Liz Kendall promises a game-changer on welfare

Seven Labour MPs had the whip suspended after voting against the two-child benefit cap, but this is a small taste of what awaits Labour. In her first major, Liz Kendall has set herself a target of hitting an 80 per cent employment rate – bolder than anything the Tories ever shot for. It is higher not only than today’s 72 per cent but (far) higher than the all-time, pre-lockdown record of 74 per cent. It is precisely the right target, for economic and social reasons. But it is one that can only be achieved via serious, game-changing welfare reform.

The new Work and Pensions Secretary has inherited a full-blown welfare crisis, with the number on disability benefits set to rise by 1,000 a day, every day, for the next four years. So how will she change it? She promises a white paper and ‘fundamental reform’. It is certainly needed. Official figures show 5.6 million (!) on out-of-work benefits, which works out as 20 per cent of working-age adults in Glasgow, Liverpool and Birmingham and 25 per cent in Blackpool. This is a staggering economic and moral failure which any self-respecting progressive government would seek to remedy.

The difficult questions start now. Will she proceed with Mel Stride’s plan to tighten welfare criteria? The Tories saw this as quite controversial: making it harder for mental health claimants to sign up, etc. Will Labour now proceed with tough-love reforms that even the Tories feared to implement? The two-child row has diverted attention from the cull. Sooner or later, backbenchers will realise this controversial crackdown is baked into the current fiscal plans - and the OBR says it will save £3 billion. So if the Tory Work Capability Assessment reform is dropped, she’ll need to find £3 billion by the time of the Autumn Statement.

My guess is that Kendall has no choice but to ratchet up welfare reform by several more notches: certainly if she stands any chance of hitting her 80 per cent target. The below graph shows DWP braced for a surge in the working-age welfare roll even after the Stride reforms: unaffordable both economically and socially. This is the ghost of Christmas future and suggests that the spending power of a Starmer government will be crippled without serious (and politically painful) welfare reform.

The Tories saw this coming, but realised they were out of time. Their 2010 welfare reform agenda was intended to tackle unemployment but the 2024 problem is how the welfare system is discombobulated by mental health complaints (a trend that predates Covid). Welfare needs to be redesigned to adjust for this effect. Kendall nodded to this when she said that ‘the current system – of DWP, JobCentres and other employment support – is almost entirely designed to address the problems of yesterday’.

There is no end of problems for today. How to means-test disability payments (PIPs) and stop them going to anyone, regardless of wealth? How to stop the system where GPs sign people on to welfare to get them out of the system and making repeat visits to the surgery asking for it? How to stop the system where those whose request is rejected then just appeal – and usually win? Kendall’s white paper could obviously ask these questions. But the risk now is that she surrounds herself with the kind of pressure groups who have spent the last 14 years campaigning against welfare reform and will not have many ideas how to respond to (or even recognise) this crisis. .

Much of what Starmer promises (stable inflation, lowering immigration, living standards recovering) was expected to happen anyway - but not an employment surge. The OBR expects employment rate to stay flat for years. Raising the employment rate even by a single percentage point takes a huge effort. The Tory ‘jobs miracle’ (achieved by tax cuts for the low-paid and all-out welfare reform) saw a lift from 70 per cent to 76 per cent. To look at the below chart - the employment level over the last half-century - is to see how tough the 80 per cent target is.

To achieve this would be a triumph of progressive politics, a feat comparable to the creation of the welfare state. Tories say that the 80 per cent target has been plucked from the air and is demonstrably unachievable. In her speech, Kendall dedicates her department to achieving it.

So as a starting point, she will have to go full-steam ahead with Mel Stride's green paper on disability allowance. New PIP claims are now at 70,000 a month, double pre-lockdown levels. The below chart shows a full picture that is not even published by the DWP (the data was extracted and released by the OBR). It suggests that things had become so bad that 4,000 people claimed sickness benefit every day. About a quarter are expected to succeed: now and the for the foreseeable. This is the calamity that Kendall has to avert.

Importantly, she has not given a deadline for this 80 per cent target. ‘I am under no illusions how big a change this will be,’ she said in her speech. A nod, perhaps, to the fact that the coming welfare battles will likely be the toughest Keir Starmer has to fight. The two-child row will be just the start.