Full Iain Duncan Smith speech on welfare savings

Posted On: 
4th February 2015

Read the Work and Pensions Secretary Iain Duncan Smith's full speech to the Reform think tank here.

Reform conference: ‘The welfare state – continuing the revolution’

Rt Hon. Iain Duncan Smith MP, Secretary of State for Work and Pensions

London, 4th February 2015

Introduction

It is a pleasure to be here today.

Under a hundred days until the election, there are few areas more contentious or disputed than welfare.

As a dividing line in the forthcoming political campaign, already there is much discussion of what may or may not happen in the next Parliament… the priorities and policies of a future Government… and the future of Britain’s welfare state itself.

Yet as we look ahead, I believe it is vital to realise that in the five years since 2010, our benefit and pension system has undergone a great deal of change already.

So before looking to the future, let me start by reflecting on how far we have come.

Back in 2010: employment had plummeted, as the recession cost 750,000 people their jobs. Now: there are more people in work and more people in private sector jobs than ever before, up 2.2 million since 2010.

Then: worklessness blighting nearly 1 in 5 households. Now: the rate of workless households at its lowest since records began.

Then: welfare bills spiralling out of control, having rocketed by 60% in real terms under Labour. Now: welfare spending under control, seeing the first real terms fall for 16 years…

… recently confirmed by the independent Institute for Fiscal Studies, who estimate the cost of welfare next year will be nearly £17 billion lower thanks to our reforms, with falls in spending that reflect substantial falls in unemployment.

Revolutions, not patching

Over this Parliament, the Conservative-led Coalition has proved, beyond doubt, that far-reaching reform can be delivered – and nowhere more so than in the welfare system.

The imperative for this radical change had long been clear.

Indeed, it was William Beveridge – the architect of the modern welfare state – who boldly stated that:  “a revolutionary moment in the world's history is a time for revolutions, not for patching”.

Nevertheless, since its inception, Britain’s welfare state had been subject to all manner of patch-up jobs.

After many decades, the result was a complex and chaotic system, which failed to promote work and penalised responsible choices – all at great cost to hard-working taxpayers.

Thus when it came to a complete overhaul of the benefits system in 2010, many said it couldn’t be done. And hardly in such tough economic times.

Yet faced with an economy which had suffered the worst recession in living memory, this task was only more pressing.

After all, our economy could never be where it should, holding its own in the global marketplace, unless all in our society who were able, played a productive part.

But for too long, millions had been trapped in worklessness and dependency – too often by the very system that should have been helping them to get back on their feet.

Reform

From day one, welfare reform had to be at the heart of our long-term economic plan.

But it was crucial to realise that this was about far more than the public finances alone.

Certainly, we had to get spending under control – for under the last Government, welfare expenditure had increased on a trajectory that was entirely unsustainable...

.... by 2010, costing every household in Britain an extra £3,000 a year.

Yet it was not enough simply to top-slice the budget.

To do so would be equally unsustainable in the long-term, for problems would simply accumulate further down the line or emerge elsewhere – with consequences for the health system, the justice system and more.

Rather in its true sense, welfare reform is about transforming the life chances and outcomes of those on benefits – bringing down the cost of social failure in the process.

In other words, restoring fiscal stability by restoring lives.

Lessons of the past

This has long been our vision for Britain’s welfare state – and it remains our vision looking forwards.

Yet in making this a reality, the challenge has been to disprove the accepted wisdom of the Left: that poverty is solely about money, and more state money solves it.

Thus followed the simplistic logic that had driven social policy for too long: more money equals good, less money equals bad.

This logic was the driver of the last Government’s failed poverty strategy…

…which relied overly on hiking income transfers to families…

… too often a short-sighted strategy for short-term political gain.

Take tax credits: it is worth noting that payments increased by nearly 60% ahead of the 2005 general election, and by around 20% before the 2010 election.

Even now, Labour’s same short-sightedness persists – most recently in spurious claims about the alleged damage caused by further welfare savings in the next Parliament.

Far from rewinding the clock on the welfare state, it is the Labour Party who would keep Britain’s benefits system in a time warp...

... reversing the reforms through which we have brought it into the 21st century, and risking our hard-won economic security in the process.

No – instead we must learn the lessons of the past…

.. and if we realised anything from the recession, it is that the repercussions of runaway spending hurt people the most.

And it remains that countless billions were wasted over the years…

… money spent with the best of intentions, but without making any measurable improvement to people’s lives.

Worse still, where that money went on propping people up on benefits – diminishing the incentive to work and failing to reward positive choices – in too many cases, sadly that spending only exacerbated the problem of dependency.

Above all, the old logic fails to hold, because it matters not just how much Government spends, but how we spend it and, most importantly, what impact our spending has.

Welfare spending

It is to this end that the Government has pursued an ambitious programme of change.

Through all our reforms, the aim has been the renewal of a dynamic welfare system...

... no longer just putting money in, maintaining people in dependency...

... but achieving meaningful outcomes at the other end, helping people to secure independence for themselves and their families.

