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Theresa May: Labour cannot afford to duck the challenge of welfare reform

I am pleased to be able to publicly welcome David Freud to our team for the first time.  I have been working closely with David since he joined us but in a sense his involvement with the party goes back a long way in that his report influenced our welfare green paper published over a year ago. 

His expertise is going to be invaluable as we progress our thinking in the coming months and set out the exact details of how we will implement our welfare reform policy. 

David will be joining me to take your questions and comments shortly.

Just over two weeks ago David Cameron made an important speech on the challenges facing our economy in which he set out what we believe are the four fundamental weaknesses in the British economy.  I want to talk today about one of those weaknesses - welfare dependency.  As David said it is perhaps the most difficult to confront as successive governments have accepted welfare dependency as an unfortunate fact of our national life.

In Britain today there are nearly 5 million people claiming some form of out of work benefit - and that was the case before the recession kicked in.  This is not a result of the downturn but a social catastrophe that has always been lurking on the sidelines.  The costs of welfare dependency, both social and financial, are enormous and complicated, and fixing this problem is part of the challenge of fixing not only our broken society but also our economy.

I think it is fair to say that welfare reform has been seen as something of a poisoned chalice by this Labour government.  In almost 12 years we have seen eight Secretaries of State for Work and Pensions, or Social Security as it was previously known.  And whilst nearly all have had good intentions, it has not taken them long to get floored by the system, the establishment, the size of the task.  Frank Field thought the unthinkable in the late 90s. The Government did nothing. We proposed welfare reform in 2001, the Government did nothing. David Freud produced his report in 2007. Gordon Brown quietly sidelined it. 

Indeed, James Purnell, the current Secretary of State originally showed little intention of radical action in this area, but following our commitment to reform with our green paper in January 2008 decided to show his progressive credentials and come forward with a Welfare Reform Bill. We are supporting that Bill through Parliament but sadly he has still found himself challenged by the lack of reforming zeal within his own party. 

But the need to reform our system of welfare has never been so vital. 

Last week the unemployment count reached 2.03 million - the highest it has been since June 1997. 

The increase in the claimant count was the sharpest since records began in 1971. 
Youth unemployment is at its highest since 1995. 

The OECD predicts that unemployment will rise faster in the UK than in any other G7 country.

We are seeing redundancies in every sector and in every part of the country, affecting people of every level of skill, qualification and experience.

This recession brings with it a whole new set of challenges for the welfare system.  The demographic of the unemployed is going to broaden.  There will be people who have had successful careers in industries that are now practically non-existent - equipping them effectively with the skills for a new career path is essential. 

There will be those who have become newly unemployed after decades in the workplace having never experienced unemployment before. 

Each of these is a story of an individual or family whose lives have been turned upside down, who may now find it difficult to pay the bills, and keep their home.

Dealing with this rising number of unemployed people is a challenge in itself.  But there is another challenge we must grasp. Previous experience shows that it is all too easy to see the number of long-term unemployed people rise during recession. As we all know it becomes harder to get a job the longer you are out of the workplace, so the danger is that if we make the wrong decisions then far from coming out of recession with an energised and skilled workforce ready to take up new jobs we will come out of the recession with a larger number of people who are destined for a life on benefit. That affects not only them, but also their families, it starts the process of generational worklessness that has blighted our society, it increases the pressure on the public finances and it holds back our economy.  

We must ensure that during this recession we neither neglect those who are already long term unemployed, and who often need specialist and personalised support, nor allow that number to increase significantly.

I do not believe that the current welfare system is going to be able to meet these new challenges.  After all, we are at the end of one of the most sustained periods of economic growth, with new jobs being created by the thousands, and yet hardly a dent has been made in the hardcore of welfare dependants. The number of people on Incapacity Benefit has fallen by less then 26,000 since August 1997.

So we came into this recession with an enormous benefit bill already and one that is set to rise further and sharper, with some experts predicting that the unemployment count may rise to well over 3 million. 

Put simply we cannot afford to duck this the challenge of welfare reform any longer. As Shadow Secretary of State for Work and Pensions it is my job to face up to this challenge and take on those who say that recession is a convenient excuse to do nothing. Let's be absolutely clear. We cannot afford to do nothing. And let me be clear about this also. The next Conservative Government will take on the challenge of welfare reform. We will do so because it is right for this country and because it is right for the individuals involved and their families. 

What I want to do this morning is set out in more detail both why reform is necessary in recession but also how it can be delivered in a recession.

