Yet the present Labour government intends to breach the basic principles of the welfare state by introducing workfare for the long-term unemployed. Workfare is an attempt to scare the unemployed into finding a job with the threat of withdrawal of benefits. Of course Gordon Brown doesn't call his proposals to 'help' the unemployed find a job workfare, but that is what it is.

Workfare is based on the theory that the unemployed are basically skiving. It beggars belief that after twenty five years of very little shirking (relatively full employment), after 1974 the Western world should see a sudden and simultaneous outbreak of mass scrounging (mass unemployment). And of course Gordon Brown doesn't mention skiving as the root of the problem. But that is the logic of workfare.

Has sitting around claiming benefits become more attractive under the Tory years? Hardly. The 'replacement ratio' - the ratio of benefits to paid employment fell under the Tories from 79% in 1978 to 60% in 1983-84. In that year a fifth of dole claimants got less than half of what they earned in their previous job. Not much incentive to skive there - and everybody knows that unemployed people are desperate to get a job.

Are there the jobs to go to? To take a typical month, January 1997, the official unemployment level was 1,815,000. As Labour, then in opposition, was quick to point out, this figure had been massaged downward by wholesale fiddling of the figures. And this figure was after six years when the British economy was supposed to have been in boom. What was the official level of job vacancies in that month? - 262,000 The official sorcerers of the unemployment figures assure us that this refers only to vacancies referred to job centres and the real level is three times as large. Let us accept their assurance for a moment - that still means that there are no jobs for all the unemployed to take up.

But the unemployed are desperate for work. It is true that the long-term unemployed face prejudice from potential employers. In effect they stay unemployed because they are unemployed. They do need carefully crafted assistance to dig them out of the unemployment trap. They want to know - will Gordon Brown's plan help them? Brown offers four options:- a job, full-time education, work with a voluntary organisation, work on an environmental task force.

Budget

Gordon Brown made it quite clear in his budget speech, 'There will be no fifth option - to stay at home on full benefit.' If a claimant refuses a job or placement, they will lose at least 60% of benefit, and they will lose the lot for two weeks. Since the level of Job Seeker's Allowance is carefully tailored to be an absolute minimum level of subsistence, a loss of the major part of it means nobody could make do on what's left. So it is workfare, no doubt about it. Some workers may argue that if Gordon's options are valid, then that is fair enough. But the proposals will do nothing to reduce the dole queues and very little for Gordon's guinea pigs in consequence.

As we've all been told the plan is to cost £3,500 million paid for by a one-off windfall tax on the fat cat utilities. They can afford it, no problem. But what happens when the money runs out and no more real jobs have been created in the economy in the meantime? And there are no proposals to create new permanent jobs.

For the 'Welfare to work' project, the biggest target group are jobless 18-24s. Pilot schemes will be up and running by January and the programme will be generalised from April to cover a quarter of a million young people. And there are 178,000 youth who have been on the dole for more than six months. The jobs in the private sector will be provided by handing out £60 a week for 6 months to the bosses.

Work for a voluntary organisation will be paid at benefit levels plus £400, as does work for an environmental task force. Over six months that works out about £15 per week. This means a young unemployed person (who gets £37 dole money) will be working for about £52 a week or £1.30 per hour! Option number four is a year in full-time education on benefits. Really this just amounts to a relaxation of the regulations that only allow up to sixteen hours study without loss of benefit, to allow more young people to take up further and higher education as an option. This concession only applies to 'suitable' courses, presumably those most likely to have a job at the end of them. The feeling is very strong among youth advisers that employers will cherry pick the most able young people to make money out of - not hard when they're being subbed £60 a week - and the voluntary and environmental task force will be seen as the rubbish option. These in any case are just the latest in a long line of schemes to keep young people off the dole figures. We've had an alphabet soup of schemes under the Tories, and young people are well aware they don't lead to a permanent job.

The plans for the long term unemployed are basically similar, and subject to the same criticisms. This is a shame since 350,000 people have been jobless for more than two years. About half of them are to be subsidised into private sector employment, this time with a £75 per week top up to the boss, plus a £750 training subsidy. 10,000 will have the option of full-time education on benefit.

What about the private sector work? Can we create new jobs by just handing money over to employers? Both supporters and opponents of the plan reckon that there will be a deadweight effect of about 50%. This is another way of saying that about half of all the vacancies would have occurred anyway, and the boss would have had to take someone on - £60 subsidy or not. So it is employers that are subsidised, not jobs for youth! On top of the deadweight effect there is a 'substitution effect.' This means that young people are taken on for the £60 subsidy, but somebody else loses out. How important is this? Estimates vary but the general guess is around one in five of the new jobs (critics put the deadweight and substitution effects together as high as 90%). Some defenders of the scheme would justify this as they say it gives the long-term unemployed a bit of work experience. Presumably they are not in danger of losing their job to a subsidised youngster! In any case work experience is useful for one thing only - experience of work, and if no new jobs come into existence it will just be a waste of time.

The main point is that, even under favourable estimates, nearly three quarters of the jobs 'created' under the plan are not new jobs at all. Tory critics are predictably saying the whole thing is just a waste of money. The Wise Group for instance has worked out that each job created could cost £14,000. But we don't need lectures from the Tories about 'value for money.' Unemployment is the biggest waste of money there has ever been. Defenders of 'Welfare to work' reckon that even if most of the jobs created are not new, we will all benefit from the fact that an average £76 benefits will no longer have to be paid out, and every new worker will be paying an extra £13 in tax. So by paying out a £60 subsidy we can save £89, according to Gordon Brown's advisers - pure magic! If we accept this argument the programme should be quids in by year two. The Tory-dominated House of Commons Employment Select Committee in 1996 worked out that unemployment costs us all £24 billion, or £8,500 for every person in the country. They also castigated the civil servants for not giving them the full figures to provide a more detailed and devastating calculation as to how much unemployment is costing us all. Socialist Appeal and everyone else in the movement would regard the money as well spent if the Brown plan works and unemployment is reduced - but it won't be.