This is the positive life change that drives down demand for welfare, in turn reducing spending.

As a result, our reforms are forecast to save a total of nearly £50 billion cumulatively across this Parliament.

Now, as we look back over the course of the Parliament, figures show that the growth in welfare spending has been at its lowest since the modern welfare state was created.

That is a momentous reversal of Labour’s reckless spending.                                       

But even more significant is the life transformation that we have achieved at the same time:

1.75 million more people in work – defying the Opposition Leader’s gloomy forecasts that a million jobs would disappear.

In fact, we now have:

more women in work than ever before

more lone parents in work than ever before

more older workers than ever before

and rising employment for young people and disabled people too

Remarkably, there are now nearly 700,000 fewer workless households since 2010, and 270,000 fewer families living in social housing without work…

… in turn, bringing the proportion in social housing where someone does now work – with a breadwinner and a role model – to its highest since records began.

Universal Credit

This, I believe, will be the legacy of this Parliament: dynamic change that re-incentivises work and rewards the right choices.

Nothing illustrates this process better than Universal Credit…operating across the North-West and about to start national roll-out…

… which has long been about a complete shift in the welfare culture in this country – underpinned by fundamental principles.

First and foremost: unconditional support for those unable work, and meaningful support for all those who are in genuine need.

But for those who can, Universal Credit brings with it a requirement that people will do all they can to help themselves – to look for work, take work when it is offered, and increase their hours where that is reasonable.

In return: Universal Credit offers the assurance that work will pay at each and every hour, and that individuals who do the right thing will see the benefit.

I believe the impact of this cultural change is already starting to be realised.

Emerging evidence shows that those on Universal Credit spend nearly as twice long looking for work, and report working more over a 6-month period compared to those claiming Jobseeker’s Allowance.

In the long-run, the improved employment outcomes under Universal Credit will contribute to estimated economic benefits of up to £7 billion a year.

For every person entering work, or working more, that is the British economy more productive.

But equally, it is a family with the security of a wage and hope for the future.

A fair contract

In improving people’s prospects, the evidence has always held that work is the best way for individuals to lift themselves and their children out of poverty.

In restoring the incentive to work and ensuring that work always pays, Universal Credit has always stood to reinforce this further.

But now, the dynamic effect of Universal Credit goes even beyond what we had anticipated – holding this to be true for almost every family.

Through Universal Credit, Government has created a system whereby if you do the right thing – working as much as is expected of you – then in the vast majority of cases, you will move out of poverty.

I believe this is the strongest statement yet of this Government’s commitment to helping people get on in life…

… through a welfare system that will catch you when you fall, and lift you when you can rise.

On Government’s part: we will invest in targeting our support at those who need in most, and in restoring work incentives for the rest.

In return, where you can, you will be expected to do your part. The opportunity is in your hands to make the right choice…

… a fair contract, which  together, lifts people out of poverty.

Alongside a Conservative commitment to full employment – a job for everyone who wants one – this change in dynamic within the welfare system stands to make an extraordinary difference to people’s lives…

… and to the poverty picture in this country.

Realising opportunity

Gone will be the days when it makes more sense to sit on benefits than enter work.

Now, the right choice is also the logical one.

So at the start of the next Parliament, the question remains for Government: how do we enable people to overcome barriers they face – be it entrenched worklessness, educational failure, or more – in order that everyone who is able can realise that opportunity.

The answer – once more – is about a relentless focus on outcomes.

We have to reject the old tendency to pour money into programmes, but with no care for the results the other end.

The history of such programmes is of great hope followed by embarrassing failure… with taxpayers carrying the risk when they failed.

As we bring welfare bills down through supporting more people to move onwards and upwards in life, equally we must spend our budgets wisely – on programmes that deliver the life change we want to see.

Payment by results

This, then, has been the other side of the welfare revolution in this Parliament: opening up a whole new dimension of Government spending – one focussed solely on the impact that our interventions achieve.

In the first instance, this is has underpinned our pioneering use of payment by results.

… notably through the Work Programme, the largest payment by results programme of its kind, helping people back to work on an unparalleled scale.

Using a payment by results model, the Work Programme ensures value for money.

Let me remind you that we no longer pay providers until they have succeeded in getting someone into work and keeping them there.

Rather, providers compete to deliver employment services, bearing the risk and upfront cost, taking the burden off the taxpayer.                                                                                

Government pays out for the results that are achieved… with the biggest rewards of up to £14,000 for supporting the hardest to help into work and sustaining them there.

For those completing a year on the Work Programme, employment outcomes are now far exceeding expectations and overall 600,000 have started work…

... in each case, a positive outcome that equates to reducing the cost of social breakdown.

Social investment

This last point is vital, and I believe, the key to Government social policy in future.

For it is not just moving someone into work that saves money – some £2.4 billion this Parliament, from the tumbling costs of unemployment…

… but in fact, any improvement in a social problem comes with a value attached, as Government pays out less for costly remedial action – be it to cope with homelessness, poor health, family breakdown, educational failure or any number of other complex challenges that we will face in future.

