The Welfare State, Wages and Work

Abstract. The State welfare system has been under attack for nearly a decade from austerity-driven cuts, mismanaged and under-funded schemes, and regulatory failures. Key areas are failing badly, with some programmes and services at risk of completely falling apart. This paper considers the challenges, focusing on work-related support from both sides of what is referred to as the work-welfare interface. Much of the impact of the system’s failures has been on labour market participants, particularly in the bottom 30% of the wage distribution. Most people in this group depend on a combination of wages and occupational benefits from their employer (the work side of the interface) and income and other support from the State (the welfare side). Shortcomings and system failures on both sides are leaving many people in poverty. After the 2018 Budget the Joseph Rowntree Foundation (JRF) described the rising tide of in-work poverty as the problem of our times. The Institute for Fiscal Studies reached the same conclusion, calling it the big issue and identifying low earnings growth, poor productivity, and a rise in part-time work as causes. Although tax credits and income transfers from the State flatten and mitigate the impact of income inequalities between households, cuts to State support since 2015 have transformed that position for the worse. Low earnings and wage subsidisation owe much to the legacy of neo-liberal policies and the deregulation of the labour, housing, and social markets. Weakened collective bargaining and removal of sectoral wage-setting by the wages councils mean that there is little or no pressure on employers to pay above national minimum wage rates. Low productivity has been exacerbated by the lack of investment in training and skills development, and insufficient opportunities for career and wage progression. Although employers - particularly in the low pay sectors - benefit from massive levels of wage subsidisation through in-work benefits there appears to be little reciprocity for that assistance. Against this background, there is a powerful case for reconstructing the wages floor with the aid of regulated collective bargaining, as proposed by the Institute of Employment Rights, while maintaining a national minimum wage aligned to the Real Living Wage as a safety-net. The IER Rolling Out the Manifesto for Labour Law sets out a detailed case for this. From a welfare perspective this would also deliver a range of other attractive features, including better opportunities for wage progression and reduced reliance on benefits as wage top-ups: what has become, in effect, a State second wage. On the welfare side, the national roll-out of Universal Credit needs to stopped to enable fundamental flaws to be rectified. In particular, the value of in-work UC must be restored by lifting the freeze on annual up-ratings; and the original eligibility criteria for work allowances need to be reinstated (with full restoration of the allowances’ value). The operation of the earnings taper needs to be reviewed and reduced from its current high level. In the meantime, there are serious concerns about the transition from tax credits and other legacy benefits to UC. Advisers are seeing a massive rise in debt, repossessions, and delays in accessing key support like childcare expenses. Other features will require longer-term remedial action. These include much-needed reforms of the contributory benefits system, childcare, and State support for housing costs, coupled with a need to revisit the case for rent controls. Clearly, there is a need to defend our welfare services, stop further disintegration, and reverse the threat to national and local services that collectively deliver an important social wage for millions of workers and their families. Going forward, renewal of the system is required to meet newer challenges, including the systemic rise in underemployment and likely impact of automation and artificial intelligence on employment – particularly in unskilled and semi-skilled work which is prone to displacement by artificial intelligence. These factors, and the increasing likelihood that there may, in time, simply be insufficient paid employment available, have been spurring debate as to whether a universal basic income may provide better solutions than a continuing expansion of the in-work social security system