Work Stimulus Scheme

 

 

Submission by Dr Richard Lawson to the DWP consultation on 21st Century Welfare


Synopsis

A measure is proposed, the Work Stimulus Scheme or WSS, that is compatible with, and assists, the aspirations of the 21st Century Welfare initiative. The WSS stimulates those sections of the economy which make a clearly beneficial contribution to the health of our society and environment. The proposal is that employers judged to meet certain criteria of environmental and social utility will be allowed to take in new employees who retain all their Universal Credit, without any taper. This will address the problem of non-availability of work due to a continuing recession, which, if not addressed, might well undermine the whole thrust of 21st Century Welfare.

Author
Dr Richard Lawson MB BS, MRCPsych is a semi-retired GP with 30 years of service to the NHS. He is author of Bills of Health , past Speaker for the Green Party of England and Wales, (Feb-Sept 1992) and past Green Party District Councillor (Woodspring - now North Somerset - 1986-92). The views expressed here are his own.

Approach to the Consultation

I fully agree with the aims of the 21st Century Welfare consultation document. It is clearly necessary to simplify the benefit system. Reforms should not address the symptoms, but the underlying problems. The approach taken by the DWP, in analysing the complexity of the benefit and tax credit system, and recognising and addressing the important and powerful disincentives to move from dependency into work in the present system, is commendable and most welcome.

I make no claim to technical expertise in the field of benefits. My interest in this matter is qualitative, arising from many medical consultations with patients whose physical and psychological problems are intertwined with, if not directly caused by, financial difficulty brought on by unemployment. The impotence and discomfort of the physician (not to mention the patient) in this situation can only be imagined, and all too often, whether appropriately or not, the medical response is to prescribe antidepressants, which often results in the patient becoming psychologically dependent on antidepressants, taking them in perpetuity. This represents another, often unacknowledged, cost of unemployment which is passed on to the NHS pharmaceutical budget.

The other aspect of my interest is as an political ecologist, deeply aware of the huge amount of work that needs to be done in order to protect, heal and improve both environment and society. This was investigated in my book Bills of Health .

The supply of work itself is an important aspect of the problem which complements the themes set out in 21st Century Welfare. The DWP document rightly seeks to facilitate the transition from dependency to work. However there is no advantage in creating a demand for work in the ranks of the unemployed by incentivising, training, and encouraging them to get into work if there is no supply of work out there for them to take up. If the UK economy moves back into recession in 2010-2011, this problem is going to become worse, not better.

The WSS proposal put forward here addresses this work-supply problem.

Preparing for a double-dip recession

We may hope that economic growth in the UK and throughout the world picks up steadily from the recession of 2009, with increasing employment, falling social security expenditure, and a rising tax take that will reduce the deficit.

It must be said en passant that the notion of ever-increasing growth in throughput of materials in a finite environment clearly contradicts the Government's stated aim of securing "sustainable development". It is impossible to grow forever into a finite space, and to take forever from a finite resource. Throughput of materials is time-limited, and economists must face up to that fact.

Fortunately, and paradoxically, it is possible and necessary for our generation to grow that sector of the economy that contributes towards sustainability, as a transition towards Herman Daly's "Steady State" economy .

Even if it should be the case that economic growth resumes in 2010-11, there will be an increased demand of some magnitude on the Social Security budget to meet the needs of those public sector workers who are made redundant as a result of the Treasury's cuts, as well as those who were in private sector jobs in enterprises that sub-contract for the public sector. This increased demand clashes with the need to reducing the expenditure of the Social Security budget as part of the Spending Review.

Many economists believe that a double dip recession is going to come about in the coming months. Briefly, the evidence is:
· the natural tendency of recessions to have a double dip
· the weakness of bank lending
· the sovereign debt crisis
· economic weakness in the USA and Eurozone

Whatever the actual out-turn in 2011, Government, particularly the DWP, must in any case be prepared for the contingency of a double dip recession.

The outlook further down the road is for further serious shocks to the global economy from the malign economic influence of Peak Oil and also the impact of Climate Change, which is going to stress the UK's important insurance industry.

