Ken Gibb's 'Brick by Brick'

Housing, academia, the economy, culture and public policy

Category: Welfare Benefits

Scottish Welfare Benefit: Using the New Powers

The Scottish Government last week announced the first use of its new devolved powers over welfare benefits. The 2016 constitutional legislation gave Scotland power over specific benefits amounting to around 15% of all benefit spend in Scotland as well as powers to top up and create new benefits in most areas (though not pensions) which would be funded from within Scotland, as well as discretion to amend specific benefit rules in certain ways as they apply to the application of Universal Credit. 

While not underestimating in any way the importance of the devolved benefits to their recipients, it is in truth the medium term development of top-up, new benefits and the use of these discretionary rules that will mark out Scotland’s own path on welfare benefits mostly distinctively. And of course this will also be where the political debate will be most intense.
A strand of the party political discourse in recent months has been the Government’s reluctance to take on the new financial powers and use spending, tax and benefit powers to pursue a range of home-grown policies. In truth, there are plenty of reasons not to alter radically income tax rates, contemplate fundamental reform of council tax or spend block grant at the margin on extra benefit spending. The overall budget is undoubtedly under pressure which makes extra spending more difficult. Equally there is caution over raising taxes or being seen to threaten property owners via local tax reform. Third, Scotland has a minority government where tight votes over budget issues and their implications have to be carefully thought through. Fourth, the new benefit powers require new local policy and service delivery infrastructure that cannot be rushed – delay to the full devolution of benefits is inevitable and should not be surprising.
It was in this somewhat risk-averse context that it was encouraging to see the Scottish Government last week announce that it would (a) look at moving the frequency of Universal Credit payments to be shortened to fortnightly rather than monthly (with scope to consider who receives the payment too) and (b) that the rental element of Universal Credit could be paid direct to landlords, both social and private rental providers. These are low hanging fruit in the sense that they are relatively simple and low cost but they are important to the people affected, symbolic of what is possible and in the current circumstances, offer sensible policy development.
The direct payment issue is an interesting topic. Private landlords have longer experience of tenant responsibility for making rent payments but both social and private will undoubtedly welcome the security of payment offered by rent paid direct. It was always apparent that vulnerable households and people already in arrears should be exempt but that begs further questions about definitions of such categories and the opportunity cost of setting up systems to manage them and to prepare social tenants for payment responsibility. One might in principle want to shift over time cautiously  to a system of tenant payment responsibility but this is simply not realistic at present or in the foreseeable future. The benefits of direct payments to landlords far outweigh the cost.
The big challenges remain – in particular, for housing costs, removing the ‘bedroom tax’ and contemplating increasing the levels of housing costs covered by Universal Credit. These will have direct spending implications (though will be offset in the case of the bedroom tax by reducing the need for discretionary housing payments to go to help tenants meet the spare room charge as well as other contributions from the Scottish Government). But we do have a start in the announcements made last week. And, as Frank Herbert once said ‘a beginning is a difficult thing’.

The quiet man loudly leaves 

Last night we heard that Ian Duncan Smith has resigned as Secretary of State for work and pensions, apparently in response to the Chancellor’s budget this week which had sought further large cuts in welfare benefits, this time targeting the disabled through Personal Independence Payments. This was deemed  unfair in IDS’ resigination letter contrasting low income working households facing cuts while higher income groups benefited from proposed tax cuts. Others have attributed the departure from his post in part at least to the growing divisions over the Brexit referendum.

As the dust settles, how should we assess the IDS tenure in DWP?

While in opposition, IDS laid the groundwork for his subsequent policies via his Centre for Social Justice. The welfare reforms that followed were in part a strongly held set of convictions developed by the politician but they were also an opportunistic response to the Government’s narrative around the deficit and the chance to clobber the poorly designed and high cost housing benefit system. So, from the very beginning in 2010, we have had two forces operating broadly together: the desire to make comprehensive reforms and a new settlement for working age households across the means-tested benefits regime, and, at the same time, a Treasury-led (but DWP supporting) downward squeeze on spend either directly or through increased conditionality. 

It is difficult to see the process of reform and cuts as anything but the two departments working closely together and apparently broadly as one.

In previous posts I have been I think consistently critical of the welfare reforms since 2010. But to be clear, there is a case in principle for a single or greatly simplified means-tested system of support for working age households. But it was always going to be difficult to achieve and made much worse by the climate of deficit reduction and cuts. I have also many times written about the structural problems with housing benefit that predate IDS and in many ways are still with us. But that is not an argument for  the reforms we have actually seen.

There are many concerns, for example:  the exclusive focus on working age households and the difference in treatment between old and young (remarkably raised in the IDS resignation letter); the aforementioned conditionality/sanctions regimes; the massive challenges to make universal credit the comprehensive benefit it is supposed to provide; the management of live updates to the UC system; the treatment of housing costs in the UC system; the ideological disinterest with evidence on impacts and behaviour (and actual outcomes); the spare room subsidy or bedroom tax. One could go on or simply look at the back file of Paul Spicker’s blogs.

