John Hutton – 2006 Speech on Welfare Reform

Below is the text of the speech made by John Hutton, the then Secretary of State for Work and Pensions, on welfare reform on 18th December 2006.

Next year will see the tenth anniversary of this Government in Britain. It will be a defining year for progressives. Gathering behind a new leader, we’ll face the task of renewing our policies to meet the future challenges our country faces.

As a Government and a nation, we will have to take important decisions that will have a lasting impact on both the quality of life and the security of future generations. Maintaining our nuclear deterrent. Responding to the demographic challenges of an ageing society. Tackling climate change. These are some of the most important issues we must face together as a society. It is the responsibility of Government to lead this debate about our future. It cannot be ducked. In all of these areas, this Government, is providing such a lead.

People want to know how we are going to cope with the big economic and social changes that are heading our way. They know Government cannot solve all of these problems on its own. But they do expect Government to create the right conditions to make it possible for individuals, families and communities to cope with the changes that are coming.

These changes are real and dramatic.

We face increasing competition from the new economies of China , India and Brazil who are competing with us now in the fields of technology and science and not just high volume manufacturing.

And our society is changing quickly too. We are getting older. Fewer children are being born. The labour market is changing rapidly as a result. On top of this, all of the developed economies of the world face the unprecedented challenge of mass economic migration. Over the last 10 years, the number of working age migrants in the UK has increased by around 1.6 million. Net migration over the next 25 years is projected to account for almost 60% of population growth.

This means that the role of a modern, active welfare to work strategy will be crucial in continuing our efforts to tackle poverty, in supporting the family, promoting social justice and helping Britain to grow and prosper amidst all the challenges of technological, social, economic and demographic change.

It doesn’t mean a big state with more and more centralised bureaucracy but an empowering state – one that empowers individuals and communities to respond to the challenges and opportunities of a new century.

Because making it possible for each individual here at home to be able to exercise their right to work will be essential if we are to ensure that our economy remains competitive and productive and that people have the economic security they need in a rapidly changing world.

This is therefore a fitting moment to look back on a decade of welfare reform and to look ahead to the challenges of the next ten years.

Ten years ago, Bill Clinton summarised the challenge facing welfare in America with the phrase “Welfare to work, instead of welfare as a way of life.”

For me, this captures the essence of the difference between what this Government has sought to achieve – and the legacy it inherited.

There was no meaningful welfare reform in the 1980s and 90s. Instead welfare was characterised by a culture of passive benefit dependency and deep-rooted poverty. Why? Because millions were written off onto benefit as a means of managing industrial decline – with no expectation of a return to work; Because those who were on benefits were stigmatised not helped or supported; And because people were frequently better off on benefit than in work. This was a completely unsustainable position and a major drag anchor on our economy and taxpayers.

The effects were stark. While Britain got steadily healthier as a nation, the numbers on incapacity benefit trebled. Unemployment hit three million twice in a decade. By 1997, nearly six million adults in this country were dependent on benefits to survive.

And with benefit dependency came poverty. The number of children living in poverty doubled. By 1997, one in every three babies born in Britain was born poor. And one in four pensioners suffered the indignity of living below the poverty line.

Worklessness demoralised families; and decimated many traditional hard working communities. I saw this in my own constituency. Welfare had indeed become a way of life – but it was, in truth, no way to live.

Ten years on the situation has improved significantly. Today there are more people in work than ever before. Employment is up over 2.5 million since 1997 and up in every region and country of the UK – with the biggest increases in the neighbourhoods and cities that started in the worst position.

Since 1997, we’ve increased the employment rate for many previously disadvantaged groups. For lone parents – up 11 percentage points; for disabled people – up 9 percentage points; for ethnic minorities – up 5 percentage points and for older workers – up nearly 7 percentage points. That’s over 300,000 more lone parents, 900,000 more disabled people, 1 million more people from ethnic minorities, and 1.5 million more aged 50 or over in work than in 1997.

The biggest falls in unemployment have been amongst those who have been on benefits the longest. Long term claimant unemployment is down by over 70%; long-term youth claimant unemployment has been virtually eradicated.

There are more lone parents in work than ever before. The numbers on incapacity benefit are falling not rising. We’ve lifted 2.4 million out of poverty – including 700,000 children. And thanks to the Pension Credit, pensioners are now less likely to be poor than any other group in society.

None of this has happened by chance. Nor is it simply a direct consequence of economic growth – as important as that has been. The success of Welfare to Work has been a direct result of carefully targeted public investment – some delivered by public agencies like Jobcentre Plus; some by the private and voluntary sectors – but all built on that foundation of unprecedented economic stability and prosperity. The situation has begun to turn around because we were prepared to act rather than sit on our hands and hope that things might get better.