When Sir William Beveridge laid out the three principles that guided his design of the welfare system, the third was this:
"The State should offer security for service and contribution. The State in organising security should not stifle incentive, opportunity, responsibility".

As Conservatives, opportunity and responsibility are at the heart of our ethos and really drive so much that we do.  Beveridge's founding principles have resonance and meaning to us and this is what makes us natural supporters of the welfare state.

We believe that work is the best way out of poverty, but we also believe that support should be available to those who are genuinely not able to work, and to those who find themselves out of work temporarily. Our first principle therefore is that all those who are able to work should be in work.

So we need to re-establish the link between work and welfare.  A huge problem with welfare in this country is that it has lead to a culture of benefit dependency.  Too many have been left stranded on benefits, with income from the state being the only kind they are ever likely to experience.

This is fundamentally wrong. 

As the independent report in 2006 by Waddell and Burton to the DWP found, the benefits of work are many and they go far beyond the financial. Work is not just about earning money. It is about having purpose, interest and occupation.  Work is generally good for physical and mental health and well being but there are also important advantages for the health of communities and society as a whole. 

Being in work can improve family life - and not just through there being more money available.  Parents feel empowered and children are more likely to raise their aspiration.  It is no coincidence that benefit dependency runs in families, across generations.  If you have never seen your parents work, no wonder you will not see it as a route for yourself.

We need people to work, not just to help reduce our massive benefits bill, but also so that people can help themselves.  Moving people off benefits and into work would have a profound impact on so many of our social challenges. 

The progressive approach to welfare reform is not about attacking lone parents or those on long term benefits of any type.  Often these people are some of the most vulnerable and poorest in our society.  The current system has left them stranded on low incomes with no skills.  We have a duty to provide them with the tools and confidence to catch up. 

Neither is the progressive approach to dole out money left, right and centre.  Targeted, individual help is what is needed. Each and every claimant is a person and deserves to be treated as such.  Generic schemes like the New Deal have had a rapidly decreasing impact and claimants go round and round the system for years.  And as welfare to work providers like Tomorrow's People know for most people what is needed to get them into work is the right kind of support which is focused on their individual needs, but  sadly the system we have today is often too rigid to cope with this individual approach.   So our second principle is that Government doesn't always know best and we must harness the expertise of the private and third sectors in the job of getting people back into work.

The current welfare system is complex and confusing.  Benefits feeding off other benefits, people falling through loopholes in the system, or worse still exploiting those loopholes.  The reams of paperwork required are often repetitive and deter some of the neediest from claiming the benefits they are entitled to.  The problem is that all too often those who deserve help find the system daunting and unworkable and those who understand the system and the loopholes are the less deserving. So our third principle must be to develop a welfare system that is simple so that it is both easier for users to understand and easier for the government to identify fraud. 

Despite the strength of the arguments I have just laid out, since being appointed to this role I have been asked on numerous occasions whether we need to reassess our commitment to welfare reform.  These were proposals that were born in a time of economic boom.  We're in the grip of a bust - shouldn't we just drop these well-meaning ideas for a sunnier day?

My answer to that will always be a resounding no. 

Helping people off benefit and into the workplace, and supporting them at every stage of that journey is necessary whatever the state of the economy.  In fact, we need an even more effective and efficient system when times are bad.  As more people become unemployed the ability of the welfare system to do its job properly will become even more vital. 

The recession hasn't changed our attitude to welfare reform - if anything it has strengthened our commitment to welfare reform. 

The proposals set out by my predecessor  Chris Grayling, in our Green Paper on welfare reform published in January 2008  were not designed for one environment only - they were drawn up to operate effectively whatever the state of the economy and the jobs market. 

We need a robust welfare system that is able to withstand every twist and turn of the economic cycle.  The characteristics of the system should be that it is fair, leaving no-one behind, that it is flexible to adapt to changing circumstances and that it incorporates financial incentives for getting people into sustainable work.

It is perhaps surprising that this target obsessed government has been so reluctant to adopt targets in this area.  There has been no incentive to helping people into work and although this is now going to be introduced in the Flexible New Deal, it is frankly too little too late.

So I can confirm that we are 100 per cent committed to delivering our radical welfare reform programme designed to help the long term unemployed and those on incapacity benefit into work, working with private and voluntary sector providers and paying them by results based not just on getting people into work but on keeping them there.  Our payment by results model is still the right one even in a recession.