Even if you were a fan of the reforms, it would be hard to say that independently they have made the sort of progress hoped for; only that it costs a lot to make change and that UC has a long way to go. Cutting spending on social security is hard and you are not of course fully in control of it. Moreover, it should take time to design and launch and then transition the system. It is not going to win short to medium run political plaudits. 

What happens next? Will the new Secretary of State change things? I can’t imagine a big shift in direction any time soon but there will be smaller scale opportunties to make eye-catching announcements and reforms. Perhaps these will be progressive and coherent but I am not hugely optimistic. Meanwhile HM Treasury must be under real pressure over the PPP proposals. Whatever else, the resignation and the problems between IDS and the Chancellor demonstrate the internal divisions in parts of the present Government, especially with the backdrop of the EU referendum. And it is only March.

Housing, Incentives and Work

This week, the Joseph Rowntree Foundation published our research on housing and work incentives [note]. This project was funded in 2013 and stretched over 2014 and all of 2015. It was a great team effort and I am very grateful to my collaborators – Mark Stephens, Darja Reuschke and Sharon Wright as well as the fantastic efforts of our researchers, Filip Sosenko and Kirstin Besemer.

The project involved an international evidence review, quantitative longitudinal analysis of the BHPS and Understanding Society and 5 qualitative case studies of different labour market and housing situations featuring in-depth interviews with more than 50 people at the margins of work.

The project was part of the funder’s housing and poverty programme and asked what we know about whether housing enables or acts as a barrier to both entering work and if in work to progressing within one’s job. Our approach considered the key distinguishing features of housing such as its heterogeneity, spatial fixity, financial incentives, tenure and neighbourhood, housing quality and an increasingly dynamic policy context. These features were set against alongside key channels by which we believed housing processes and outcomes might impact on the labour decisions of those at the margin: 

– Housing in relation to place

– Jobs, housing and mobility

– Tenure-based housing costs

– Housing as business collateral 

– Housing deprivation. 

Our reading of the existing evidence was that while economic evidence suggests particularly women respond positively in labour supply terms to higher earnings, the evidence is less clear and more nuanced concerning the impacts of welfare reform and other welfare to work programmes. We also found mixed evidence that deprived neighbourhoods negatively impacted on working and that mixed neighbourhoods have positive impacts on employment. However, the importance of support networks especially child care was confirmed (as well as the wider gendered nature of the labour market more broadly). The evidence also stressed the continuing long term effects of economic restructuring on job opportunities in specific places. Commuting issues were found to be critical as are the costs and feasibility of relocation to be closer to work. Self-employment has grown in recent years but is risky and often an involuntary response to the wider employment situation.The early evidence from welfare reform suggests that it may be unfavourable for  the labour market situation facing the sick and disabled.

We used panel data to examine the pathways in and out of poverty and found that it is for one thing a little misleading to adopt a standard three years continuous episode of poverty as ‘chronic’ poverty’ – our evidence is just too messy and varied to adopt such a measure. Rather we found all manner of poverty experiences – some short-lived, some enduring, others with periods in and out of poverty of different durations. Only 7% remained in poverty throughout 2000-2008. Moreover, we found important correlations with housing tenure, employment status, household or family type and the gender of individuals in/free of poverty. Examining exits from poverty it is clear that employment may not guarantee being free of poverty but few escape it without work. While social tenants had a high rate of poverty they also exited poverty frequently. Taking 2008 as a snapshot, 70% of those in poverty were actually owners with a mortgage. In our report further econometric work was undertaken to try to better understand the processes underlying these and other findings.

Our five case studies were located in the London Borough of Lewisham, Oldham, Merthyr Tydfil, Scottish Borders and Larne in Northern Ireland. There was considerable rich material gleaned from the interviews but they can perhaps be boiled down to the following key messages:

– Neighbourhoods can act as informal recruitment hubs as well as offering affordable child care. These advantages are lost to new comers and outsiders. 

– Poor quality housing and neighbourhoods may either dissuade or instead motivate individuals to progress and seek work.

– Many were unwilling to relocate because of insecure housing which compounded the part time and short hours working opportunities they often faced. On the other hand available social housing seems to encourage labour mobility.

– The quality and cost of transport is a key constraint and several noted the lack of public transport to support shift and part time working schedules.

– Especially in rural areas, there is much dependence on car transport. The cost of owning and running a private car is often a major barrier to work.

– The level of rents especially in the private rented sector is an important constraint on the reservation wage (but also possibly important to social renting in London) because of the tapered removal of HB as people enter work and their measured income rises.

– Those with low skilled are often most effected by housing constraints on labour market opportunities and this often compounded by age discrimination and the lack of opportunities for the sick and disabled. 

The research found a well entrenched and completely normal work ethic among people who could only command modest wages. It is just that for different reasons they are not competitive in their local labour market. We also found a consistent story of working age poverty closely intertwined with low wages, weak labour market positioning and housing insecurity and affordability risks. These are compounded by the other key constraints relating to commuting costs and availability and also for accessible and affordable child care. On this basis we suggested six key policy recommendations:

1. Invest in neighbourhoods – local 3rd sector organisations if supported can do much to develop skills, employability and create sustainable jobs. Our case studies found much evidence of such good practice. This may allow specific neighbourhoods to build on the positives they possess that were outlined above.

