Moving back to employment is still fraught with pitfalls

There are times when I almost feel sorry for Iain Duncan Smith (IDS), the latest work and pensions secretary.

Shortly after being given the largest poisoned-chalice in politics, he said: “People are better off claiming dole rather than working in a job paying £15,000 a year or less. If you are unemployed and you come from a family that is unemployed, all you can see when you think about work is risk. It is a real risk because for all the efforts you make, the rewards are very minimal and in some cases none at all. Socially, everyone says ‘You are a bloody moron – why are you doing this?’.”

Although his maths is a bit shaky, IDS does at least seem to grasp the basic problem of the poverty trap – if someone moves into employment, the withdrawal of tax credits, council tax benefit, housing benefit (or help with mortgage interest) and other incidentals such as prescriptions and free school meals, means that the immediate financial gains from working are often minimal or even non-existent. One answer to that is to make ‘in-work’ support more generous. The other answer is to reduce ‘out of work’ support.

What IDS is having to cope with, however, is an incoherent approach to welfare reform, led by and dictated by the Treasury, which has created greater disincentives to employment, masked by some new incentives and new punitive measures.

The overall impression is of a welfare policy driven by political and economic expediency instead of a strategic and planned assault on worklessness.

One disincentive to taking a job, for example, if you are in a family with children, is the loss of free school meals. The plan to extend eligibility to the working poor from September 2010 was one of the first casualties of the new regime’s cost-cutting measures. At a stroke, it made taking a job less attractive.

The increase in personal tax allowances for the lower paid was heralded as a major work incentive. But when you look at the maths, increasing take-home pay by, for example, £10 a week simply leads to an £8.50 cut in housing and council tax benefit.

The government is also proposing that people who have been unemployed for over a year will soon have to pay 10% of their rent – so you lose some housing benefit whether you work or not.

In the tax credits scheme, just one of the changes announced by the chancellor is the new proposal that, if a worker’s income drops during the year – for example due to unemployment, illness, a family break up, or a household member losing working hours – their tax credits won’t be adjusted to take account of their new income unless the fall is more than £2,500.

This will save the government around £550m a year. The government has been keen to point out that the Budget will mean low earners are £200 a year better off as a result of the increase in the tax threshold. However, low-earning families whose incomes fall during the tax year will be much worse off – with most losing over five times more than they gain.

Until these contradictions in policy are addressed, it will continue to be one step forward and at least one step back for social work clients who want to move into employment.

Gary Vaux is head of money advice at Hertfordshire Council. Please send any questions for him to mithran.samuel@rbi.co.uk

This article is published in the 5 August 2010 edition of Community Care magazine under the headline Moving Back to Employment is Still Fraught With Pitfalls