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Weekend Australian 7 June 2014

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Simple lessons on offer in plugging the welfare drain

THE AUSTRALIAN JUNE 07, 2014

AS Australia ponders a major shake-up of its welfare benefits system, what, if anything, can be learned from recent British experience?

Patrick McClure, who has been heading the federal government’s welfare inquiry, used to argue for simplifying welfare by combining different types of claims — unemployment, disability, family payments, and so on — into a single payment. In a report in 2000, McClure outlined some strong arguments for moving to what he called a single participation payment.

One was that conditions attached to receipt of benefits could be applied on a case-by-case basis. Rather than, say, requiring everyone on a jobseekers allowance to engage in a “mutual obligation” activity, while everyone on the Disability Support Pension is exempted, every claimant can be assessed individually for their capability and needs, and appropriate conditions can then be set. Putting people into categories is a crude and arbitrary way of determining how individual claims should be treated.

A single payment could also ensure that, if people accept work, they always end up better off than remaining on benefits. With multiple, overlapping payments, claimants who find a few hours’ work can lose almost as much as they gain, because different benefits get withdrawn unpredictably at different rates and different levels of income. A single payment with just one income taper should get around this problem.

But, despite these advantages, McClure’s proposal was never adopted in Australia and in his recent, interim report, he admits he no longer favours a single payment. Instead, he recommends trimming the current range of 20 different benefits down to four or five, as New Zealand has done.

In Britain, the coalition government has been more daring. Its welfare-reform program has drawn heavily on ideas originating here (its work program, for example, followed Australia’s lead by contracting out employment services and paying by results.

One of the key Australian ideas it has seized on is McClure’s original proposal to sweep all the different categories of working-age benefits into a single payment. Britain calls this payment Universal Credit.

Universal Credit is now being phased in, but not without difficulty. It is proving an expensive way to achieve limited results: annual welfare spending is estimated to rise by £3 billion ($5.4bn) — the price of guaranteeing that work always pays — yet most of those enticed into work will only pick up part-time employment. The British Treasury is said to be unhappy about this trade-off.

There have also been major IT problems (which is why McClure seems to have gone cold on applying the reform to Australia), as a result of which the rollout is now badly delayed. Universal Credit should have launched nationally last October, but only 4000 of the 5.4 million working-age claimants have so far been enrolled. The IT cost to date stands at £450 million. An independent government monitoring body has described the reform as “unachievable within reasonable timescales and to a reasonable budget without urgent remedial action”.

Universal Credit is still alive, just, and the IT problems may get sorted out. But the real lesson to take from recent welfare reforms in Britain is that it is possible to get people off welfare and into work without a dramatic, expensive and fraught overhaul of the whole payments system. For Australians, two modest, simple innovations stand out as worth considering.

One is the benefits cap. Few would seriously argue that households on benefits should receive more than the average net weekly wage, yet in Britain, until last year, 33,000 families were receiving this much. Now, a cap of £500 per week (for a family), or £350 per week (for those without children) applies to the total income that anyone can derive from all different benefits. This simple measure is saving £100m per year, has encouraged 19,000 claimants to find work, and is hugely popular (with 80 per cent approval).

An even more significant change has been the reassessment of all incapacity claims (the equivalent of Australia’s DSP). Like Australia, Britain has tightened its definition of incapacity, so many new claimants who might previously have qualified for the benefit are now expected to prepare for work or find a job.

But, unlike Australia, all existing claims are being re-examined. Incredibly, more than three-quarters of incapacity benefit recipients have been found to be potentially or actually capable of working.

The lesson from Britain is that grand reform of the whole benefits system is fiendishly complicated, and may not be worth the expense, effort and aggravation.

But there are some simpler things governments can do to reduce welfare dependency and get claimants back into employment, and these often turn out to be more effective, cheaper and very popular.

Peter Saunders is senior fellow at the Centre for Independent Studies.


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