Joe Shalam says Labour could easily solve many of the country’s challenges if they tackled the broken welfare system.
Liz Kendall and Sir Keir Starmer’s attempt to reform welfare ended in a dramatic climbdown (Image: PA)
Last week the Centre for Social Justice revealed that the Government’s decision to abandon reform of Britain’s broken welfare system will cost taxpayers over £25billion a year. That is almost EXACTLY the same amount of money Rachel Reeves has reportedly been at pains to find in order to fill the black hole in next week’s Budget.
Had ministers adopted a path to keep spiralling health benefits at today’s (elevated) level, the Chancellor could have been preparing to cut income tax, to put more money into NHS care or defence or, dare I say, to pay down some of Britain’s colossal debt pile. Instead, she is on course to raise taxes on working people – perhaps even breaking a manifesto commitment – all just to stand still.
Meanwhile, the CSJ calculate that every single taxpayer will be shelling out an extra £700 to fund the rising sickness benefit bill, and that’s before taking into account the potential £3billion cost of scrapping the two-child limit on benefits. Demanding “alarm clock Britain” stumps up ever more in tax while welfare budgets soar is – to quote Yes, Minister – a brave political gamble.
It is only truly intelligible when viewed through the prism of internal Labour politics. After all, it was this summer’s concessions on welfare which stunned officials watching on across Whitehall but delighted Labour backbenchers as the U-turn was confirmed in real time in the House of Commons. Still, while the failure to make progress on welfare reform this year is counted in extra billions of spending, it is more tragically counted in the loss of human potential.
My one hope for the Budget is that the Chancellor will pull a rabbit out of the hat in the shape of a plan to put welfare reform back on the table and to help British youngsters into work, who have been neglected for too long by multiple governments. Indeed, while it is all but certain that a “smorgasbord” of tax hikes is on the menu next Wednesday, Rachel Reeves must turn her attention to getting Britain working if she is to avoid another tortured year of Budget speculation.
By unlocking that potential and growing the economy, she can fix the holes in her economic plans – and begin the job of repairing broken Britain. Consider the facts. Official data suggests that welfare is locking more people out of work than at any point in modern history. Claimants with no requirement to work have almost doubled since the pandemic. Almost one million young adults are now not in education, employment or training, up by 200,000 since 2019. Spending on working-age benefits is £20billion higher today in real terms than in 2020.
Youngsters are facing a toxic cocktail of welfare dysfunction, mass migration, and taxes on jobs. Under Boris Johnson, rules to relax migration saw the number of employed non-EU migrants under 25 more than treble between 2020 and 2024, while overall under-25s on payrolls fell. Last autumn’s tax hikes on businesses have seen many bosses simply stop hiring young people altogether, with 180,000 falling off payrolls, including 44,000 young adults, since the measures were announced last October.
While businesses turn to migrant labour, young Brits turn to health benefits. Over half of inactive young people give sickness as their reason, and 62 per cent report a mental health condition. Yet there is almost no evidence that staying at home on benefits helps those with mental ill health, and plenty of evidence that it harms them.
Any attempt to cut benefits will trigger protests in and outside Parliament (Image: Getty)
So what should the Chancellor do? First, ease the pressure on businesses and help jobless youngsters by announcing a Future Workforce Credit – an effective tax cut worth 30 per cent of an unemployed young person’s salary, funded by reducing health benefits for under-22s. This would get 120,000 young people into work and save nearly £800 million in tax and benefits.
Second, ministers must shift from blunt welfare payments to tailored mental health support and therapy, and could save over £7 billion through better targeting while expanding NHS talking therapies and back-to-work support.
Finally, the Home Office should restore the resident labour market test, requiring employers to seek local talent before applying for visas, to get more young Brits off benefits and into growth-creating jobs.
It is all but certain now that the Chancellor will force down another round of tax hikes next week. To even begin to remove the bitter taste left in voters’ mouths, she must also announce a plan to get Britain working again.
*Joe Shalam is Policy Director at the Centre for Social Justice
