Welfare to work policy shifts

The Chancellor's March 21st Budget marked a subtle but distinctive shift in its welfare to work policies. Coinciding with the 2nd anniversary of the New Deal for 18 to 24 year olds, the Government is moving its emphasis away from the manifesto pledge card group of young people and directing far more attention at the older unemployed and groups of non-JSA benefit recipients.

Ministers have now decided it can easily meet the headline pledge of moving million young people from welfare into work by the end of the Parliament. With the latest figures showing a crude job entry total of nearly 200,000 this is an 80% achievement rate - with at least a year still to run before the next election. With more than a quarter of these entrants into jobs having returned to benefits, a sustained job entry total of million may be cutting it a bit fine.

Nonetheless, the programme is judged to be meeting its political aims and, but importantly, is running up against the law of diminishing returns as the remaining number of potential recruits dwindles. At the most recent count, there were just 52,000 JSA claimants aged 18 to 24 unemployed for over 6 months - although for statistical reasons we probably also have to add in 22,000 who are in the New Deal "follow-through" phase. Compare this to the 175,000 total when Labour came to power - or the 400,000 when this unemployed population group peaked in 1994 (about the time when Labour in Opposition started to formulate its election priorities).

Now the priorities are changing. Chancellor Brown's first full Budget stressed the importance of raising Britain's employment rate from its (then) 72% level. Now reaching 75%, this level of employment growth can only be sustained by dipping into the pool - almost 2 million strong - of economically inactive people who want to work. Hence the new emphasis within New Deal on the over 50s, lone parents or people receiving incapcity or sickness benefits.

So, the Government has devised a programme to boost the employability and job search of people who have become significantly detached from the labour market. But alongside a package of jobsearch assistance and education or training, the Government is putting a renewed emphasis on measures that help make work pay - particularly where current claimants have significant family responsibilities.

The latest Budget announced a raft of tax and benefit changes that aim to reduce the financial risks faced by people starting jobs - and smoothing the transition from unemployment into work. Alongside measures that help boost individuals' employability and increase their labour market attachment, these efforts to "make work pay" try to smooth-out the harsh financial jolt that comes from quitting the relative income stability of social security and the starting the highly risky business of earning a wage.

The last Government had a fairly crude understanding of these dynamics. Tory Ministers figured out that falling wages meant the gap between benefits and in-work income was shrinking. Their answer was twofold: cut the level of benefits and make them harder to claim. To some critics, the Blair Government has adopted an equally tough stance but there is a huge difference: Labour is opening up a gap between benefit levels and pay levels by boosting take-home pay.

Lone parents in particular will be offered a significant boost to their income - from education, training, part-time or full time work. The level of "clawed back" earnings from part time work will soon start at 20 per week; two-thirds of all earnings will be disregarded if working part time as a childminder; and a 15 per week premium on top of Income Support for lone parents undertaking training and education.

Meanwhile, one other piece of unpleasant Tory policy was quietly reversed in the Budget - the threat of growing mortgage debt and repossession for home owners who become unemployed. Claimants with mortgages taken out after October 1995 have been barred from receiving help with covering their interest payments until reaching their ninth month of unemployment. As more than three quarters of claimants do not hit the 9 month threshold, the last Government effectively washed its hands of any responsibility and dropped the burden of risk on to the private insurance market.

But from April of next year, claimants returning to work will have a public insurance policy. Any mortgage payer that starts a new job will continue to receive their mortgage interest payments for 4 weeks - bringing them into line with Housing Benefit recipients. And a home owner who subsequently becomes unemployed within 12 months of starting a new job, is assured of immediate re-qualification for this financial assistance. These changes to Income Support Mortgage Interest rules will probably benefit around 65,000 people and cost the Treasury 15m a year.

At a stroke, one the most significant disincentives to re-entering work - and a glaring anomaly in the benefits system - has been solved. A small, but largely unsung reform, that will give confidence to over 200,000 JSA claimants who have mortgages.