2. Support affordable transport policies and those better linked to the actual working practices of those currently under-provided for.

3. Go further to prioritise affordable child care targeted at those currently most at the critical margins of affordable work.

4. More not less tenure security would reduce the double insecurity presently identified above (this is in effect a restatement of the case for social rented housing).

5. Paradoxically, the qualitative evidence suggests that greater tenure security (including longer private tenancy lengths) would increase labour mobility.

6. The way HB and Universal Credit are administered should not be designed so that they discourage employment as seemed to be the case in some of our interviewees’ experience.

Much of this research project was exploratory and confirmed our thinking and expectations – we have to bring together work opportunities and decisions with housing/neighbourhood questions, transport and child care issues. But looking at the project in the round now it also suggests that while in work poverty is both important and a challenge for policy, passing the problem on to employers through a mandatory living wage, as proposed by the Chancellor, is not without risks. How will employers respond in terms of the contracts and hours they will ask those we are most interested in to work; and how will it plays out for this group in terms of classic economic concerns about the unemployment effects of minimum wages? These are empirical questions but should not be ignored.

Note: Report and findings available at:

https://www.jrf.org.uk/report/how-does-housing-affect-work-incentives-people-poverty/  

Tackling Poverty in Scotland

Sometimes events unexpectedly coincide. Yesterday I was one of four colleagues from Urban Studies giving evidence to the Local Government and Regeneration Committee at Holyrood. At the same time, elsewhere, the independent advisor on poverty and inequality, Naomi Eisenstadt, was launching her poverty report – Shifting the Curve. Earlier in 2015, I was one of a number of academics who had an interesting seminar with Naomi to discuss key issues, evidence and the things most needing to be done to combat poverty in Scotland.

After a shaky start in the evidence session (we thought we were there to talk more about our written evidence; the committee wanted to talk about its legacy and its forward agenda), it turned out to be quite an interesting hour. We discussed a range of topics including community empowerment, the place standard, community planning partnerships, how the committee system in Parliament can integrate and operate more cohesively, as well as participative budgeting and the impact of austerity on local services and deprived areas. My colleague, Annette Hastings, also raised the launch of the aforementioned poverty report.

While the advisor’s work focused on delivering serious proposals that could in conjunction and over the long term move large numbers of people out of poverty, the headline that grabbed the papers’ attention was the recommendation to end the council tax freeze and reinvest the resources currently tied up in maintaining the freeze (£630 million this year). The poverty advisor did not however reach a view on what form of local tax arrangements should replace the council tax, other than ‘be bold’. When we met the advisor, Mark Stephens and I suggested that a phasing out of the freeze might free funds in part to augment the affordable housing supply programme – this may be what she has in mind. I have put the 15 recommendations from the report in an annex at the end of the blog.

To be fair, the advisor praises the work that the Scottish Government has done in a difficult funding context, and notes the relatively better position of Scotland if we compare poverty measures across the UK. She is a strong advocate of inclusive growth and the effect the jobs and wages can have on poverty. She also recognised the positive interventions that have mitigated and reduced various forms of material poverty. But she is clear that more can be done and by all parties to reduce poverty’s pernicious impacts across Scotland.

The advisor’s report focuses on three areas of challenge. First, in work poverty (half of working age households in poverty – and 56% of those with children – had someone in work ). Second, young people and hence focusing on the life chances of those aged 16-24. Third, the report also focused on affordable housing because of the critical role played by housing costs in terms of the incidence of  after housing cost poverty levels in Scotland.

The poverty & inequality advisor concludesd that tackling inequality is particularly difficult but, to paraphrase, the combination of income redistribution of progressive taxes and a principled balance between universal and targeted or selective public services – might offer a way forward. Area-based targeting, for instance, supporting schools in deprived areas, may be a further important and complementary option. She recognises, of course, the contested nature of such conclusions:

These are contentious issues, but there may be ways through the log-jam. It would be very useful to have a clear and shared understanding of what a progressive, or as Michael Marmot would have it a “proportionate‟, universal system would look like in practical terms. I would be interested in engaging in further debate about this in Scotland, as it seems to me to be key to developing anti-poverty policies.’ (p.25).

These are critical rubbing points for the Scottish Government and other proponents of universalism – but I for one would be in support of such a debate being advanced by the Scottish Government when it responds to Naomi Eisenstadt’s excellent report.

Annex: the report’s main recommendations are:

In-work poverty

  1. Build on Living Wage Accreditation – a focus on larger employers, and on incentives, would be useful.
  2. Encourage pay ratio disclosure as a way of tackling pay inequality.
  3. Ensure childcare commitments focus on quality to improve outcomes, and consider providing a limited number of free hours of childcare for primary school aged children.
  4. Make family flexible working more explicit within the Business Pledge, and consider whether approaches such as the Timewise programme could promote flexible working in Scotland.
  5. Do more to ensure that people claim the benefits they are entitled to.
  6. Make effective use of new social security powers but proceed with caution.

Housing affordability

  1. Build more social housing.
  2. Ensure fuel poverty programmes are focused to support those on low incomes, and do more to tackle the poverty premium in home energy costs.
  3. Be bold on local tax reform.