Take for example the cost of supporting child in care – estimated at over £60,000 per year.

The cost of keeping a first-time young offender in jail – over £20,000.

The cost of someone sitting on jobseeking benefits for a year – £10,000.

£90,000 for just a single life that goes off track.

So we know the cost of failure all too well.

But equally, positive social outcomes have a value too.

By monetising this value and underwriting the return… Government can then create a bond into which others invest.

If the programme delivers the outcomes, investors see a return…

… whilst Government pays not for the process of tackling the problem, but for success at the other end.

Transforming Government’s role

This is the premise behind social investment – which to my mind stands to make the single most significant difference to how we fund and deliver social services in years to come…

… opening up that sphere to a whole host of groups who might never before have seen themselves as part of the solution for positive social change: be it private sector companies, high-net worth individuals, venture capitalists and more.

In doing so, social investment has the scope to vastly increase the amount of funding available for social programmes – bringing in investment money on top of that provided by Government or pure charity alone.

With it, that money brings the rigour and discipline of the private sector, and the innovation of our most savvy entrepreneurs…

… as well as what I call the ‘fidelity guarantee’: an assurance that exactly what you pay for is what is delivered.

This is crucial.

For it puts a stop to what has too often been the downfall of Government programmes in the past: that in implementing a successful programme, it ends up being modified – tinkered with to the extent that what was paid for, isn’t what is delivered.

With social impact bond, on the other hand, if the project ends up being botched, no results mean no pay-out.

By design, then, social investment stands to save money historically wasted on underperforming projects, by ensuring that what works is delivered properly.

But what’s more, social investment shores up Government finances because the whole premise is of a return, linked to a given outcome.

Every pound for life change… that is the opportunity of a lifetime.

Social impact bonds

Already, the UK is a world leader in putting these principles into practice – with 24 social impact bonds up and running…

… 10 of them financed by my Department’s £30 million Innovation Fund.

This has proved the concept with cutting-edge programmes: ranging from knife crime prevention in Haringey … to remedial education in Merseyside… and teens and toddlers mentoring in Manchester.

Across Britain, a return on investment has been achieved through over 16,000 positive educational and employment outcomes...

...  each one an improvement in a young person’s prospects.

In rolling out social impact bonds more widely, the Government has done a lot to put the infrastructure in place: through Big Society Capital, the world’s first social investment wholesaler… and the social investment tax relief, which could generate up to nearly £500 million over another 5 years.

Growing the market

Without doubt, there is still much more to do if we are to unleash the full potential of this nascent market…

… but already, I believe this is the quiet revolution.

Broadly unnoticed amongst commentators in the media, we are developing a way to ensure that Government – and local Government – spending can be tied to outcomes.

Particularly for councils, as we look to the future, it means the end of going cap in hand to central Government, reliant on ever-changing political whims and uncertain short-term grants.

Instead, local Government will be able to leverage its own long-term investment…

…. freed up from central control, to capitalise on what the Social Investment Taskforce have identified as the ‘first trillion’ of potential investment money.

£1 trillion – that’s what it cost to deliver our health and education systems for the last five years.

Just think what that money could mean on the ground… how many people it could help… how many lives it could transform.

The next Parliament must be about getting money flowing to where it will have the most impact…

… with Government reaping the benefits in return: innovative, efficiency, effectiveness.

Over time, it is my hope that this will turn the tide in the whole culture of Government spending – whereby we commission outcomes and pay for what works…

… meaning every pound spent goes on positive life change for the most disadvantaged in our society.

Reuniting society

If we can get this right, I believe the effect it could have on society is dramatic.

The disparity between the top and bottom of society is in many cases larger than it has ever been.

We have a group of skilled professionals and wealth creators at the top of society who have little or no connection to those at the bottom.

Yet in so many cases what divides the two is little more than a different start in life. 

I believe social investment gives us an opportunity to lock not just wealth back into our most disadvantaged areas – but something else as well.

Just imagine a social enterprise working in a particular deprived neighbourhood.

Investors buy into it and as with any investment, will want to see it flourish.

Because they are risking their money – money that could otherwise be reaping a return elsewhere – those investors will want to see that social programme succeed, taking an interest in that community where they would otherwise be totally detached…

… brought back into contact with our most disadvantaged individuals and families, for mutual benefit.

In doing so, these wealth creators could have a powerful influence on the communities themselves...

... a human interface between two polarised worlds...

... bringing success to the doorstep of failure, and two ends of our society closer together.

Reuniting the city with the inner city.

Conclusion

As we look to the next Parliament, I believe this is the dawn of a new opportunity:

A reformed welfare system that offers people the opportunity and incentive to work their way out of poverty.

Matched by social investment – bringing both innovation and discipline to how social programmes are delivered…

… with money spent on proven programmes that help people to move onwards and upwards on that journey to independence.

All of this holds promise for a brighter future – driving success, securing a return and changing lives.

It is our vision now, and so too in future:

the prospect of sound public finances…

… at the same time, a stronger and more cohesive society.