Reeves must get ruthless on welfare
Rachel Reeves’ plans for a youth guarantee scheme and lifting the two-child benefit cap are not enough to tackle the spiralling welfare bill, says Jamila Robertson
This week, Chancellor Rachel Reeves announced her plan to fix the unemployment crisis, which has seen 621,000 under-24s out of work this year. Reeves’ ‘youth guarantee’ scheme would provide paid work for 18-21 year olds who have been on Universal Credit for 18 months and not in work or education. Like Labour’s previous proposals to temper the ballooning welfare bill, this was introduced by the Conservatives in 2023, but was originally not restricted to a specific age group.
Considering there are now 1.67m people unemployed (up from 1.52m in July 2024), 2.95m people aged 16 to 24 economically inactive, and that 11.9 per cent of those claiming Universal Credit are graduates, restricting this scheme to 18-21 year olds is an odd choice. One might deduce that her heart isn’t in it.
The scheme, which promises paid work at the end of an 18-month job search and a removal of benefits for those who refuse work, should go further.
First, 18 months is too long – both for the taxpayer (recent DWP data revealed that only 31 per cent of claimants are actively looking) and for those looking for work to maintain any semblance of a positive mental attitude.
Unsustainable
To stop those out of work becoming despondent, depressed, anxious – and ultimately feeling the need to then seek incapacity benefits – it is imperative to nip a fruitless job search in the bud. This means taxpayer-funded job searches should conclude after six months, at which point a job, apprenticeship or placement should be presented to them and benefits stopped.
In an interview with the Telegraph, Labour’s new chief secretary to the Prime Minister and former chief secretary to the Treasury, Darren Jones, acknowledged that Britain’s welfare bill is “unsustainable”. He is right.
The national welfare bill is due to hit £313bn this year, and whilst noble, Labour’s recent thwarted attempt to save £5bn on Welfare spending, which was humiliatingly defeated by their own backbenchers, would frankly not have touched the sides.
So it is perplexing that in the same week as announcing a youth guarantee scheme, the government is signalling that it will lift the two-child benefit cap.
Frustratingly, some of the areas of greatest welfare spend are where policy delivery is of greatest need for those currently footing the bill, such as housing and healthcare.
An often unreported chunk of welfare spending is housing benefit, currently costing £35.3bn a year.
For healthcare (already boasting its own £202bn budget), sickness and incapacity benefits are costing the taxpayer £75.3bn this year, and keeping millions of those who could work with the right healthcare and support out of work indefinitely.
Reeves should work with employers to improve this. In the same way that auto-enrolment increased pension contributions from 0.9m in 2011 to 10.6m by 2019, and incentivised employers through corporation tax deductions, employers who provide great private benefit packages that help to genuinely reduce staff dependency on the NHS and DWP should be rewarded with lower NICs or deductible tax.
Employers who provide great private benefit packages that help to genuinely reduce staff dependency on the NHS and DWP should be rewarded with lower NICs or deductible tax
This could be a great opportunity for Rachel Reeves to right the wrongs of her disastrous Budget and start to repair her ailing relationship with the private sector.
And then there’s pensions, or more precisely, the triple lock. Introduced under the Conservatives to correct over a decade of pensioner poverty under the last Labour government, it was, at the time, the right and noble path to take. And because of it, we have seen a 60 per cent rise in the state pension between 2010-11 and 2023-24. It is now right to focus on those of working age, asked to continue to foot the bill of a wasteful state; and with news this week that the government expects council tax bills to rise by £9.4bn across England by April 2029 – an increase of 26 per cent – this focus is imperative.
With future generations already laden with a £2.9 trillion debt, and today’s taxpayers currently servicing its £111.2bn interest, it’s time Rachel Reeves gets serious about her promise to grow the economy. Because the two-child benefit cap will not do it, only getting Britain back to work will.
Jamila Robertson is director of the Centre for the Future of work