Iain Duncan Smith – 2013 Speech to Capita Welfare Reform Conference

Below is the text of the speech made by the Work and Pensions Secretary, Iain Duncan Smith, to the Capita Welfare Reform Conference in Edinburgh on 27th March 2013.

Introduction

It is a pleasure to be here today.

All across the UK, few issues provoke as much debate as welfare reform.

But then few issues matter as much to our society.

Our welfare state is not simply a question of institutions and systems.

It is, and always has been, about people…

… providing effective support to the most vulnerable, and helping those who have fallen on hard times to get back on their feet.

Social costs

This Government is on the side of the welfare system – we believe in the values that created it and recognise that these are common values across the UK.

We all benefit from having the welfare safety net to fall back on.

But equally, when welfare doesn’t work, we all feel it.

We feel the social costs:

The four and a half million people of working age, trapped on out of work benefits – 450,000 of them in Scotland.

The 1 million people on sickness benefits, unseen for a decade or more.

The 3.7 million workless households, 367,000 in Scotland…

… and the 1.8 million children living in households where no one works – 145,000 in Scotland alone.

Across the UK, in communities blighted by disadvantage, as a whole section of people are cut adrift from the rest of society…

… what we are left with is a tragic waste of human potential and lost opportunity.

Welfare spending

As well as the social cost, we must also acknowledge that this entrenched dependency weighs heavily on the public purse.

Welfare is vitally important, but the reality is that it comes at a cost.

Across the UK, we spend over £200 billion annually on benefits, tax credits and pensions…

… an amount that increased by 60% under the last Government, from £122 billion to £197 billion, some £3,000 a year for every household in Britain by 2010.

The rising cost of paying benefits was one significant reason for the increase in the UK’s deficit – a hole in the government finances worth 11.2% of GDP in 2009/10, unprecedented in peace-time.

Hard decisions

This Government has taken hard decisions on tax and spending in order to piece our economy back together.

If there were ever to be an independent Scotland, that new Scottish state would not be immune from similarly hard and difficult choices.

The Scottish Government’s own independent Fiscal Commission talks of the challenge of “ensuring long-term fiscal sustainability”…

… indeed, the UK Government’s commitment to restoring a strong economy is not separate from our commitment to a resilient welfare state.

We need only look to Ireland to see how far the two are linked.

Back in 2008, Scotland’s First Minister spoke about Scotland drawing a lesson from Ireland, “the Celtic Tiger economy”.

So too now… only the lesson we learn is of the vital measures Ireland has had to take as an independent nation, in order to stabilise their banks and maintain competitiveness.

In the face of the global financial crisis and the country’s plummeting GDP, Ireland’s leaders have had to implement difficult public expenditure cuts.

Doing so has hit benefit recipients hard…

… with social welfare cuts of around £680 million for the year 2010, and £780 million for the year 2011.

For a workless couple with two children, this equates to an actual cut in income of around £900 a year.

For a childless couple, where one person is caring for a spouse in receipt of Disability Allowance, it is a cut of £840 a year.

And it is not only Ireland having to make these cuts. Other countries – Spain, Portugal – have found themselves having to do the same.

In contrast… with a broader and more diverse economy, the UK has been better able to cope with shocks such as the Eurozone crisis and volatile oil revenues… whilst keeping our welfare safety net in place.

Across the UK – contrary to the headlines – all those on benefits will still see cash increases in every year of this Parliament.

Life change

A sound economy and a properly structured social settlement go side by side.

And when it comes to welfare, the point is not just how much we spend…

….but how we spend it.

Instead of big spending to grab media headlines and placate interest groups in the short term, I believe that for every pound we spend, we should be asking – how does it promote lasting and positive life change?

We need to look at the results that welfare spending is having in terms of transforming people’s lives…

… investing in a dynamic system that promotes work as the best route out of poverty, setting people on course to an independent life beyond the state.

Benefit cap

That is what our welfare changes are all about.

First, the benefit cap – removing perhaps the greatest catch in the current system… the fact that for too many people, it pays more to languish on benefits than to enter work.

We are exempting the most vulnerable, including war widows and those with severe disabilities.

But by capping the total amount others can receive in benefits, we restore the incentive for them to move back to work…

… restoring fairness to those who work hard and pay into the system in the process.

As we are move towards implementing this change, we are already seeing signs of this positive behavioural change.

Housing reform

Much has also been said about the impact of our Housing reforms in Scotland, with claims that we are cutting the Housing Benefit bill.

But here are the facts:

Housing Benefit spending doubled in the last decade from £11 billion to £23 billion, our reforms are starting arrest that rate of growth.

House building under the last Government had fallen to its lowest peacetime level since the 1920s, down by almost a third, with the fall in Scotland even worse than that in England.

There are 188,000 households on waiting lists in Scotland, and overcrowding stands at 60,000…

… meanwhile 80,000 homes in the social rented sector are under-occupied, with taxpayers having to subsidise those spare bedrooms.

So the real story here is not the impact of our reforms, but the failure of past housing policy both North and South of the border.

I am not saying that ending the spare room subsidy will not present some difficult cases, which is why we have allocated an additional £370 million in Discretionary Housing Payments to help manage the transition… £10 million to Scottish local authorities in the first year.

But let me remind you that tenants on Housing Benefit in the private sector do not receive payments for spare bedrooms – it is only fair to taxpayers to bring the social sector back into line.

Work

As well as ending the snags that have too often trapped people in dependency, we are also investing in dynamic reforms to get people into work.

From the Work Programme – paying providers by the results they achieve in supporting those further from the labour market into work and keeping them there…

… to Universal Jobmatch – an online jobsearching and matching service which is already revolutionising how claimants find work, with over 2 million already registered…

… and the introduction of the Personal Independence Payment, focusing support on those who need it most and helping those on DLA and PIP to gain the independence they need through entering work…

… our purpose is to target support where it will make the greatest difference, giving people the tools they need to regain control of their own lives.

