Why cutting the cost of failure is so important

Yesterday Ed Miliband showed how Labour is serious about reforming social security so the system works better for those it was always intended to serve and we cut the cost of failure.

I want to explain why this is so important.

There can’t be many more dramatic illustrations of a fundamental flaw in the system than something I can see every day, within walking distance of my constituency office on the edge of Kilburn. Two families, in every important respect, living next door to each other in flats in a small estate or ordinary north London street. Both families have adults in work. Both are bringing up their children. One pays £120 a week rent to a Housing Association. The other is being charged £350 by a private landlord. In one case, the modest wages coming into the household are still sufficient to mean no Housing Benefit is required. In the other, Housing Benefit is required to top up over £200 a week.

That Housing Benefit spent is not a symbol of success- even though today and tomorrow it may be essential to prevent homelessness. The billions we pour into supporting low income households- in and out of work- in private rented accommodation is the result of a decades old policy to switch housing subsidy from bricks and mortar to Housing Benefit. Thirty years ago for every £100 pounds we spent on housing, £80 was invested in bricks and mortar and £20 was spent on housing benefit. Today, for every £100 we spend on housing, just £5 is invested in bricks and mortar and £95 goes on housing benefit.

This Tory-led government has made matters even worse- slashing the Housing Investment programme and cutting Housing Benefit without tackling the underlying reasons why it has risen. So the number of private renters needing help with housing costs has soared, especially amongst working households. According to figures produced for me by the House of Commons Library, between 2011/12 and 2014/15 the DWP forecast £35 billion of expenditure on private rented sector tenants. In the previous spending review period (2008/09 – 2010/11) housing benefit expenditure on private rented sector tenants totalled 23 billion in real terms. So despite the rhetoric, this government will spend £12 billion MORE than Labour, comparing the two spending rounds. This is a colossal failure.

This isn’t money I want to spend. I don’t want scarce public money to pour into the pockets of private landlords. I don’t want to pay millions in hotel bills to mop up the homelessness which is a direct consequence of ill-thought out government policy. I want to re-direct our spending into investment in a housebuilding programme which will provide proper homes, at more affordable rents- and create thousands of jobs in the process. This won’t be an overnight process, but in the short-term, freeing up local councils to negotiate in bulk to secure cheaper rents and better conditions- with an incentive to do so, will be better than the chaos we see now.

Housing isn’t the only example where social security has borne the burden of costs for a wider failure. Unemployment, especially long term unemployment, may not be the largest element even within the social security budget, but it carries costs we cannot ignore. Last week I met a young man who had already been on the Work Programme for almost two years without a single offer of a job. I chatted to a group of boys from the Bangladeshi community, who told me that they didn’t receive so much as an acknowledgement to the applications they made for jobs and apprenticeships. And a I received a letter, written in despair by a woman in her late 50s, made redundant after a life-time or work, wondering how she could disguise the age that she was certain was a barrier for her. What kind of scheme is the Work programme that can be paid so much and deliver so little? And what kind of economy is it that consigns so many people- especially the young- to long term unemployment. There can be no question about the duties we place on jobseekers- sanctions are and must be part of any effective social security system- but private and public sectors alike have a duty too, and a job guarantee for the long-term unemployed is a vital component of that.

Even for those in work, low pay, under-employment (people forced to work fewer hours than they would like) and labour market abuses like avoidance of the minimum wage and excessive use of zero hour contracts, pile costs onto social security, Work should be the best way out of poverty for most people- but that contract no longer holds true for a substantial and rising minority. Tax credits and in-work benefits helped ensure that, when recession struck, there was a stabiliser in the system, so a drop in hours worked or in wages earned did not mean destitution or homelessness on a massive scale. But in the longer term, a sustainable social security system must be based on jobs being available, at a fair wage.

The last Labour government had much to be proud of: boosting parental employment rates, transforming Job Centre Plus, not least through the New Deal initiatives, and making work pay with the help of tax credits, underpinned by the minimum wage. Even so, until the global crisis struck, Labour’s period in office was marked by falling working-age ‘welfare’ expenditure followed by the longest period of stability in the history of the postwar welfare state. ( It is worth remembering that over half of all social security spending goes to the rising number of pensioner households- a fact conveniently ignored by the ‘welfare spending-is-out-of-control’ lobby). In the next Parliament, we will face tougher challenges still. So if we want to ensure dignity and a decent income in retirement for pensioners, help those who cannot work because of disability, make progress on an improved contributory offer for at least some working people, and ensure children’s lives are not blighted by poverty, we have to do things differently. If that means spending less on unemployment thanks to our Jobs Guarantee, and less on Housing Benefit by powerful intervention in the private rented market, and a major affordable house building programme, this can only be a good.

We should be proud of investing in the next generation- but where employers pay a Living Wage, this too can help relieve the pressure of spending to tackle in-work poverty. Government must continue to play its part and a cap on structural social security spending can help us achieve that.

But, as Beveridge himself knew full well when he wrote his seminal report 70 years ago, a fair and affordable social security system is not just the responsibility of government, but of a partnership, locally and centrally, with individuals, families and business.

That is a lesson Labour is re-learning today under Ed’s leadership. Labour, the party of work, is the only party ready to take the real action to reform welfare.