The hidden costs of welfare reform

Both the left and right in British politics are obsessed with economic outcomes.  The impact of a policy – whether it is a tax cut, tax rise, welfare reform or a free school meal – is almost exclusively evaluated and argued over in terms of its economic effect.  Will it make people better off? Who are the winners and losers?

We often seem to forget that policies have other effects too.  Extending free school meals, for example, will not just give parents more income, but more time.  In schools, it might give a stronger sense of togetherness amongst pupils (less us versus them).  For policy-makers, it will make it easier to improve children’s nutrition.

The same is true of welfare reform.  The research that more or often than not makes the headlines is that which prices up the impact of a new policy.  The IFS are masters at this.  A policy is judged as a success if it happens to put an extra fiver in someone’s wallet.

Yet we cannot understand the true impact of a policy without considering a broader range of outcomes.  And this is the case most poignantly in the area of welfare, where the most disadvantaged and vulnerable people in society have been subjected the most powerful policy changes.  Welfare reforms have made many people poorer, that’s true.  But the wider costs go way beyond tightened purse strings.

We got a sense of these costs this week, with new research in the BMJ showing a rise in suicide associated with the global recession.  My own research focuses on the health and well-being impact of unemployment and the ways in which welfare reforms alter the nature of experienced worklessness.

My findings are somewhat complex to untangle.  In some instances, moving people to welfare-to-work schemes appears to improve well-being.  But there are many caveats here: this only appears to hold for younger people and for people on specific types of programmes.  Unsurprisingly, there is no well-being benefit to the Work Programme.

However, there is one solid finding I encounter time and time again: people who are put on welfare-to-work schemes have significantly higher anxiety than other unemployed people.  The graph below (using data from the Annual Population Survey) shows that unemployed people have an anxiety score of 6.42 (the higher the score, the lower anxiety).  This, as we would expect, is lower than those in work, students or the retired.  However, people on welfare-to-work schemes have much higher anxiety than the unemployed (6.25).

Further, this relationship holds even when we look at different types of welfare-to-work participants.  The evidence shows that the kind of welfare-to-work participant who benefits most from these schemes tend to be young, male, poorly educated and enrolled on a scheme that gives demonstrable training or work experience, as opposed to the Work Programme.  However, even these types of participants have similar levels of anxiety to the unemployed.

This evidence leads to a worrying conclusion – welfare-to-work (and potentially welfare reform in general) – leads to an increase in anxiety amongst the unemployed.  Why this might be is an avenue for future research.  The evidence on welfare-to-work is mixed – for certain types of people, and for certain types of wellbeing, some kinds of welfare-to-work programmes appear to be positive.

However, for most participants – regardless of age, qualification level and gender – welfare-to-work appears to increase anxiety.  This is a potent reminder that the costs of welfare reform cannot – and should not – be measured in economic terms.  They go way beyond what can be counted in pounds sterling.