All of these considerations should lead Government and the DWP to lay down robust plans to meet the stresses that recessions will lay on the UK economy in the future.

In the event of a double dip recession coming about in the coming months, social security expenditure will increase to provide for the unemployed, which will in turn challenge the aims and calculations of the Spending Review.

The Work Stimulus Scheme advanced in this submission is consistent with the best of Keynes' work, since it injects Government money exactly where it is needed, into the real economy. This is in sharp contrast to the vast expenditure that was forced on Government in the Banking Crisis, where money was injected into the empty coffers of the banks, where, to a large extent, it has stayed.

The Broader Economic and Ecological Framework

DWP activity relates to the broad economic and ecological system of which it is a part. There are other considerations that must be addressed as part of "joined up Government".

The reality of climate change dictates the need to decarbonise the UK energy supply. We also need to address energy insecurity by reducing our dependence on imported energy, particularly gas. Furthermore, Peak Oil needs to be addressed. This gives us three very robust reasons to stimulate work in energy conservation and renewable energy technology as we make the transition from depleting and polluting forms of energy capital to the clean, abundant energy income that we constantly receive from the sun. This not only involves manufacture and deployment of wind, wave, tidal, geothermal and other modalities of renewable energy technology, but also of a pan-European HVDC electricity distribution network . In short, a massive investment in major energy industries is immediately necessary.

The New Economics Foundation has put forward a costed and detailed plan, the Green New Deal , to form a "carbon army" of workers who will conserve energy. Not only will this create jobs and help to meet our carbon emission targets, but also it will help our balance of payments and our energy security by reducing energy imports. It will also help equality by reducing the incidence of fuel poverty. Business profitability will benefit by reduced outlay on heating bills.

Society, like the biosphere, is a dynamic system of inter-acting parts, and there is more to unemployment than the Social Security budget. High unemployment contributes to ill health, both mental and physical, to crime rates, social tensions, higher policing costs, community tensions, and even to the growth of extremist neo-fascist political parties. These conditions impose increased costs on the NHS, police, courts and prison services, and to the security services, already hard pressed in dealing with the terrorist threat. All of these factors impose costs which work against deficit reduction aims of the Coalition Government.

It is clear that there is a vast amount of work that needs to be done to address these energy issues. It will be shown also that there is also a vast amount of other work that needs to be done to heal, improve and build up the resilience of society and environment.

How can the benefit and tax credit system contribute directly to making sure that this necessary work is done?

The Work Stimulus Scheme - How it Functions

It is proposed that a total earnings disregard will be introduced in respect of work that is judged to be directly beneficial to society and/or environment.

Local Authorities will set up small tribunals which are competent to judge whether the product and process of any economically active group (whether voluntary, private enterprise or public sector, hereinafter called companies) is beneficial to society and environment.

Companies will be invited to apply for accreditation.

Companies which are active in the following fields may expect to be successful:

1. Energy conservation
2. Renewable energy technologies
3. Energy efficient goods manufacture
4. Pollution control technology
5. Waste minimisation advisors
6. Repair
7. Recycling
8. Materials reclamation
9. Water management
10. Sustainable agriculture (organic and related methods of farming)
11. Sustainable forestry
12. Processes that use timber
13. Countryside management
14. Housing - new social housing with high conservation specifications
15. House refurbishment, bringing empty houses back into use
16. Improvements to visual environment (e.g. painting of street furniture)
17. Public transport
18. Education and training
19. Counselling, caring and healing
20. Community work
21. Leisure and tourism
22. Innovation, research and development in these fields


This list of activities might be termed the "green sector" of the economy. In 1996 between one and two million potential new jobs were identified in this sector of the UK economy, at a time when there were between one and two million people on the unemployed register

It is to be expected that when introduced into a locality, the effects of the WSS will create an increased sense of purpose and well-being in the community. Even the improvements in visual amenity will increase the communal sense of self-worth - while at the same time, avoiding later costs as rust and rot take their toll of street furniture.

The tribunal will assess the presentations of applicant companies, with any relevant paperwork such as H&S approvals. They may reject or approve applications.