Reed in Partnership, who are sponsoring this event, are today celebrating the 70,000 th person they have helped to be better off working, since they pioneered New Deal delivery by the private sector in March 1998. A great success for a great example of public and private sectors working together.

Audrey Hinkins is a single parent who had been unemployed for 18 years before she registered with Reed in Partnership in Tottenham. Supported by her personal adviser, Audrey was able to address the barriers she faced in getting work, build up her skills and confidence, and go on successfully to gain a position with Morrison’s. She’s a real example of the difference our reforms have made.

Together with our investment in Jobcentre Plus and the New Deal; the creation of Pathways to Work and our reforms of incapacity benefits – we are restoring the balance between rights and responsibilities by promoting work for those who can but ensuring security for those who can’t.

Our Disability Rights legislation – the most comprehensive of any European country to date – and our Age Discrimination legislation – are breaking down the cultural and discriminatory barriers facing disabled people and older workers.

The National Minimum Wage and tax credits have helped make work pay so that people are better off in work than on benefit. And they’ve ensured that the biggest increases in hourly earnings have been concentrated amongst the lowest paid.

And at the heart of this entire process of reform, we have locked in a set of decent, progressive values – of universality, security and equity – underpinned by an equality of opportunity that stretches back to very roots of the Welfare State in seeing personal responsibility as fundamental to tackling poverty and building aspiration for everyone in our society.

To illustrate the point. Who said:

“The State in organising security should not stifle incentive, opportunity, [or] responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family.”

It wasn’t Toynbee or Churchill. It was Beveridge – writing in his White Paper on the Welfare State in 1944. That first Welfare State – created by Attlee’s Government – recognised the right to enter the world of work as fundamental to forging a decent society by allowing people to exercise personal responsibility to support themselves and their families.

Our welfare reforms have sought a modern reflection of the true nature of that original welfare state. Active not passive. A bridge to walk on; Not a platform on which to stay. An empowering force that involves people as part of the solution; Not to see them as part of the problem.

The challenge now is to sustain a system of welfare built on these values and principles – but delivered in new ways that reflect the needs of our modern society, because Britain is a different country now than it was in 1997 when we came to office.

Looking ahead to the next 10 years, I believe there are four major challenges to which our welfare system must now respond so that our economy can remain competitive and our society strong and cohesive.

Firstly, we need to change our view of what a “Labour Exchange” is. This has its origins as a truly Churchillian concept, where labour seeking work could meet employers anxious to hire. But today this accounts for only part of the transaction. Now we not only have to help people back into jobs – we have to try and help people progress up the career ladder as well. So the Labour Exchange of the past must become the skills exchange of the future.

Helping individuals to acquire the skills, confidence and ambition to progress through the workplace has to be a core ambition for a dynamic welfare system. And in a world where people now have on average seven jobs in a career instead of one, the range of groups who require this new support from the welfare state is rapidly growing.

As the Leitch Report highlighted earlier this month – our skills shortages don’t just stand in the way of our future economic success – they challenge our social justice ambitions too.

Survey data shows that adults living in households in social class 1 are roughly four times as likely to reach level 2 or above in literacy than those in households of social class 5.

It is skills that employers now seek rather than labour. Yet, 40% of lone parents on Income Support and just under 1 million people on incapacity benefits have no qualifications; while more than four-fifths of people in prison have the writing skills of an 11 year old.

Our skills profile lags behind other OECD countries and our low skilled have lower employment rates than the OECD average. There are 4.6 million people without qualifications and a further 1.7 million with qualifications below level 2. And the demand for low skills is likely to continue falling with some 850,000 fewer low skilled jobs by 2020.

Meeting this challenge means finding a new place for skills at the heart of a welfare contract for the 21 st century. A new approach to skills, that is based on a simpler, clearer, and more coherent system of delivery – that meets the needs of both business and individuals. The Employment and Skills Commission must be at the forefront of this new approach.

We need to build on demand-led programmes like our Adult Learning Option pilot which offers benefit recipients access to training courses focused on local labour market needs. And the Train to Gain service which supports employers in identifying the skills needs of their businesses, matching this with available provision and contributing to the costs of training to help many previously unqualified workers to develop and progress into more sustainable, productive employment.

The second key challenge we face is how to support families.

As I argued earlier this year – we need to forge a progressive consensus about support for the family, shifting the focus of the welfare system towards the family as a whole – and ensuring that couple families receive equal attention as lone parents in the fight to end child poverty.

As Lisa Harker’s report last month showed, at the minimum wage, typical couple families need a full-time and a part-time worker to move out of poverty compared with the 3 hours per week a lone parent typically needs to work to be lifted out of poverty.

We must never under-estimate the strain of trying to make ends meet and bring up kids alone. Yet it is clear that it can often take more for low-income couples to lift themselves out of poverty than it does for single parents.