By choosing to engage the private and voluntary sector in the delivery of welfare to work services we are opening it up to market forces.  By making outcomes central to our system, we encourage competition, innovation and creativity within the providers.  We're not looking to impose top down targets from the centre but instead want to encourage localism. 

Only by being bold can we bring about the change we need.  As David made clear in his initial report, scale is vital to being able to roll out change and save money.  Now is not the time for half measures and timid steps - courage and tenacity are what is needed.  

The boldest step that we have signed up to is perhaps the most obvious - you wonder why the government didn't do this years ago.  I'm talking about the so called DEL-AME switch. This is the sort of thing designed to turn listeners off, but it is crucial to our reform and it shows how the rigidities of government all too often get in the way of delivery.  At the moment Treasury rules mean that money spent in the budget dealing with benefit payments - the annually managed expenditure or AME - cannot be used to pay for programmes for getting people into work - the departmental expenditure limits.

Put simply, this means that will change the way the Department deals with its budget so that under us it will be able to pay for programmes to get people into work out of savings from the benefit bill. And I'm pleased to say that George Osborne has wholeheartedly agreed to this change in Treasury rules.

The key to making the DEL-AME switch work is using private and voluntary sector providers and rewarding them based on outcomes.  We need to see positive, sustainable results and the private and voluntary sector have the best track record in this area.

Financing is obviously a key issue for providers and the Government is already finding some difficulty with its contracts for Flexible New Deal, but I do not believe it is an insurmountable one.  In recession it will obviously take longer to find jobs for those people who the welfare to work providers take on. And of course it can be even more difficult in a recession to find work for those who are on incapacity benefit or the long term unemployed. Added to that in current circumstances it will be harder for welfare to work providers to get the loans necessary to cover their initial investment. So to help to build capacity in the system and to sustain longer term involvement with clients we are considering proposals for the government to underwrite the investment initially needed.  The long term savings to the public purse in benefit payments will be more than worth an initial underwriting - similar to the loans guarantee scheme which we suggested in the autumn and the government has half adopted. 

We also need to build in some flexibility to help providers adapt to market conditions, but through innovative ideas we can make these contracts a viable, profitable enterprise through the downturn and beyond. For example, by lengthening providers' engagement with clients we give them a better chance of getting those people into work and therefore receiving their full fee. 

Those providers would therefore have an incentive to keep people work ready and this is the real key to making sure no one gets left behind by this recession.

It doesn't take long for someone who has become unemployed to fall out of the habit of work, to get into a downward spiral which often results in depression, illness and ultimately not being able to work when the upturn does come.  We owe it to these individuals to make sure that they do not get left behind. 

To this end, I believe it is critical that we give those who have lost their jobs the ability to stay in touch with the workplace, perhaps building up their skills or gaining different types of experience.  Welfare to work providers are good at this - just ask Debbie Scott. 

In his speech in Birmingham two weeks ago, David Cameron also mentioned another weakness - the imbalance in our economy.  This is a serious issue and one where I think we have a real opportunity to make a lasting and positive change.  Helping people into work is going to be easier if we train them properly for the jobs that are going to be available.  To that end, I am working closely with my colleagues in the Shadow Innovation, Universities and Skills team, headed up by David Willetts, to look at how our two departments can work together to produce the best skills and training policies.  Being job ready is essential, but being ready for a job that no longer exists is a disaster. 

I think it is fair to say that we are in the grip of an unemployment crisis that is going to get worse before it gets better.  I really, really wish that wasn't the case but in times like these, when we are facing an emergency, it is no good hoping for the best and doing nothing.  Radical, comprehensive and wholesale welfare reform has never been more urgent. 

So let me be absolutely clear. The cost of unemployment is rising due to Labour's recession. But the cost of reformed welfare is still less than the cost of an unreformed welfare system, or even of Labour's timid reforms.

And we will use some of the savings to reduce the couples' penalty in the tax credit system, as we have always set out. We will reduce the penalty over time as the savings from welfare reform come through.

One thing that is clear is that this particular recession is going to have an acute impact on the pattern of employment in this country.  The numbers of people who are out of work are swelling at an alarming rate and we need effective policies to protect them. 

But these policies can't just be a sticking plaster for the short term.  We want to be much, much more radical that that.  The ideas we are working on will offer help to people through the downturn and beyond.  We have to address the present and future effects of the recession.  We need a Britain that not only weathers the downturn but emerges from it stronger, with a skilled workforce ready to take advantage of the new opportunities.

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