Work over welfare:
lessons from America

The UK context

After 1979, there was a noticeable tendency in British government to look towards neo-liberal policy solutions from the United States, Australia, New Zealand and even the tiger economies of the Far East – the welfare states often described in social policy texts as the ‘welfare laggards’. And, according to the OECD, these are also the countries with consistently higher than average levels of inequality.28 Inevitably, the solutions on offer tend to emphasise means-tested, low-cost and market-driven policy solutions in contrast to the social insurance, solidarity-based, social democratic welfare regimes in Europe, such as in Sweden and Denmark. This trend did not end in 1997 and, arguably, our own rather mixed welfare economy combining both social insurance and means-tested social assistance perhaps now increasingly resembles the neo-liberal, means-tested welfare model – or does it?

Both work and welfare

In contrast to the US, the British government has been engaged in an ambitious attempt to both increase employment rates through welfare-to-work policies, while at the same time aiming to abolish child poverty – a unique and historic pledge. Equally, in some parts of our welfare state, notably education and health, and more recently in early years care and education, spending has increased significantly. We have also seen the introduction of a national minimum wage and efforts to improve work–life balance through extensions to parental leave arrangements and pay, and new rights to request flexible working. And spending on tax credits, perhaps the key mechanism for poverty reduction, has been considerable. This emphasis has been in stark contrast to the simple emphasis on reducing welfare rolls characterised by the 1996 US welfare reforms.

The British New Deal

Our own New Deal package, introduced in 1998, was (unlike the 1935 New Deal in America) not a watershed poverty-reduction programme – that came later with tax credits – but rather a welfare-to-work initiative. It aimed to address the huge increase in unemployment that had taken place in the 1980s and early 1990s and perhaps shared the Roosevelt ambition for persistent experimentation – but there the similarity ends. It did, however, represent a step-change in British policy towards the unemployed and lone parents, acknowledging, among other things, their own ambition to work.

Recent developments

But the introduction of the Welfare Reform Bill 2006 raised alarm bells, stepping up as it did the work-focused interview regime for lone parents with children over 11 and, for the first time, extending a similar regime to those on incapacity benefit. It prompted questions about whether there had been an ideological shift or whether it was just an extension of what had gone before but with an added degree of impatience – particularly in view of the tight financial settlement likely to be facing the Department for Work and Pensions (DWP) in the 2007 Comprehensive Spending Review. But the recent Freud Report recommendations, now confirmed in the latest DWP child poverty strategy document, makes explicit the appetite to move towards greater conditionality, including moving to the jobseeker’s allowance regime for lone parents with children aged 12 and over.29

Has the Government been influenced by the US approach? And, what is the approach of any future government likely to be? It seems important to hold fast to our understanding that UK welfare reforms have to date been extremely successful and that, in fact, the US has more to learn from us than the other way round. But does the US evidence shake us in this belief?

What are the key UK findings?

Since the focus of US reform has been lone parents on welfare, it is important to make some brief comparisons with the UK. Britain has a lower, though roughly similar, proportion of one-parent families – here too they became a focus for the debate around social security reform, particularly in the 1980s. In Britain, they represent around one-quarter of all families and in the US a little more than this, at around 27 per cent. Here, as in the US, lone parents are the poorest family type and rely for a significant proportion of their income on means-tested social assistance such as income support and in-work benefits, such as working tax credit. Support from child maintenance is minimal, with only around three in ten lone parents receiving any. We need not account here for the failure of the Child Support Agency to make any inroads into this figure. But, on the positive side, since 1997 lone parents have benefited from the voluntary New Deal for Lone Parents (NDLP) scheme, the national minimum wage, improvements in work–life balance measures, childcare and perhaps, most significantly, from increases in tax credits.

Two targets

In 1999, the ambition to end child poverty was announced, with interim targets to reduce it by one-quarter by 2005, to halve it in ten years and eliminate it in twenty. The British government failed to reach its first target to reduce child poverty by one-quarter and the latest figures show a rise of at least 100,000 more children in poverty.30 Nevertheless, it has made significant inroads on poverty levels, reducing child poverty by around 600,000 children. But its ambition to halve child poverty by 2010 will be difficult to achieve without significant further action and investment. According to the Institute for Fiscal Studies, it will take a further £4 billion to achieve it. 31

Poverty in one-parent families increased dramatically from 26 per cent in 1979 to 62 per cent in 1997 (64 per cent of children), the present government has reduced poverty to a much improved 49 per cent by 2005/06 (and 50 per cent of children).32 And, it is still the case that 42 per cent of all poor children live in one-parent families. But, in contrast to the US reforms, the ambition here has been both to increase employment rates and to reduce child poverty at the same time. Through its combination of tax credits and welfare-to-work policies, and with a favourable economy, the UK government has achieved an increase in the lone-parent employment rate from 46.6 per cent in 1998, when NDLP was introduced, to 56.5 per cent in 2006, a significant achievement. In 2000, a target to get 70 per cent of lone parents into paid work by 2010, was announced.