Around 40% of poor children live in lone parent households – and the majority of these are non-working. Despite the gains we have made in lone parent employment, lone parents are still far less likely to be in work than married or cohabiting women with children the same age. And the employment rate for lone parents is still far below that in other countries, including Sweden , USA , France and Germany .

The children of lone parents not in work are over five times more likely to be in poverty than children of lone parents in full-time employment. Reaching our 70% employment aspiration for lone parents would mean helping a further 200,000 children lifted out of poverty, so it is right that we now re-examine how we can reach that goal.

As Lisa Harker’s report also highlighted, there is a strong ethnic dimension to the fight against child poverty. One in five children in poverty are from ethnic minority communities. And poverty rates among Black African, Pakistani and Bangladeshi children are more than double the rate among white children.

The ethnic minority employment rate gap has been cut by nearly 2 percentage points in the last three years. But despite this progress, it still stands at 15 per cent. And based on current targets it could take 45 years to close this gap entirely.

But even closing this gap is not enough on its own. In-work poverty is a particular problem for ethnic minority households. Pakistani and Bangladeshi children in households with at least one earner are more likely to be in poverty than not. And working Pakistani and Bangladeshi households are more likely to be in poverty than workless white households.

We cannot have a socially cohesive society with such gross unfairness and wide differentials in employment rates. We must look to tackle the poverty of race in Britain today.

The third challenge continues to be about the poverty of place. We know that in parts of the country there are still significant pockets of poverty and worklessness concentrated in towns and cities.

Seven of the ten local authorities with the lowest employment rates are in London boroughs. 15 of the worst 20 are in cities. In total, our cities account for almost two-thirds of all those on benefits.

Take London , for example. It is the wealthiest city in Europe ; productivity 25 per cent higher than the rest of the UK ; and a quarter of the workforce educated to degree level. And yet London now has the highest level of worklessness – and the highest level of child poverty in mainland UK . Nearly half of children in inner London are poor. We can and must improve on this.

We know there’s a strong link between worklessness, benefit dependency and poverty. But these areas are also often those where the most jobs and vacancies are found. Jobcentre Plus today handles about 600,000 vacancies across Britain covering a broad range of occupations. And there actually tends to be more vacancies in areas with low employment rates than the national average. This is true across a range of occupations – from high skilled professional roles to elementary vacancies.

Some of the statistics for specific cities are even more striking. In Manchester , for example, the employment rate is 61.5% compared with a national average of 74.5%. The claimant count at 3.5%, is half a percentage point above the national average. And yet, there are 2.5 times as many vacancies per person than the national average, including nearly 6000 more entry level job vacancies notified between November 2005 and October 2006 than a city with the population size of Manchester would expect it if it was in line with the national average for vacancies.

And there’s a similar story for Glasgow , where the claimant count is 4%, one percentage point above the national average, and the number of entry-level vacancies per person is more than double the national average for vacancies.

Economic migration from the EU has only served to highlight this issue. If workers from Poland can take advantage of these vacancies in our major cities – why can’t our own people do so as well?

So we face a real and urgent challenge in going further to break down the barriers to work at a local level.

But there’s a fourth – and crucial challenge – that is closely linked to this.

More than two thirds of all new Jobseeker’s Allowance claims are made by people who have claimed before. Some of those returning to JSA do so only briefly – they are simply moving between jobs – a sign of a healthy and diverse labour market. But around half of those repeat claimants are spending more time on benefit than in work.

What’s more, a quarter of a million new claimants have spent at least three-quarters of the last two years claiming benefits. And about 12% of all Jobseeker’s Allowance claimants have spent six of the past seven years on benefits.

These repeat claimants pose a fundamental question about the design of the welfare system; for the degree of conditionality; for the contract between those out of work – and the hard-working taxpaying families who are supporting them.

As Beveridge himself wrote in 1944:

“The making of insurance benefit without means test unlimited in duration involves of itself that conditions must be imposed at some stage or another as to how men in receipt of benefit shall use their time, so as to fit themselves or to keep themselves fit for service”

In every other walk of life behaviour has consequences. I believe it has to be true for the welfare state too. Yes – the Welfare State should give people the opportunity and support to overcome the barriers they face. But that can not be a passive one-way relationship. It requires individuals themselves to respond; to meet the responsibility this places on them.

Welfare has to be built on a coalition of public support. You simply can’t have a welfare state without consequences.

We know there is a small group of benefit claimants without the major physical or health barriers to work associated with Incapacity Benefit – who live in areas where there is no shortage of vacancies, particularly for low-skilled jobs but who nonetheless remain on benefits for long periods of time.

This is a key group on which we now need to focus our attention. The vast majority of claimants want to get back to work and take active steps to improve their lives and are keen to get off benefits as soon as possible. And yet we know that the problem of benefit dependency remains a very real one for others, consigning them and their families to poverty.