Life chances of young people, aged 16-24

  1. Carry out a comprehensive review of the policies and services relevant to the life chances of older children and young adults, with particular emphasis on young people from poorer backgrounds.
  2. Reduce the number of government-supported employment programmes targeting this group of young people and simplify the landscape, to provide a clearer, sharper focus.
  3. Ensure that the new approach to employer engagement in education is having an impact on improving skills for work of young people.
  4. Do more to tackle occupational segregation.

Cross-cutting

  1. Ensure that public service delivery is respectful, person-centred and preserves the dignity of people in poverty: pre-employment and in-service training should include the importance of avoiding stigma and developing understanding of the challenges of living on a very low income.
  2. Commence the socio-economic duty in the Equality Act 2010, when powers are available to do so.

Towards a New Social Security System in Scotland

A lot of my research these days is about public policy failure, what doesn’t work and why, as much as what does work. It is in this sobering context that I read and found much sense in the Welfare Reform Committee of the Scottish Parliament’s new report, ‘The Future Delivery of Social Security in Scotland’.

Welfare reform is the defining pinch point for the post Smith constitutional battle between the Scottish and UK Governments as they come to terms with what the new developed powers mean (and wrestle over the fiscal framework) and in particular try to make the new welfare powers and specifically the required integrated systems work properly from day one. Of course this is all happening in the middle of the DWP’s (contested) welfare reform project. But in addition to that there are quite fundamental policy implementation challenges ahead of whoever runs the Scottish Government after the election.

What does the report say? First of all it talks about the culture shift required within a new Scottish system of social security to move beyond the current stereotypes of skivers and attitudes of suspicion and mistrust that seems to pervade the present arrangements. Instead, the new system, drawing on both DWP and Scottish administration, requires to be grounded in principles of dignity, person-centredness, respect for claimants, and that the system be non-punitive (accepting the need for conditionality but only using sanctions as a genuine last resort). Person-centred means not running the social security system for the ‘convenience of the bureaucracy’. They point out the growth in advocacy services for claimants, which is of course itself a failing of the system to use plain language, simplicity and transparency in its dealings with citizens. The system should also at heart be responsive, fair, consistent, helpful and supportive. The report also nicely points out that while signing up to and legislating for such principles is fine itself, achieving and implementing such principles in practice will be a ‘substantial task’.

The report identifies a list of ‘big issues and tough choices’.  First of all, the new system has to be coherent. The new proposals in the Scotland bill create a dual and therefore much more complex social security system for Scotland. This will require commitment, consistency and genuine inter-governmental working of a standard and level not really attempted since devolution. Second and related, there is a fundamental choice to be made between contracting DWP versus setting up a new Scottish agency to deliver social security. Neither option is without its problems. Third, there is the question of how much of the Scottish system ought to be devolved locally – again there are arguments in both directions. Fourth, although it will be fundamentally shaped by the ultimate fiscal framework deal, the Scottish government will have powers over topping up existing benefits but the Committee Report argues that this can readily have big funding implications and will require national debate before it can move forward on any major reform proposal. In the report they stick to more modest funding recommendations.

The report also makes a number of specific recommendations, which include:

  • Introducing a long term DLA/PiP scheme for those with severe long term conditions, thereby doing away with multiple re-assessments. They also support the planned increase in carer allowances to JSA levels.
  • The housing element of Universal Credit should be paid fortnightly directly to landlords and allow more than one payment per household, where necessary. They also advocate the immediate abolition of the ‘bedroom tax’, which would allow returning discretionary housing payments back to their original wider purpose.
  • They also make proposals about widening the provision of ‘welfare to work’ programmes to promote more local operators and that the devolution of the Work Programme does offer the chance for the Scottish Government  to influence how sanctions are used – and this could be a genuinely progressive development (though would not remove all tensions over sanctions between respective Governments).

There is a lot to like here. The ideas about using the powers to impact on the conditionality regime in at least two areas (DLA/PiP and the Work programme) are constructive, the recognition of the administrative complexities of a dual system with different benefit regimes is welcome on this side of the Border, as is the implicit sense that top-up and real discretionary power has a cost attached to it which is part of the political choice associated with greater devolution. But this is happening in a context of austerity and further cuts to (unprotected) budgets. So, it is really important, it seems to me, that the political elites fully understand the difficulties and tough choices that lie ahead. This may be one of the biggest of these emerging tricky policy implementation areas in the devolution sphere, but it suggests that we need a political culture change as well as in the social security system. Hopefully, the Welfare Reform Committee have started that process.

 

 

Fear is a Man’s Best Friend

With apologies to John Cale, fear probably is the appropriate word for many when contemplating the Spending Review, which is less than two weeks away. In recent weeks, several Scottish local authorities have warned us of eye-watering cuts ahead, of job losses and service reduction. In Scotland this is also in part to do with the council tax freeze; David Cameron, however, had less excuse when he contacted his constituency council to complain about its cuts.

I do not disagree with the general line taken about cuts and austerity that one would find in places like Mainly Macro  – this is a political choice that is more convincingly about shrinking the state than it is about the necessity for finding rapid fiscal corrections. However, with a majority government this is what we face and it is of course worth thinking about what HM Treasury may propose in the Spending Review.

