Government’s employment reforms clash with its welfare plans

Good morning. The big domestic political event over the coming weeks will be the plan to reform welfare. When Labour publishes its green paper there will be plenty to say on that. For today, I wanted to talk about a neglected subplot, which is how those plans are complicated by the government’s own employment reforms.

Policy conflict

An Ed Miliband-era idea that significantly shapes how this government thinks is “pre-distribution”, which refers to reorienting the economy to fix social problems, whether through regulation or other levers, instead of spending money.

That’s partly why the government’s labour market reforms are so radical. At least in theory, the reforms save it money because businesses foot the bill instead. (There are, I think, some risks in that approach, but that’s a matter for another time.)

But there is a conflict between the government’s wide-ranging employment reforms and its hopes to increase employment by getting more of the long-term sick back into work.

There are lots of reasons why the number of people who are on some form of sickness benefit and can’t work has risen, but one is the decline of so-called light work: cinema ushers, car park attendants and so on. These jobs could be done by a wider range of people than other modern professions. (There’s an excellent post on Ben Geiger’s Substack on this if you want more.)

The government’s explicit logic behind increasing employers’ national insurance contributions is that replacing someone who sits behind a till with an automated checkout is good for the economy as a whole. This is, broadly speaking, true. But it ignores that many of the jobs that may be automated are “light”.

Part-time work helps people who have been economically inactive re-enter the labour market. Let’s say after falling ill a couple of years ago, you have recovered and want to start working again. You face two big barriers. First, unemployment benefits are significantly lower than sickness benefits, so you face a very painful cliff edge for returning to work. That is something the government can fix (and indeed will in its forthcoming green paper, though how it does may well end up being wrong-headed).

The second barrier is finding some form of light or part-time work. But increased employers’ NICs, plus the widened eligibility for statutory sick pay (for the first time, all workers, even those earning less than £6,400 a year, will be eligible), both raise the cost of hiring you. That’s not to say any or all of these plans are bad in and of themselves. It’s just to say there are big trade-offs involved.

There will be lots more to say about what is good and bad about the government’s approach to welfare reform when its green paper is published. But one problem is that, by design, government policy is eliminating many of the jobs that offered a path back into full-time work, while cutting support for those who can’t return to work without the bridge part-time work provides.

Now try this

I saw Otherland at the Almeida Theatre. It’s a thought-provoking play, though I’m not sure the switch to allegory in the second act worked for me. Sarah Hemming’s review is here.

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