So we must be prepared to look at all the options for reform. Ten years on it is time to refresh our approach to the New Deal. We need to be prepared to offer individuals more help and support; to better understand how to intervene with individuals on JSA that have mild mental health or alcohol related problems. We need to address basic skills deficiencies with job seekers so that they are not a barrier to sustaining and progressing through the workplace.

But if we are to break the cycle of benefit dependency, we need to ask whether we should expect more from those who remain on JSA for long periods of time in return for the help we provide. More active steps to get back into the labour market. More involvement in programmes that could increase the prospect of getting a job. And for those who won’t do so, then there should be consequences, including less benefit or no benefit at all.

Our welfare reforms must confront head-on the “Can work – won’t work” culture in our country and ensure benefit claimants can compete for jobs alongside growing numbers of migrants who arrive in Britain specifically to look for work rather than to settle for the long term.

We cannot reasonably ask hard-working families to pay for the unwillingness of some to take responsibility to engage in the labour market. Especially when we know that around half of the children living in poverty in Britain today live in a household where an adult is already in work. Fairness is a two way street.

Meeting the challenges that I have outlined this morning requires us to be bold in confronting change and in asking the right questions about the direction of our policies for the long term. It means recognising that the policies that were unquestionably right for today – may not be the policies best suited for the challenges of tomorrow. But it doesn’t mean abandoning our values. Quite the opposite – the question is how best to deliver these values of inclusion, opportunity, social mobility, fairness – in a changing Britain .

That is why my Department is now to undertake a wide-ranging review of our welfare to work strategy – to consider how we can best tackle economic inactivity and promote social mobility through a renewed welfare to work policy and delivery strategy for the coming decade. This will form part of the wider policy review process the Prime Minister initiated in the autumn.

The review will address the specific challenges I have raised today. How we can tackle the “can work, won’t work” culture. How we can best help local communities deliver local solutions to worklessness. How we can prepare for a fall in the demand for unskilled labour. And how we can best support families and tackle ethnic disadvantage as we seek to eradicate child poverty.

In answering these questions, the review will cover three sets of issues.

Firstly, the design of welfare to work policy. The balance between rights and responsibilities; whether and how we should strengthen incentives to work; and whether there is a role for greater conditionality within the system. It will look at the steps we can take to promote social mobility, especially by supporting progression through work and through an integrated approach to skills which builds on the recommendations from the Leitch report earlier this month.

Secondly, to consider the devolution of welfare – building on the City Strategy and other local initiatives to open up new opportunities for delivering employment services to some of our most disadvantaged communities.

And thirdly, to examine the delivery of welfare in Britain over the next ten years. How we can build a more effective market in the provision of employment services – with a more customer-focused welfare delivery system that better reflects the Government’s wider public service ambitions of greater choice and empowerment.

How we can shape a different type of intervention from the centre. One that successfully balances the tension between achieving high quality interventions that are sensitive and responsive to the needs of millions of individuals – and yet still operates within a nationally defined rules structure, regulating quality with clear sanctions and rewards.

Our success in tackling poverty and worklessness – and our ability to preserve the values of social justice – hinges not on preserving the existing system of welfare delivery but on modernising it; not on standing back and celebrating what we have already achieved with Jobcentre Plus and the New Deal – but on driving forward and building on that success.

A system of welfare provision that embraces diversity of provision as the norm and not the exception. That looks beyond the old, out-dated caricatures of a public sector built on values and ethics and a private sector somehow devoid of these attributes but efficient and responsive. A dynamic and effective system of delivery where good providers are properly rewarded, whether they come from the public, private or voluntary sectors.

A system that incentivises and rewards providers for helping more difficult cases and not just focusing on the easiest to help; that stimulates innovation; and empowers organisations to develop local solutions that meet the needs of individuals in their communities.

This tailoring of welfare is rightly one of the key challenges identified by IPPR’s own project on the foundations of welfare. I welcome this research and will follow it’s conclusions with interest.

As with pensions reform, the success of long-term welfare policy requires a consensus across and between generations. A public debate is needed about what is fair and right to ask taxpayers to support.

I believe we must be more ambitious not less if we are to meet the challenges ahead.

And that must be based on a new contract of rights and responsibilities for the next decade. Increasingly tailored, quality support must be at its core – but so too must a clear expectation that unacceptable behaviour will always carry consequences. It is right for us to offer more help and support to those who need it. But it is right too that people behave responsibly and do not abuse the rules that others willingly observe. When they do there should be consequences.

We are not individuals making our way in isolation from each other. We are members of a community, dependent on each other; who benefit from each other’s help; and who recognise the mutual obligations that follow.

We must build a strong Britain – enriched by its diversity but united by the common values of solidarity and social justice – of security and liberty – with tolerance, understanding and respect for others.

And in doing so, I truly believe we make further progress towards the eradication of poverty and the creation of a society with equal rights and opportunities for all.