On receiving accreditation from the tribunal, the company can invite the local Job Centre to send job applicants to them. Successful applicants will be allowed to bring their existent benefits and tax credits into work with them - that is, they receive a 100% time-unlimited earnings disregard. The new employer then tops up their benefits to enable them to receive wages equal to the going rate for the job they are doing.

The employee gains all the advantages of having a job (one that would not exist without the WSS), and the employer has the advantage of extra productivity with low cost. Please note that the social security outlay is no worse off in the short term, since the benefits would have been paid in any case.

The benefit is behaving in one sense as a Universal Benefit (Citizen's or Basic Income) and also acts as a wage subsidy, stimulating growth in the green sector. There is no time limit on the subsidy as I conceive it, although I recognise that the Government might wish to put in place such a time limit, perhaps related to the end of recession.

A central condition of participating in this scheme is that the employer must not displace his existing workers with subsidised labour. This risk has its own negative feedback loop, since any such discharged worker can complain against his ex-employer to the tribunal, who would have powers to revoke accreditation.

This non-displacement would apply only to the level of work that the WSS-supported worker is performing. Rearrangements at other levels of management structure would not be affected.

Effects of the Work Stimulus Scheme

The results of the WSS are as follows:
· Social health will benefit through the nature of the work chosen.
· Environmental health will benefit for the same reason
· Unemployed people gain useful and worthwhile employment.
· Employers in the green sector gain a valuable boost to their productivity, assisting the profitability and security of their business.
· The scheme poses no extra charge to the Treasury for the duration of the recession, since they would be paying the benefits in any case.
· The economy gains from the growing activity in the green sector, particularly in the energy conservation, efficiency and renewable energy sector, which will help to achieve carbon dioxide reduction targets, reduce household fuel bills, thus reducing poverty, and releasing money to circulate in the local economy.
· Britain's energy imports are reduced by work in energy conservation, and insofar as the WSS supports the installation of large renewable energy infrastructure. In the long term the UK will begin to export renewable electricity through a new European HVDC Supergrid .
· Local economies will pick up activity as the unemployment levels fall. New work in increasing visual amenity (brightening up the paintwork) as part of the WSS will increase a sense of local pride.
· This local aspect of the WSS may make it a candidate to be integrate with the Big Society initiative, at least in areas chosen to pilot the scheme.

Pilots of the WSS

I recognise that this proposal, although fully compatible with the aims of the DWP, extends the project in an unexpected way by including the work creation aspect. I recognise that the Keynesian implications of the scheme will also not be welcome to some theorists within the Coalition. However, faced with actual conditions in a deep recession, Keynesian solutions may well come to the fore.

Since WSS therefore runs at a tangent to 21st Century Welfare proposals, I accept that it is not likely to be a candidate for immediate nationwide adoption.

However, such are the potential advantages of the scheme, it would be sensible to run a pilot the scheme in one or more districts.

Candidates for the pilots would be:
· Areas of high unemployment
· Areas with recognised social and individual stress from poverty
· Areas where the local community was informed and motivated to take up the WSS.

I have one area in mind, where a local activist is already interested in mobilising a stressed community to receive this scheme, and I will be canvassing for other such volunteer areas.

Drawbacks

I accept that as a non-professional, there will be a number of objections that the DWP will wish to raise about this scheme. I would be grateful if they could be sent to me in order that I might try to address them as part of the Consultation.


The Questions posed in the Document

1. What steps should the Government consider to reduce the cost of the welfare system and reduce welfare dependency and poverty?
The welfare system must be simplified, and the unemployment trap must be ended, but also consideration must be given to problems of work availability in a recession.

2. Which aspects of the current benefits and Tax Credits system in particular lead to the widely held view that work does not pay for benefit recipients?
The central fact that benefit is removed at the point that the claimant finds work, referred to in the document as 60-90% marginal taxation.

3. To what extent is the complexity of the system deterring some people from moving into work?
The sheer incomprehensibility of the present system for the average claimant is a major disincentive to cooperate at all levels.