To this end, the Institute for Government has published an interesting report by Daniel Thornton, Jonathan Pearson and Emily Andrews. Their premise is rather than doing more with less, the public services, particularly in the unprotected areas, will be managing with less. They note that while the cuts to public spending are not without precedent, the sustained nature of reductions over an entire decade, is new. In this context is there a way to a ‘smarter state’?

The authors argue that Departments have to show how they are going to achieve the SR objectives and continue to deliver what they prioritise. In the face of the Review cuts (whatever they turn out to be for specific corners of Government), each department should therefore publish their Single Department Plans by the end of the financial year (March 2016) with a short (i.e. feasible) set of priorities and achievable targets for the SR period and that this be supplemented by project implementation and workforce plans.

Second, the Government has a major projects portfolio and needs to assess which existing projects should be protected and which reduced or even ended.  Project failure risk has to be reduced as a priority by proactive government action, and, any new projects should be much more closely scrutinised before they are announced.

Third, they express muted enthusiasm for public service markets as ways of introducing innovation and efficiencies in to the public sector but recognise the ‘complex challenges in developing and managing effective markets for pubic services, and tee have been several recent failures’ (p.4). So, they recommend establishing a hub of expertise able to steward public service markets – this sounds like a new if necessary layer of regulation.

Fourth, recognising the undoubted importance of the devolution city deals and successive waves of such agreements, they argue for a principled approach to decentralisation. Of course, a key feature of city deals is the lack of a consistent process but rather a series of context-specific ad hoc deals, which look very different across the piece. But it is right that this process cannot simply be a top-down Whitehall-led programme.

Fifth, they recommend continuing to pursue the government’s ‘ambitious digital agenda’, but with strong oversight, including enforcing standards. This is critical to the high risk areas where digital by default is so exposed to possible failure; none more so than in the case of the roll-out and subsequent maintenance of the universal credit system.

Sixth, and in respect of arms-length businesses (which they argue can deliver efficiencies), the authors point to the wastefulness of some institutional reorganisations, which can be ‘disruptive, time-consuming and expensive’ (p.5). They argue instead for careful consideration of the  ‘do nothing’ case to be made and taken seriously whenever such institutional reforms are being actively considered.

Finally, the authors raise questions about the Government’s capacity to actually deliver the legislation it will need in some of these areas as a result of the SR. This needs to be fully considered when contemplating the kinds of changes discussed above. Second, they also question whether the civil service has the capability and capacity to ‘take on the challenge’ of the implications of the likely scale of change implied by the SR.

If we examine the likely SR proposals as they are understood and assess them against their own objectives, then there are a few critical points that can reasonably be made. First, Thornton and colleagues have demonstrated that there are many challenges to delivering the programme changes required and that adequate delivery requires a considerable  evaluating and monitoring infrastructure. Meanwhile, however, second, there are genuine issues about the capacity to deliver what would be required.

And in addition there is still the sense that the government will play short run political games and make 3rd best choices to achieve specific goals and often do this when they have not obviously thought everything through. Witness the recent unplanned bandying about of options to find the tax credit savings elsewhere in the welfare reform programme. At the same time, government continues to provide evidence of its lack of sure footedness over the things it proposes that are a part of this wider narrative.

On the other side of the Spending Review on the 25th, people like the IFS will provide detailed analysis of the Spending Review and I daresay there will be more posts. But I did think the Institute for Government’s analysis is a useful step beyond the big headlines and one that goes into just how the SR would actually be delivered in the departments where it will matter – and that it will not happen without much effort and further reform.

Payback

Policy Scotland has been co-hosting a two day workshop with the University’s Behaviour, Structures and Interventions Research Network. The event was entitled: ‘Marginalisation, Stigma and Choice? We heard papers on poverty and aspiration failures, international studies of early years interventions, human trafficking, a panel on What Works Scotland, among others. It was diverse, multidisciplinary and provocative.

There is much one could talk about after listening to these papers. I am going to focus on just one paper, that of Stephen Machin (UCL/LSE) who did an excellent keynote presentation on ‘Changes in Labour Market Inequality’. Effectively, this was an overview of recent trends in the GB labour market, real wages and inequality. I was taking handwritten notes (an increasingly lost art) in the session so excuse my lack of precision with some of the points discussed below. The main stylised facts that emerged, for me, were as follows.

First, for median real wages, the cumulative fall since 2008 has been 10%.

Second, this fall comes after a long period of annualised growth in real median wages of 2%. The downturn in real wages came well before the financial crisis of 2008. 

Third, the most recent evidence suggests that median real wages may now finally be rising but Machin cautions this may be more the effect of very low inflation that actual change in the labour market.

Fourth, if we break down the 10% fall we find that the median real wage for men fell by 12%, for women by 7% but for the 18-24 age group the reduction was fully 16%. Interestingly, the fall for those in the lowest decile was 10% almost the same (11%) for the top decile.

Fifth, Machin noted that many have argued that the fall in productivity is even worse. In fact, as he pointed out, the productivity drop is measured against the long term trend since 2008 and adds up to a 16% reduction. If you look at median real wages relative to the aforementioned annualised 2% growth trend, the overall drop relative to trend is more like 20%.

