Take part in my PhD project

As part of my PhD research, I'm keen to hear from people who have experience of - or are currently participating on - a welfare-to-work programme.  In particular, I'd really like to speak to people on the government's Work Programme: their flagship welfare-to-work scheme.

If you are on or have been on the Work Programme - and would be happy to speak to me - please do get in touch on the e-mail address below.  I'm particularly keen to hear from people in the North-West: so Greater Manchester, Merseyside, Lancashire and Cheshire.

All the interviews I am conducting are completely anonymous and confidential. To get in touch, either send me an e-mail on the below address or fill in the form at the bottom of the page.

E-mail: daniel.sage@stir.ac.uk

Thank you!

The politics of income tax (part 1): are the rich digging their own grave?

This is the first of two posts I'll be writing on the politics of income tax.  This is an area I think has been underdeveloped in political and policy debates over the course of the Coalition's first term.  This is probably for several reasons.  Other issues (economic growth, immigration, welfare) have dominated and perhaps the government's most important tax reform - increasing the personal tax allowance - is ordinarily seen as a universal Good Thing.

In next week's post I'll be looking at the politics of raising the tax threshold (something I've briefly written about before).  But this week I want to look at the politics of the top rate of tax, which has come down under the current government from 50p to 45p.

In justification of the top rate tax cut, conservatives tend to argue (or boast) about how much the very richest pay as a proportion of the total tax take.  In their defence, this is true: the top 1 per cent pay around 30 per cent of all income tax revenues.  It is an astonishingly high proportion - and an astonishing example of how reliant our tax system is on the very rich.

Implicitly, the people who use this defence of the rich hint towards the moral vigour of the richest and the value of their contribution to society.  But there is also another, probably more accurate and certainly more popular, view: all this signifies is how much the rich are paid relative to the rest of society.  In other advanced countries the rich do not pay such a high share: this is because (a) they earn relatively less and (b) the middle earns relatively more.

This can be easily illustrated.  Imagine two societies (A and B) where population earnings both total £1m per year.  In both societies, everyone who pays income tax pays the same rate on everything they earn: 20 per cent.  This means that both societies have exactly the same tax revenue: £200,000.

However, the richest 20% in Society A earn £750,000 of the total £1m.  In Society B, they take a much smaller, but still significant, amount: £400,000.  This means that although the tax take for both societies is the same, there is a massive gap in the reliance on the rich.  In Society A, the richest 20% pay £150,000 of the total tax take (75%), whilst in Society B they only pay £80,000 (40%).  In other words, Society B imposes a smaller tax burden on the rich via a more equal distribution of incomes in the first place.

How equality reduces tax reliance on the rich

Thus, by emphasising the disproportionate contribution of the very richest, conservatives unwillingly draw attention to the enormous inequality in pay across Britain.  And in doing so, they also point to the solution.  If you really want a smaller tax burden on the rich, support policies that result in a much fairer distribution of incomes in the first place.

Labour's compulsory skills training for the unemployed - would it work?

Labour's big announcement on welfare today is the proposed introduction of new skills courses in English and maths for people at risk of long-term unemployment.  The idea is that around 10 per cent of new unemployed people (and even more who are long-term unemployed) have extremely poor basic numeracy and literacy skills.  If the Government intervenes at an earlier stage, then unemployment will be brought down.

Putting aside debates about the conditionality of the policy (which will no doubt dominate many discussions within Labour today) would the policy work?  Or is it just a policy gimmick, designed to make Labour look supportive - but tough-  towards the unemployed?

In general, there are two main question marks surrounding the potential success of the policy.  The first is the extent to which poor basic skills are actually the main barrier towards re-employment.  Steve Fothergill, an expert on welfare-to-work at Sheffield Hallam, argues that poor skills are only part of the problem when it comes to unemployment.  There are other important barriers too: such as poor health amongst many unemployed people and, in particular, the weak - and in some instances non-existent - demand for labour in certain parts of the UK.

Raising the basic skills of some unemployed people is thus a good move; but it might be relatively ineffective if it is unaccompanied by other policies as well.  This is why Labour's job guarantee - a demand-boosting measure - is so important.  But there should be other policies as well, designed to deal with the poor physical and mental health outcomes of many unemployed people.

The second question mark is implied by Rachel Reeves herself in her article for Labour List today.  This is that unemployment is experienced by a far broader social demographic than those with low skills: such as managers, professionals, graduates and the high skilled.  Reeves is right to say that the benefits system should do more to offer economic security to such groups - but what about offering more support to get back into work?  Many people with long experience and high skills will find work anyway.  But for others it will be more difficult to find a job.  Basic skills courses for these people are irrelevant and there is nothing in the way of support proposed for them.

Poor basic skills are an undoubted barrier to work for many people - but they are not the only problem.  The fact that in some areas there are just too few jobs to go around is a much bigger - and far more complex - barrier for governments to deal with.  Many unemployed people also suffer from poor physical and mental health; and basic training courses offer nothing to those with higher skills.