4. To what extent is structural reform needed to deliver customer service improvements, drive down administration costs and cut the levels of error, overpayments and fraud?
Radical structural reform is needed along the lines laid out in the Consultation Document, but in addition, it is very clear that consideration must be given to the supply side of the employment equation.

5. Has the Government identified the right set of principles to use to guide reform?
Yes, but one vitally important aspect has been overlooked: there is no point in training, educating, encouraging and compelling people to move from welfare to work if there is no work available to be done

6. Would an approach along the lines of the models set out in chapter 3 improve work incentives and hence help the Government to reduce costs and tackle welfare dependency and poverty? Which elements would be most successful? What other approaches should the Government consider?
The approaches set out in chapter 3 should weaken the unemployment trap, but the problem of under-supply of jobs in the labour market remains, which undermines the whole thrust of this initiative.

The approach offered in this submission acts as a positive incentive for employers to create new jobs, because the new jobs will cost them very little, and therefore will increase productivity and profitability. A pilot study of this WWS approach should be run in one or more economically depressed areas.

7. Do you think we should increase the obligations on benefit claimants who can work to take the steps necessary to seek and enter work?
There are two downsides to increased obligations to seek work:

Any compulsion to apply for work leads to hundreds of applicants for every vacancy, which leads to extra work for the potential employer, who has to sift through these applications, make interviews, and also sometimes has a statutory duty to explain reasons for non-success to some (e.g. disabled) applicants. This imposes a burden on employers, and acts as a disincentive for them to offer work.

At the same time, the claimants are demoralised by repeated failure in applications and interviews, and begin to simply "go through the motions" of seeking work, which is a waste of everybody's time.

There is a subset of claimants who are long-term unemployed, and these people do need special education, training and work experience. Useful work could be created specifically for this group in simple activities such as street cleaning which could be organised specifically for this group in order to get them in the habit of work, because it is obvious that because of their deficient work record, they will be the last in a list of applicants to be offered work on the open jobs market.


8. Do you think that we should have a system of conditionality which aims to maximise the amount of work a person does, consistent with their personal circumstances?
See my answer to Q6.


9. If you agree that there should be greater localism what local flexibility would be required to deliver this?
For the WWS scheme set out in this submission, local pilots will be essential to evaluating the success of the scheme.


10. The Government is committed to delivering more affordable homes. How could reform best be implemented to ensure providers can continue to deliver the new homes we need and maintain the existing affordable homes?
First, empty homes should be brought back into use if at all possible. There are many homes, often privately owned, that are empty and deteriorating, to the detriment of neighbouring homes. These can be taken back into use and refurbished by the local authority, with ownership remaining in the hands of the present owner, and rules laid down for distribution of costs of refurbishment and the consequent added value of the property.

New affordable homes should be built to very heat retention standards in order to ensure that the low income occupants are saved from fuel poverty.

In that house building and refurbishment will benefit from the WSS, building of affordable homes will be directly assisted.


11. What would be the best way to organise delivery of a reformed system to achieve improvements in outcomes, customer service and efficiency?
I agree with the IT approach laid out in the consultation document, though I am aware of many failures in the roll-out of Government computer systems, and we must hope that lessons have been learned from past failures.


12. Is there anything else you would like to tell us about the proposals in this document?
I would like to re-emphasise the central theme of this submission: there is no point in training, educating, encouraging and compelling people to move from welfare to work if there is no work available to be done. The UK, and the global economy, may well be entering a period of severe global recession. In a recession, expenditure on welfare is bound to rise. This welfare will be paid in any case. It will be paid to persons who, with the best will in the world, and within a framework that provides the optimum potentiality to enter work as laid out in 21st Century Welfare, cannot find work for them to move into. Alternatively, this same money could act as a wage subsidy for enterprises, public or private, which are of benefit to society and environment. Viewed in this light, it is not difficult to see the advantages of the Work Stimulus Scheme, and there is a compelling case for it to be evaluated in a few pilot studies.

Dr Richard Lawson MB BS, MRCPsych

Monday, 27 September 2010


 
© 2001 R. Lawson