Sixth, looking across the OECD since 2008, the UK’s wage performance in real terms was 23rd out of 26 – i.e. the fourth worst.

Seventh, the pay inequality ratio (comparing the 90:10 percentiles for full time weekly earnings) grew in the long term from 2.7 in 1980 to 3.7 in 2012. Comparable respective figures were 3.6 and 5.3 in the USA, 2.0 growing to 2.4 in Sweden but going in the opposite direction (and outlier), France went from 3.4 to 3.2.

Eighth, these median wage figures refer to individuals. IFS figures for the same period (since 2008) suggested that household income fell by 4.5% over the same period but this could be disaggregated to -8% for working age households and strikingly a 4% increase for pensioner households.

Ninth, there has been a significant divergence between total compensation trends racing ahead of average wages at the same time that average wages have moved well ahead of median real wages.

What is going on? First it is increasingly clear that unemployment is no longer a good indicator of labour slack. In the recent period we have seen the rise of low income self-employment, a sharp increase in underemployment (.e. working less hours than desired) and increasing employment of older, hitherto retired, people.

Second, jobs are of course being created but productivity is not rising. Machin thinks real wages are being squeezed because of weakened trade union power, the impact of the unemployment elasticity on real wages and, albeit without a lot of evidence, the sense that benefit conditionality is driving the unemployed to take on low wage employment that help to bid down wages. Machin worries that this may be a trend and that the new normal will be flat median real wages and secular stagnation, rather than some cyclical adjustment that will pass.

All of this takes place in a context where further working age benefit cuts are being planned. Most of the emphasis when criticising these policies has stressed social justice, poverty and inequality arguments. Machin adds to this litany the idea that it may also contribute to low or flat real wage growth – a macroeconomic low growth concern.  

Scary stuff – even if these median wage patterns are not long terms trends it will take a long time to get back to trend levels of real wages. For example, looking at those in the under 25 age group their real wages are now back at 1997 levels. A further slightly depressing thought was that the productivity problem, amongst other things, will undoubtedly make it harder for employers to act on demands for introducing the living wage.

Private Renting, Poverty and Social Exclusion in Scotland

I have been meaning to write something in response to the excellent Joseph Rowntree Foundation Report published last week (Monitoring Poverty and Social Exclusion in Scotland 2015) but I have only now found the time.

Peter Kenway and colleagues point to successes like the steep fall in pensioner poverty and the smaller but still important fall in child poverty since the late 1990s, as well as the benefit of lower housing costs and a larger social rented sector in Scotland. Against that however, working age benefit levels are low relative to minimum income standards. And, there has been a large, sustained increase in JSA claimants being sanctioned or referred for sanctions.

As a result of low income and disparities created by area deprivation, Scotland still performs poorly in respect of big structural inequalities such as premature mortality, the slow rate of progress addressing the educational attainment gap, and in terms of insecurity and low pay at work. The authors also report little progress in terms of the Scottish Government’s wider solidarity target of increasing the share of income going to the poorest 30% of the population.

The report team note important changes to the problems that characterise poverty in Scotland: a rising share of those who are poor being younger adults; a larger proportion living in the private rented sector; and, a rising share of those on low pay having higher education qualifications.

The most recent data for 2012-13 shows an increase in child and working age poverty. The authors state it may only be one year’s data but it may ‘mark the start of a turn for the worse which, if left unchecked, would squander the gains Scotland has made over 15 years’.

The report goes on to identify a number of initiatives and remaining challenges about poverty and exclusion in Scotland. Here I am going to focus on what they have to say about housing and I want to focus on that one aspect of poverty and exclusion, though I could have just as easily concentrated on in-work poverty, health inequalities or sanctions – all of which feature prominently.

One indicator is the changing number of children, working age people and pensioners by housing tenure. A comparison is made for these figures between the three years 2000-01 to 2002-03 as against 2010-11 to 2012-13. Overall, the numbers fell by 230,000 with big falls in social renting (280,000) and home ownership (90,000) but a steep rise in private renting poverty (140,000). The rise in PRS poverty was largely explained by people of working age, whereas where it fell it was more split across the different categories (working age, children and pensioners).

A second indicator looks at housing cost as a percentage of income by tenure and contrasts the same time periods as above (and compares Scotland with England in the latter 2010-11 to 2012-13 period). Social renting costs remained broadly unchanged in Scotland (though were significantly higher in England – 18% versus 24%); home ownership costs fell from 13% to 11% (and remained a little higher in England); private renting rose from 20% to 24% (but still lagged well behind England at 29%). The authors also report that difference between the average private and social rent is larger in Scotland than in any English region outside of London.

Third, the analysis looked at households who report they are cold in winter by tenure and by working age versus pensioner households (all as a percentage of all households). Thus, 18% of pensioners and 22% of non-pensioners said that their heating sometimes failed to keep them warm in winter. By tenure, 19% of homeowners, 32% in social renting and 37% in the private rented sector. This is a different calculation to the official fuel poverty measure but the authors argue that a self-reported subjective measure captures the reality of heating cold homes better.