Along with the job guarantee policy, this is a good start for Labour.  But it must be accompanied by a wider range of measures to move people from welfare to work: ones that understand the reality of why people are unemployed.

What is Ed Miliband offering the middle-class on the welfare state?

As the general election approaches next year, Labour faces two key challenges.  The first is trying to revive some form of support for the welfare state.  The second is attracting the kind of voters - i.e. middle-class ones, especially in parts of the south - that won Labour three majorities between 1997 and 2005.

In an intriguing article in today's Telegraph, Ed Miliband appears to be trying to kill these two very difficult birds with one stone.  In the piece, Miliband argues that the fate of the middle-class is tied to the future of the welfare state.  Whereas the typical sales pitch to Telegraph readers is usually centred around tax cuts, Miliband makes an explicit argument that middle-class prosperity can only be revived by an expansion of the welfare state.  There are few concrete policies but Miliband highlights further/higher education, pensions and housebuilding as areas ripe for state intervention.

This is - as Miliband says himself in the article - a long way from New Labour's focus on "aspirational self-confidence".  It is a much more (small-c) conservative vision of intervention than Blair's vision of the "active" or "enabling" state: one which seems to have far stronger emphasis on people's social and economic security than, for example, spreading opportunity or offering a safety net.

It is also a much more traditionally social democratic proposal, in which a larger, more intervening state plays a central role in how people's lives are shaped.  It will probably annoy many liberal or conservative commentators but I doubt that matters much to Ed Miliband.  The only thing that matters to him is whether his vision of a larger state appeals to the kind of people who read the Telegraph. 

Is welfare conditionality justified?

Conditionality is at the centre of welfare reform.  It underpins everything that the Coalition – and before it New Labour – have done.  Nothing is given away for free in the land of social security: everything is tied up with conditions and consequences. 

The major break with the past came during the New Labour years.  This was when benefits for the unemployed and other ‘economically inactive’ groups - like lone parents and the disabled - became increasingly conditional upon certain behaviour, such as looking for work or participating on welfare-to-work schemes.

The logic of conditionality is twofold.  First, conditionality will improve employment outcomes: use a bit more stick and soon people will be on their bikes.  Unemployed people need more ‘incentives’ to find paid work.

Second, it is only fair that in return for income support, people should have to fulfil certain duties and obligations to the rest of society.  This is the argument for rights and responsibilities: people have the right to help but the responsibility to look for employment.  No one has the right to a ‘life on benefits’ if they are capable of work.

Whilst the first argument is more of an empirical one, the second is moral.  Is it right to ask people to behave in a certain way in return for social security?  Or, alternatively, is income support a social right that the Government should be unable to remove? 

Advocates argue that it is fair to expect the able to seek work and that benefits must be conditional on doing so.  Expecting people to give something back in return for help is a basic tenet of reciprocity; if people share in the benefits of society, then they have a duty to contribute something back.  If we fail to impose these requirements, we risk violating reciprocity and undermining social trust and common bonds. 

There are strengths to this argument: unconditional benefits would allow people to live indefinitely at the expense of others.  Whilst the common retort is that the number of potential ‘free-riders’ would be negligible, ‘unconditionality’ would nevertheless endorse free-riding as socially legitimate. To many people this is both economically dangerous and morally untenable.  Most of us go through life carrying the responsibility to work: if a person is able, it is unfair that the option to evade such responsibilities is made available.

However, the major problem with this argument - and of much of the rhetoric surrounding welfare conditionality - is the disproportionate attention given to benefit claimants.  If welfare support is a contract there is by definition another party involved: the state.

Yet in practice we hear very little about what the responsibility of the state is.  This is crucial: it is blindingly clear that the responsibility to take a job does not exist irrespective of what is being offered to people.  The most extreme example, proposed by the theorist Stuart White, is of a slave society.  Few of us think that in such a society there is a moral duty to work: to do so would be to cooperate in “our own exploitation”.

What the responsibilities of the Government should be are up for debate.  People from the Right tend to consider a job – any job – will do, but many people rightfully expect more.  It is not just about providing any kind of work but the right kind of work: work that can be meaningful, can match a person’s hopes and ambitions and can be married with other aspects of life, such as home and childcare.

So in one sense the Government is right: social security for people who can work should be conditional upon taking up opportunities.  However, it is the nature and environment of these opportunities, and whether they are even available, that is the deal breaker for justifying conditionality.  Does a person with social anxiety have the responsibility to take a job in a busy pub?  Does a lone parent have the duty to work evenings in a call centre?  Does a medicine graduate have the obligation to stack shelves?

Or rather, do people have the right to a labour market that can provide them with fair, appropriate and decently paid work?  If this requirement is satisfied, then it seems there is a strong case for conditionality.  If not, as it actually appears, the case for conditionality is weakened.  The danger then is of a government that exploits conditionality to coerce and to stigmatise.  And of a situation in which people are enforced to oblige in their own exploitation.