For the government to meet this target, the increase in lone-parent employment in the second half of this decade needs to rise three times as fast as it did in the first half-decade.33 This perhaps explains the government’s recent appetite to consider greater conditionality to achieve it. This was always the double-edged nature of the target. On the one hand, it heralded unprecedented investment in welfare-to-work and infrastructure developments like childcare, yet on the other hand many warned it was unachievable and would ultimately result in a risk of more compulsion.

Increasing participation in the NDLP

The voluntary NDLP programme has been an enormous success. It has been shown to double lone parents’ chances of getting into work. 34 And, employment rates have risen substantially. The highly motivated and committed advisers have been shown to be very effective.35 Yet participation rates remain fairly low at around 10 per cent.36 A question remains about how to increase these participation rates – schemes have been piloted such as discovery weeks and childcare taster sessions – but none has as yet been rolled out. Instead, an increase in work-focused interviews and the proposed work-related activity premium are set to do the job as part of the Welfare Reform Bill package. Unfortunately, evidence to date suggests the latter will have little impact on the number of claimants moving into paid work.37 Although work-focused interviews have extended the conditionality within the system, the evidence suggests that while they can be a useful information tool, their impacts on employment are extremely modest. Analysis of the extension of work-focused interviews to lone parents with children aged under three in 2003, concluded that: ‘the LPWFI [lone parent work-focused interview] impact of 1.5 to 2 percentage points relative to the base exit amounted to a reasonable increase.’38 However, this research was unable to separate out the impact of work-focused interviews from that of tax credits, and given that the Institute for Fiscal Studies estimates that the impact of tax and benefit changes between 2000 and 2003 – ie, principally the introduction of new tax credits – has increased lone mothers’ labour supply by 3.38 percentage points39 it is arguable that the whole of the effect attributed to work-focused interviews in this case can be explained by the introduction of tax credits.

The work-related activity premium looks more promising, as it consists of a proposed £20 payment to encourage participation in a number of activities to move claimants closer to the labour market. Presumably this includes the NDLP. But it will be difficult to justify the lower income on offer to those who are genuinely unable to prioritise work-search because of other responsibilities and who, therefore, take up their right to opt out. Nevertheless, Gregg and others have suggested that, in total, the effect of measures announced in the Welfare Reform Green Paper, plus changes already announced, when added to changes in the composition of the lone-parent group, plus improvements in childcare availability, will result in lone-parent employment rates of 65.5 per cent by 2010.40

Building on the New Deal for Lone Parents

NDLP is based on a voluntary, tailored, personal adviser service with some funds via an advisers’ discretionary fund (recently reduced) for childcare and training up to NVQ level two only. Experiments are underway with a ‘New Deal Plus’, which offers increased incentives including guaranteed childcare places and an in-work credit of £40 for the first year in work and access to an in-work emergency fund. Also, there are funds for training up to NVQ level three. The Budget 2007 has recently extended the in-work credit until June 2008 and increased the rate to £60 in London. Linking the credit to adviser support is to be piloted to promote job retention for lone parents.

NDLP Plus has also been extended until March 2011 and expanded to cover the whole of London. Key elements of NDLP Plus are to be extended to couple families in the pilot areas. But there is no news about when these pilots will be extended nationwide. And positive, sector-led programmes such as ‘Ambition’, which offered training and a job placement, have not been continued beyond the pilot stage. In the end, the future of these positive developments will depend on the government’s willingness to make any further investment in the scheme and, for example, take the decision to roll out the New Deal Plus nationwide.

Job sustainability and progression

Only 6 to 7 per cent of participants on the NDLP are referred to training and education,41 largely as a result of the work-first approach adopted here under the influence of US evidence. And, little attention is paid to the quality of jobs, with most entering low-pay, low-skill jobs in typically gendered occupations such as catering, cleaning, care, retail, clerical, hair and beauty services. There is often little opportunity for progression and advancement. There are also questions about job retention and sustainability. There are, in reality, few incentives to encourage placement of lone parents in sustainable employment, as even employment zone targets require an outcome of only 13 weeks in work. This is despite the recommendations in the Leitch Review that employment and skills services should share: ‘a new single objective of sustained employment and progression opportunities,’ reflected in the targets worked to throughout the system.42 And, as time goes on, NDLP participants are likely to be parents who need more support to move into paid work – that is, those furthest from the labour market. We know from research into severe and persistent child poverty that frequent transitions in and out of work by parents increases the likelihood their children will experience severe hardship. The authors conclude that reducing the number of such transitions through retention policies is the best form of protection against severe poverty43 - the miracle is that families in these circumstances persist in trying.