What are we to make of this? First, I think these indicators really do nail the fact that the private rented sector, albeit a diverse and in places functional part of the housing system, is also the locus for emerging and disproportionate poverty problems in Scotland. And this is despite the several years of good work to improve the sector and the ongoing private rental strategy.

Second, one cannot understate the importance of the interaction of low wages and take-up of in-work housing benefit. The increased flexibility of working arrangements in a context of employer power and declining skill levels of jobs creates further complications. One problem concerns the burden placed by rising private rents but also the importance of transport and childcare costs. A second is the risk of proposed further sanctions under Universal Credit for people in work receiving UC and deemed not to be seeking more hours’ work. This exemplifies the case of the left hand not knowing what the right hand is doing. It will force further conditionality on workers receiving benefits when many have increasingly little control over their hours.

Third, the poverty monitor is challenging for the Scottish Government. While they can rightly point to the areas where wider structural factors prevail (UK markets, globalisation or UK Government policy), several of the pinch points are areas of devolved policy like education, health and, to an extent, housing. The new JRF report presents a mixed picture and poses difficult questions both for Scottish and UK Governments. And right now, as Kenway and colleagues argue, public agencies have to do their best to support those confronting the consequences of the present UK conditionality system.

 

 

Sanctions, Evidence and Impacts  

Yesterday morning the House of Commons Work and Pensions Committee published a report on its work concerning benefit sanctions policy. Here I report the main findings of the committee’s inquiry and reflect on their recommendations, particularly with respect to evidence and the need for future research.

The Committee notes that unemployment benefits have always been conditional and that forms of benefit sanctions have been with us for four decades. They recognise also that the stringency has greatly increased in recent years but that such ‘active’ labour market policies are the norm internationally. The report summary argues that ‘despite the apparent political consensus, sanctions are controversial, because they withhold subsistence-level benefit payments from people who may have little or no other income’.

They go on to say that ‘we agree that benefit conditionality is appropriate and necessary, but it is essential that any system draws on robust evidence on the efficacy and impacts of sanctions, has clear and coherent rules, has strong safeguards to protect the vulnerable, is fair and proportionate, and effectively mitigates the risks of severe financial hardship. The sanctions regime, as currently applied, does not always achieve this…’.

The Committee’s work takes place in the context of the earlier Oakley Review of JSA sanctions. Reporting in July 2014, Oakley focused mainly on Work Programme sanction schemes. The Review found that while ‘not fundamentally broken’, several flaws were identified in terms of how the system was explained and communicated and that more had to be done to help vulnerable clients.

The UK Government responded to the 17 Oakley Review recommendations and accepted them all to different degrees. However, several months later and having heard one of the evidence providers to the House of Commons committee (David Webster) map out the nature and impact of the JSA sanctions system including how appeals work (or not), one is struck by how little reliable evidence there really is. Unless, that is, you undertake the stentorian efforts that an individual researcher like David Webster has had to do in order to collect meaningful numbers.

It is in this context that I want to focus on certain recommendations (8 out of 26) made by the Committee in their report yesterday. I think they speak volumes.

Recommendation 8 says that we need an evidence base to assess the efficacy and impacts of longer minimum sanction periods compared to shorter ones. There is also very limited evidence on the deterrent effect of financial sanctions. There needs to be evidence to assess whether or not the ‘use of sanctions is purely punitive’.

Recommendation 10 argues that DWP should use the implementation of universal credit to implement systems to allow it to monitor the onward journey of sanctioned clients, particularly those at risk of destitution.

Recommendation 17 follows the evidence of professionals in the field the committee argues that the sanctions regime should be much more targeted at the sub set of clients for whom the requirement for behaviour or attitudinal change is evidenced. This would also protect the more determined to get work and the more vulnerable. The committee recommends a pilot to trial this approach.

Recommendation 20 concludes that there is a strong case to review the underlying legislative framework so that sanctions are clearly defined and vulnerable groups protected.

Recommendation 22 notes that there remains a lack of evidence that financial penalties through sanctions move people with long term health conditions and disabilities closer to work. The Committee believes voluntary programmes are evidenced as being more appropriate and should be piloted as part of the DWP’s willingness to experiment with different models.

Recommendation 24 argues that people are not applying for hardship payments and discretionary hardship payments are not preventing people from experiencing severe financial hardship, in part because it takes 15 days of a sanctions period before they become available. The Committee therefore recommends better communications of these payments availability.

Recommendation 25. goes on to conclude that hardship payments should be made available from day one of a sanctions period. This is a particular issue where there are dependent children or other vulnerable groups involved.

Recommendation 26 is about suicides. The committee acknowledge the work being done by DWP to better understand individual cases but recommends that a body similar to the police complaints commission should be established to conduct reviews where an individual in receipt of an out of work working age benefit dies – and that lessons can be learned at every stage of policy and policy delivery by all agencies involved. The Committee notes that suicide is multi causal but that since February 2012 there have been 49 peer reviews of individual cases, 33 of which resulted in recommendations for further consideration.