Then there are the proposals for single parents. There are one million of them out there, looking after 2 million kids and costing £10 billion in benefits. Yet every serious survey shows they are desperate for work. For years we have had the Tories whining about lack of incentives for the rich - faced with a 'punitive' 40% top rate of tax. Now there are people who are faced with confiscatory rates of tax - but they are not rich, they are on benefits! People on the dole routinely face a marginal tax rate of 80% when they are offered a job. This means that when they take account of lost means-tested benefits as well as paying tax they can keep only 20p of every £ they earn. For single parents they can quite often be absolutely worse off in work. This is the poverty trap. The main reason for this is the cost of child care.

Harriet Harman has decided to do something about this. She has raised the 'disregard' on benefits spent on childcare from £60 to £100. So single parents can spend up to £100 on child care without losing benefit. The trouble is, childcare costs an average £6,000 a year!

Lone parents

Next October half a million lone parents will be offered the same sort of options as the young and the long-term unemployed. Like them, they will meet up with counsellors. The single parent scheme meshes in with the others, as 50,000 on the voluntary sector scheme will be training in child care. Labour has also floated the idea of 'after school clubs' as a cheap way of dealing with the child care problem. Yet as we have pointed out in the past, child care and nursery provision in this country is about the worst in Europe. The National Institute of Economic and Social Research has worked out that decent child care provision could pay for itself, by freeing up women to participate in the labour force. Instead of claiming they would be paying back taxes in to the pot while working - and that is what they want to do anyway.

Harriet Harman has already been running pilot schemes for single parents. Taking no chances, they have been set up in high employment areas such as Cambridge. Harriet claims success as 400 have since found jobs - one in five interviewed. But Harman has been caught out telling porkies, for 8,500 lone parents were originally approached, so less than one in twenty of these are in work.

But the most startling spread of workfare is to the long term sick and disabled. A £200 million project is to target 80-100,000 people with disabilities. The problems are obvious. The hidden agenda is given away by the Sunday Times headline of July 7th, 'Labour to clamp down on 'sick' benefit scroungers.'

What Labour is doing is not new. They are just generalising the Tory 'Workstart' programme over the whole country. Yet in opposition Labour MPs denounced workfare and the miserable one in ten success ratio claimed by the Tories.

In fact the Tory record is about par for the course for workfare schemes around the world. Their success record is only miserable if you take the argument that they aim to make benefit claimants 'employable' at face value. Their real intent is to put the frighteners on the unemployed. And the real problem is not that some people are unemployable, but that there aren't the jobs to go to. The 1930s were a depressed decade, with millions of workers out of a job for ten years or more. Yet with the coming of the war all of these 'unemployables' got a job. It is a tragic irony of capitalism, that workers exchanged the horrors of unemployment for those of rearmament and war.

The classic country of workfare is the USA where President Clinton, Tony Blair's role model, has proclaimed the 'end of welfare as we know it.' The administration has declared a limit of five years on anybody claiming benefits. The aim is to save $55 billion over six years. When the system was launched three years ago, three quarters of the states who have to administer workfare applied for exemptions. Why? - because the jobs didn't exist! Since 1994 the numbers on welfare have fallen by nearly a million. Most commentators accept that the fall in rolls is mainly because of economic growth creating jobs - the USA is now in the seventh year of a boom. The fall in claimant numbers has been fastest where economic growth is highest, not in the blackspots where unemployment remains stubbornly high. But there is a statistical puzzle - more people have been driven off welfare than have re-emerged into the labour force. Where have they gone? - into the criminal economy. Where else can they go? Americans are likely to pay dear for workfare and 'welfare reform.'

The second country where the workfare 'experiment' has been made on the livelihoods of the unemployed is Australia. The Labour 'working nation' programme was a major influence on Gordon Brown. Yet it has been a resounding flop. There is no chance that it will even get near its stated aim of 1% unemployment by the year 2000. The jobless rate currently stands at 8.0%. The facts are that employers would sooner recruit workers from other jobs rather than take a chance on the long-term unemployed, even with a hefty handout.

Pressure

So workfare is really about saving money and putting pressure on claimants, not giving the jobless a chance. What for? Subsidising employers gives the bosses the idea that they can employ workers for peanuts. The real aim of the job subsidy is to drive down the wages of those already in work, especially the youth who are most likely to be competing with the people who get a temporary job as a result of the job subsidy As Samuel Brittan argued in the Financial Times, 'employers would respond by reducing their pre-top-up pay offers.' That is what has always happened, as the separate article on Speenhamland shows.

What if workfare did what its advocates claim, and make the long-term jobless more employable? Then we would have more workers in the economy - but we wouldn't have any more jobs. But unemployment exists precisely because there aren't enough jobs to go round. If it did what it is supposed to, workfare would make unemployment worse! What is needed is more jobs. The world economy has slowed down since 1974 and capitalism can no longer provide a job for all. The reasons for the slowdown are complex. They have been analysed elsewhere by Socialist Appeal. One thing is for sure. The system has failed us and we need to change it. Attacking the unemployed is just blaming the victim.