This article was originally written for London Student

Can the unemployed be 'nudged' back into work?

Nudging the unemployed

This is an interesting paper about the implications of behavioural economics for labour market policy.  Behavioural economists argue that conventional economists are wrong in their assumptions about how people behave and make decisions, ideas that are broadly linked to notions of people as rationally driven and self-interested individuals.

In policy terms, this is worrying: the standard economic view has had a profound influence across many areas of public policy.  Take welfare-to-work for example.  The assumption is that after making a rational cost-benefit analysis of his or her situation, the unemployed person then makes a decision about whether to work or not.  Given this decision-making strategy, it is the role of the state to alter the incentives involved: make benefits less generous, threaten people with sanctions and so on.

Babock et al, the authors of the above paper, argue that behavioural economics shows that people often don't behave so rationally.  People 'make systematic errors, (are) put off by complexity, they procrastinate and (they) hold non-standard preferences and non-standard beliefs'.

As a result, they argue that such findings about human behaviour have implications for how policies are designed.  Applied to the labour market, they argue that welfare-to-work policies should control for the ways in which humans actually behave, rather than how economists have previously thought they do.  Policy proposals include radically simplifying employment support and training, as well as managing 'loss aversion' in relation to taking a new job.

Would it work?

Policies that are designed for how people actually behave are preferable to ones that aren't.  Many of the assumptions underlying welfare-to-work schemes have been based upon interpretations of jobseekers as rational agents, weighing up the costs and benefits of returning to the labour market.  In reality, whether or not a person finds a job is determined by a far larger, more complex set of determinants.

In this sense then, incorporating findings from behavioural economics into new welfare policies is likely to bring about better results.  However, there may be some limits to how far such changes can go: what if, for example, the whole basis of welfare-to-work was wrong in the first place?

This is the argument of Steve Fothergill from Sheffield Hallam, who says that the premise of welfare-to-work policy is based on an idea of the labour market that doesn't exist.  In post-crisis Britain, the 'work-first' supply-side approach of the boom New Labour years is horribly unsuited to the many parts of the country: places where the demand for labour is the real issue, as well as obstacles of poor skills and ill health.

If Fothergill is right, then there is only so far that welfare-to-work - based on behavioural economics or otherwise - can achieve.  Ultimately, all welfare-to-work (whether nudging or shoving) is based around increasing the ready supply of labour for employers.  In the current situation, in which many parts of the country suffer from a sharp lack of demand for labour, this approach isn't likely to be too successful.

Unemployed people would be better served by welfare policies that take into account evidence about the reality of human behaviour.  However, they would be much, much better served by policies that take into account evidence about the reality of the labour market.  For many unemployed people, this will involve a much different and broader system of support: something that I doubt the current government will be budged, or even nudged, into moving on.

Labour, Rachel Reeves and welfare reform: the beginning of the end for reviving the contributory principle?

With Liam Byrne sacked as shadow DWP minister last week and replaced with Rachel Reeves, some people sensed this might be the start of a shift in Labour's welfare strategy.  Out with the old remnants of Blairism and in with Ed Miliband's new social democracy.

That optimism lasted until Sunday, when Reeves' first interview in the job was spun to the press as 'Labour will be tougher than the Tories on welfare'.  Little seems to have changed then: the policy is still the same (a guaranteed job for the long-term unemployed), as is the message (tough but fair).

I suspect that many on the left exasperate at the sales pitch on welfare, rather than what's actually on offer.  Providing paid work for all long-term unemployed people is a solidly social democratic welfare policy of the type the Tories don't like.  And realistically, Labour couldn't offer these jobs without some conditionality.  This is a fact of the landscape of political attitudes in Britain.  A majority of the public might welcome left-wing moves on the cost of living, but are simultaneously, resolutely small-c conservative on welfare.

However, perhaps the most interesting point to note was Reeves' language on the contributory principle: a revived idea that's been floating around the centre-left for a few years now.  For some, the contributory principle is the mechanism by which Labour can revive support for the welfare state, yet Reeves' language was unforthcoming: 'we are not in an environment where there is more money around'.  

In all likelihood, this shift probably reflects Labour's weariness of introducing huge reforms to social security.  From the experience of Universal Credit, politicians know that changing the benefits system is far from straightforward.  A pledge to revive the contributory principle would soak up a lot of Labour's time, money and political capital.  There is also the (mistaken) mindset that public attitudes are inert and that it is beyond Labour's power to shift opinion on the welfare state.

So for now, Ed Miliband is playing it safe with welfare: his strategy is one of largely accepting the Coalition's position whilst highlighting small differences in what Labour would do.  Reeves' inteview seems to signal the end of Labour's flirtation with the contributory principle: the most radical centre-left suggestion of the past few years.  This is damage limitation but, as Mark Ferguson says at Labour List, it is a dangerous strategy: accepting and entering an 'arms race' on welfare will, in the end, blow up in Labour's face.