To put these recommendations in other more direct terms – we don’t know what the effects are of longer-term sanctions. We do not know, second, what happens to people after they become sanctioned. Third, there is a profession/practice concern that the sanctions regime is blunt and untargeted catching many of the vulnerable and genuine job searchers: so much so that the underlying legal framework should be fundamentally reviewed. Fourth, there is little evidence that sanctions around ESA help get people closer to employment. Fifth, the system for the provision of hardship payments appears to have multiple flaws and should be available sooner. Finally, there is a need to do more to better understand and act upon suicides that may be linked to the sanctions regime.

We seem in conclusion to be a long way from the Committee’s definition of what a well-functioning sanctions/conditionality regime would look like. But to be honest, I found this to be a thoroughly depressing account of what is a massively disproportionate conditionality regime, which profoundly lacks evidence on its impacts, weak safeguards and wider consequences. To paraphrase Gandhi when he was asked what he thought about Western Civilization he replied to the effect that a civilized west would be a good idea.

The OBR and Welfare and Housing Benefit Spending Trends

The intrinsic difficulties facing agencies tasked to produce reliable forecasts for future years spend and caseload across different policies, are well known and understood. In the present debate over how future cuts in welfare spending will be achieved and the all too frequent implementation gap between planned savings and actual outturn spend, a degree of skepticism about deliverability is appropriate (before we get to questions of desirability or otherwise).

While scanning through the Budget’s supporting documents, I happened upon the OBR’s Welfare Trends Report, published in the Autumn of 2014. Of course, this turns out to be part of the immediate political narrative about welfare spending cuts following from the Chancellor’s statement, but I am actually interested here more in what it says about underlying factors and expected trends in welfare spending and their ‘forecast-ability’. In particular I want to look at the figures for Housing Benefit. I may be rather late to reading this report but I thought it was still worth exploring a little.

OBR argues that past data on a small number of drivers explain long-term trends in welfare spending (and implicitly will continue to do so in the future). The main candidates are: demographic trends, labour market trends, inflation & earnings growth, and, housing market trends. We can also point to successive incremental and then non-marginal policy changes especially after 2010. How policy change impacts on spend and caseload is of course far from straightforward, particularly in terms of assumptions made about second round behavioural changes conditional on benefit policy changes e.g. on labour supply or landlord behaviour. We return to this below.

Future welfare spending trends are forecast of the period 2013-14 to 2018-19. OBR expects welfare spending to rise in cash terms by 12.5%. However, this is less than the forecast growth in the economy. Thus, as a percentage of GDP, welfare spend will fall from 12.8% to 11.6%.

The forecasts are of course subject to risk. The chief risks are seen to be, first,  the uncertainty associated with the future of Housing Benefit, which may vary as a result of how the economy performs (jobs, wages and rents are the key variables). Second, policy change associated with disability and incapacity benefit is also viewed as an important source of risk to the forecast. Third, and believed to be less significant than the first two, the introduction of universal credit is also identified as a risk to the accuracy of future welfare spending forecasts.

Chapter 9 is the Housing Benefit (HB) chapter. Spending on HB in 2013-14 was £23.9 billion (more than £20 billion of which counted within the benefit cap). The OBR forecast that HB will rise in cash terms to £27.4 billion by 2018-19 but that because of forecast larger economic growth this will constitute a falling share of GDP – from 1.5% to 1.3% between 2013-14 and 2018-19.

There are some striking facts in this chapter. The remarkable rise, for instance, in those in employment on HB. This was 0.4 million in 2008 but had risen to 1.1 million in the middle of 2014 (i.e. 3.5% of all employed adults). Second, the important drivers of trend growth in HB has been real rent increases over time, the shifting caseload by tenure into the private rented sector (with its average higher rents) and also the impact of being the recipient of other benefits associated with HB. In this case the forecasts also assume an impact from the cumulative effects of welfare reform and that includes the retention of the bedroom tax.

OBR disaggregates the source of the increase in HB spend up to 2018-19 and much of it is the result of what they call HB only cases – almost entirely, renters in employment. They also point to the importance of the expected growth in Incapacity Benefit caseload linked to higher HB average awards. The growth is offset by expected falls in JSA through anticipated falls in unemployment, and also as a result of a decline to come in the pensioner HB caseload as a result of shifts in their treatment via benefits like pensioner credit.

However, OBR recognises that they have systematically underestimated the growth in HB spending in the (recent) past, and, while they think they have corrected for this, we should be cautious. It turns out that much of the risk or uncertainty in their forecasts will depend on the future pattern of tenure change and in particular how much home ownership grows relative to renting.

The home ownership tenure change  outcome is construed as the net effect of different policy impacts on home ownership rates: between help to buy schemes like the new ISA package versus the restrictive impact of the Mortgage Market Review condition.  I think there are several other tenure choice variables and market processes, not least likely rising future mortgage rates, that will shape this home ownership figure and perhaps, in the end, housing policy is actually less important to that change than the commentariat believe but that is another story. OBR also recognise that the future path of rents and the way the labour market evolves (in terms of wages and employment) will also matter. It would be helpful and very interesting to see how the model builders at OBR conceive of and operationalise the underlying housing and mortgage market within the wider models they use to construct these key parameters for welfare spend forecasts.