Taking on the work and pensions brief should be the dream job for a senior Labour politician. DWP is the largest spending department, a symbol of the cradle-to-grave welfare state; and it is pivotal to two central Labour issues: inequality and labour.
But as Rachel Reeves steps into the role of Shadow Secretary of State, many within Labour ranks speak of the poisoned chalice she has accepted.
This is down to Labour’s perception problem on social security, as revealed yesterday in newspaper coverage of a leaked presentation by James Morris, the party’s main pollster. Labour is seen as soft on welfare, happy to encourage dependency and reward people who don’t make a contribution.
Finding a way around this image problem will have to be top of Rachel’s to-do list. But it must not be her only priority, because she will also face huge challenges with respect to maximising labour market opportunities and responding to the coalition’s chaotic DWP reforms.
The coalition’s agenda may well implode on Rachel’s watch. The implementation of universal credit is in crisis, the work programme is not helping people into work and the eligibility tests for the two main disability benefits are plainly failing.
In the short term the shadow team may rub their hands in glee and simply set about exposing government incompetence. But Labour also needs to decide how it will pick up the pieces.
Some whisper that universal credit may never see the light of day, leaving Labour left to start afresh if it returns to power. The work programme could be proof that we have reached the end of the road on huge ‘black box’ public service outsourcing. Instead Labour is exploring the idea of ‘going local’ by handing responsibility for employment programmes to cities, where they could be integrated with skills and economic development initiatives. But there’s a lot of detail to be worked through.
Labour’s perception problem is a challenge not just because the party is on the wrong side of public opinion, but because public opinion is largely based on misconceptions: only a quarter of social security goes on people of working age without jobs and benefit fraud is low.
Before the recession Labour had a strong record, having reduced the numbers out of work, beefed up both ‘carrots’ and ‘sticks’ for benefit recipients, and made work pay. Labour was spending less of national income on social security, not more, and the prognosis for the next few decades is steady decline in benefit spending, not a budget out of control.
This leaves Labour with a problem, because it cannot win an argument with the public by telling them they are wrong; but nor can it apologise when the party feels there is little to say sorry for, unlike with say mass immigration or banking regulation.
One answer for Rachel is to show that Labour is serious about spending restraint. For whatever the state of public opinion, Labour will need to keep a lid on social security costs – the principle behind the Labour’s proposed ‘cap’ on social security.
The party must be very careful with its design, however, and first establish how far it might be prepared to go in reforming individual benefits, before setting an upper ceiling on the overall budget.
The most important Fabian work for Rachel to read will be the final report of the Fabian Society’s commission on spending choices, released next Wednesday.
To take one example that the commission has considered, a future Labour government could promise to spend £5 billion less than currently forecast on benefit spending in 2017. The party would hope to save some of this money by reducing levels of unemployment, involuntary part time work and low pay. But failing that, it would have to feel confident that acceptable, ‘least bad’ benefit cuts of this level could be found.
The Fabian commission examined all the current proposals for social security and rejected most of the possibilities, either because they would reduce the incomes of poor families or fatally undermine universalism. However, we could imagine a few billion pounds of savings, targeted largely at older people (which will of course be controversial).
Finally Rachel’s shadow DWP team should start to think about long term reforms for once the deficit is closed. Labour must stay true to its egalitarian roots. In office the party forged a powerful cross-party consensus on pension reform which is leading to a permanent reduction in pensioner poverty. But no such consensus exists for children and working-age adults. Reducing poverty for these groups means better interventions to give every child the capabilities to succeed; and successful market reforms to increase employment, reduce the extent of poverty pay, and keep a lid on spiralling living costs.
But in the absence of far-reaching changes to the economy, we also need to debate how generous our social security system should be, and that includes tackling the difficult question of raising benefits in line with average earnings. Rachel should seek a long term strategy to ensure the living standards of people in low income households do not fall further and further behind.