20 ways to make Britain better – 5. Devolving benefits to local government

There is some talk in Labour circles of devolving benefits from central to local government and cities. For example, Graeme Cooke and Andy Hull wrote an excellent paper for the IPPR, which includes a proposal to devolve responsibility for housing benefit to local government.

Many on the left and centre left worry that devolving benefits will lead to an increase in inequality. This fear is understandable but misplaced. Of course, there is a right way and a wrong way to devolve benefits and there are some benefits you shouldn’t devolve. An obvious case in point is Council Tax Benefit. It was a gratuitous act by the coalition to devolve this because local government cannot easily influence the incomes of those in receipt of the benefit, they can merely decide, with the limited resources they have who will get what support or, put another way, whether to let inequality increase or not.

On the other hand when it comes to benefits where councils can impact on outcomes for residents the case looks very different. Moreover, there is a world of difference between devolving benefit budgets and the power to determine the level of benefits and devolving benefit budgets but only giving local government limited room to vary benefit rates. In the latter case local government would be forced to look at how to impact on outcomes to reduce expenditure and would not be able to resort to the easy but pernicious option of cutting entitlements.

So how far could Labour go on this agenda? A reasonable long term ambition would be for Labour to devolve the budgets and responsibility for the outcomes and costs of all benefits related to unemployment, housing and earnings (including tax credits), for working age people deemed fit for work.

Of course, local government is not ready to be handed this power and responsibility in one fell swoop. But cities, groups of local authorities or individual local authorities could bid to take responsibility for outcomes, and central government could experiment with different models of benefit devolution covering different benefits. And if benefits were devolved in this way local government would have significant incentives to:

• Get people into employment, particularly the long term unemployed
• Build social housing and nurture the right private sector house building to support the needs of its population
• Tackle unfair rents
• Improve the quality of jobs available and bolster local wages
• Ensure the right childcare provision is available
• Identify benefit fraud

By guaranteeing funding based on historic need (but also relating it to the overall current national benefit bill) for a period covering many years the incentive effect is magnified. For example, if a long term unemployed individual was found work in the first weeks of funding and they stay in work for five years, if it is assumed they would otherwise have remained unemployed, the JSA saving alone would be in excess of £18,000 over the period.

Local government does need to undergo significant cultural change to deliver on this agenda but while central government is the right place to determine entitlements, responsibilities and budgets it cannot expect to pull a giant lever in the centre and see any impact on the ground. Labour and housing markets are peculiar to individual areas. You can buy a house the size of a large cupboard for £250,000 in some parts of London or a much larger one in Stoke for £1, and if you want to work in the car industry you might have a chance in Sunderland but your prospects are distinctly limited in Cornwall.

Centralised national jobs schemes like The Work Programme rarely deliver. Taxpayers are currently paying mainly private providers billions of pounds to find people jobs when they would have done so anyway because the economy has picked up. And when the economy is not working Work Programme providers can’t fix many of the things that need fixing. They work in a silo and are not able to assist with housing, childcare, transport or any of the other issues that impact on job prospects, but local government can.  And central government keeps finding ways to cut housing benefit entitlements but the bill keeps going up because it cannot get to the source of the problem, but local government can.

To spur local government on in their endeavour it should be asked to set out child poverty reduction and employment plans, including detail on how it would promote a higher wage economy to reduce in work benefits.

By proposing to devolve benefit budgets and responsibility for outcomes in this way Labour can also show how it would control social security expenditure in government without resorting to crude, iniquitous and ineffective cuts from the centre, and in the process give its fiscal credibility a much needed boost.