Universal Credit

Perhaps the most important single change will be the introduction of Universal Credit – starting with the Pathfinder in April, followed by a progressive national roll-out from October…

… making work pay, at each and every hour.

In Scotland, around 300,000 households will have higher entitlements, gaining £162 more per month on average…

… with around 80% of gainers are in the bottom 40% of the income distribution, meaning support is better targeted at those most in need.

Together with significant increases in the Personal Tax Allowance, now rising to £10,000 by 2014…

… benefiting 2.2 million people in Scotland and lifting 224,000 out of tax altogether…

… this is what dynamic investment is all about – making sure that those who take positive steps towards financial independence see the rewards.

Single Tier

But the changes we are putting in place are not just about improving the prospects of workers today.

They are also about securing their position in future, as they enter retirement.

We are already successfully rolling out auto enrolment – helping up to 9 million people into a workplace pension scheme to make saving the norm.

But auto-enrolment won’t work unless it pays to save – which is what the Single Tier pension is all about.

For too long, the UK has spent rather than saved, one of the main reasons we see our economy in so much debt.

Whilst restoring our economy today, it is even more important that we put the UK on a sound financial footing going forward.

As the Chancellor announced in last week’s Budget, the Single Tier will be introduced from April 2016 – meaning after 60 years of tinkering with a more and more complicated pensions system which penalised savers…

… we can finally deliver the vital reforms that the UK needs.

You see, Universal Credit and the single tier are two sides of the same coin – ensuring that it pays, first to work and then it pays to save…

… delivering a fairer social settlement, underpinned by sound public finances.

An independent Scotland

It is my belief that we are better placed to achieve this, doing so together.

All across the UK, our ability to support those in retirement is something we should be proud of.

By shouldering the responsibility on broad shoulders, even in difficult times the Coalition has been able to pledge its support to UK pensioners now…

… introducing the Triple Lock to protect their incomes against inflation, and guaranteeing universal pensioner benefits for all…

… and to improve pension provision for the future – through reforms such as auto-enrolment and the Single Tier.

Were Scotland to leave the UK for good, an independent’s Scotland’s pension provision would no longer be a shared obligation.

Let me quote Finance Minister John Swinney, on the issue of future pensions:

“at present HM Treasury and DWP absorb the risk…in future we will assume responsibility for managing such pressure. This will imply more volatility in overall spending than at present”.

Not my words – the words of John Swinney, who has apparently already warned his Cabinet colleagues in a private note about the risks of underwriting Scottish state pensions.

So John Swinney and the SNP already admit that it is the broad shoulders of the United Kingdom that underpin the fundamental solidarity of our pensions system.

“Volatility” and “responsibility” – two simple words but what lies behind them is of enormous importance.

Pensions challenge

People in Scotland thinking of their grandparents and parents, or indeed looking ahead to their own retirement, have no doubt been wondering what such casual references mean.

As a UK Secretary of State who knows only too well the cost of paying pensions… let me tell you what it means.

Ultimately, all of the UK faces a challenge to pay for future pensions.

But Scotland has an older demographic than the rest of the UK AND an old age support ratio predicted to deteriorate faster over the next 50 years.

Currently, there are 32 working age people supporting every 10 pensioners both in Scotland and the UK overall.

By 2060 this is expected to fall to 26 working age people in the UK.

Scotland, however, sees a bigger fall, to just 23 working age people per 10 pensioners… which in turn comes at a much greater cost.

Overall, the proportion of UK GDP spent on pensioner benefits is projected to rise by 1.8 percentage points over the next 50 years – from 6.9% to 8.7%.

But in Scotland the increase is much worse – a 2.8 percentage point rise from 7.2% to 10.0% – costing an extra £3.6bn in today’s terms… and roughly an enormous 20% increase in Scotland’s overall welfare spending.

For the benefit of the Scottish people worried about “more volatility”, let me put that another way:

In today’s terms, in 50 years time, it will cost each working age person in the UK £700 more per year to pay for state pensions and other pensioner benefits than it does now.

In Scotland, the position is much worse – it will cost another £1,100 per working age person to pay for pensioner benefits.

So the SNP have some serious questions to answer.

First and foremost, how would they pay for this?

Extra money would be required to meet Scotland’s demographic pressures.

Whilst both oil and gas revenues are projected to decrease significantly over the next decade, and remain minimal thereafter.

So having laid out the facts, the question mark remains:

Higher taxes? More borrowing?

Or in the minds of Scottish people: “if Scotland goes it alone, will I pay more… or will the state pay more?”

The question of future pensions provision is a legitimate one… and in the context of welfare, I believe the biggest single question that those seeking independence must answer.

Conclusion

United… we are in a stronger position to respond these challenges…

… sharing both the resources and risks…

… able to sustain welfare spending on the back of broader shoulders.

The great strength of the UK’s welfare system is that help goes to the parts of the country where the need is greatest.

Today, for some benefits, that may be in parts of Scotland.

Tomorrow, as circumstances change, it may be somewhere else.

Wherever, the commitment is the same – a strength of the UK that is widely recognised in Scotland.

So when people here come to cast their vote in the referendum, I hope they will vote for a Scotland that continues to play a central role in our United Kingdom….

… and one that would not allow a disproportionate burden to fall on people working in Scotland to pay for the increasing cost of pensions.

Pulling together when times are tough.

Working together, so that everyone has the chance to play a full part in our shared future.

Together, united in a common purpose for the common good…

… we can be sure that there is a secure welfare safety net in place now…

… and one which will endure in future.