Retention and advancement

A clue to progress is offered by evidence on retention. Evaluations have shown that 29 per cent of lone parents who get a job return to income support within a year44 and were twice as likely as other groups to leave their jobs. The research team concluded that if lone parents had the same job exit rates as the rest of the population then, at current job entry rates, the 70 per cent target could be met without greatly increasing job entry rates any further.45 Therefore, much more emphasis is needed on training, job quality, placement, retention and advancement – helping work to stick, rather than wielding one.

The Government Employment Retention and Advancement pilots due to report in 2010 will also add to our knowledge about how to improve sustainability for low-paid workers. Evidence from the qualitative research being undertaken around this project suggests that help at this stage is something that is needed, finding that:46

This study of people’s understandings of retention and advancement provides evidence of the need for continuing in-work support. Individuals may overcome employment barriers sufficiently to enter work, but these difficulties may continue to present challenges that need to be managed. New problems can also arise in work, such as job redundancy and issues with childcare, transportation, finances and job satisfaction.

The study also provides evidence that pilots increased wages by making it more likely lone parents would work full time.

Next steps and future investment

The UK policy in this area has been very successful, but future progress will rest on the level of investment made and the willingness to invest in the more developed schemes that promise to deliver improved results, such as the New Deal Plus. Arguably, there should be a renewed emphasis on skills and on job retention and advancement in order to reduce child poverty in the long term. There is some level of agreement in both the Harker and Freud reports about the need for greater support in this area.47 However, the Freud Review and now the DWP’s own child poverty strategy talk of introducing the jobseeker’s allowance regime for lone parents with a youngest child of 12 or more.48 The DWP describes it as ‘the right direction of travel’, although the Minister, John Hutton, continues to reject time-limiting benefits.49 Both Freud and the DWP refer to the National Childcare Strategy providing wraparound care by 2010 – yet although this is the published timetable, it is by no means guaranteed that it can be delivered on time. Childcare is still harder to come by in the poorest areas and is less accessible to those with disabled children, to black and minority ethnic (BME) families and to those in rural areas. Use of childcare has increased by half as much for lone parents and BME families as for other families.50 After-school care for the over-12s is also a long way from being delivered and often consists of re-badged after-school activities. New money was announced in Budget 2007, but timing will continue to be an issue if the DWP wishes to pursue its ambitions in this direction.

Key US findings

A number of conclusions can be drawn from the evidence presented here. First, employment rates for those previously receiving TANF have undeniably increased. But the role of tougher conditions in achieving this, in contrast to the massively increased investment in childcare, in-work support and a booming economy is unclear. We cannot necessarily draw the conclusion from the US that it is tough work conditions that make the difference in achieving high employment rates.

Second, this employment increase was not particularly effective (nor was it aimed at) cutting child poverty rates. Those in work were not particularly better off, and, as the economy has slowed, child poverty rates have risen.

Third, the reason for the poor performance on child poverty may be partly because not all of those who left welfare went into work. One side effect of tough welfare reforms may be to drive people out of the system altogether. And, there are now roughly one million poor single mothers – with two million children – in an average month who fall into this ‘no work, no welfare’ group.

Fourth, tough welfare conditions may have other damaging side effects, for example, on the behaviour of teenage children whose mothers are forced into work yet have neither adequate support nor childcare provision in place.

Finally, the US poverty measure tells us very little about child poverty as we would understand it in the UK context. Rather, it tells us about those moving from deepest poverty to just above the US official poverty line. It tells us next to nothing about the risk of poverty for those on marginally higher incomes, including those already in paid work. As a method of judging the success of the 1996 policy in terms of reducing child poverty it is not very helpful. Evidence from the OECD is more helpful here and the news is that the US system remains very poor at reducing child poverty rates overall.

The OECD looked at what works best – benefit or work strategies.51 It concludes that although all countries with very low levels of child poverty also have relatively low levels of joblessness, not all countries with low joblessness (like the US) have low poverty and this is because they have high levels of poverty among working families, plus tax and benefit systems that are not very effective in reducing it. According to the OECD, effective reforms include reducing joblessness and encouraging employment among partners in single income families – but neither would be effective in the US unless in-work poverty was also reduced. An approach that increases both employment rates and the rewards from paid work was preferred. Purely benefit strategies, although extremely effective, would mean most countries spending more than Sweden, in order to match Sweden’s already below average pre-transfer poverty levels. The UK benefits and tax credits system was deemed to be much more effective at reducing child poverty than the US.

Lessons from America

It seems unlikely that Britons would be prepared to tolerate the social costs that have emerged as a result of the US welfare experiment – survey evidence would suggest not.52 The recent UNICEF report places the US and UK at the bottom of the table on a range of indicators of child wellbeing. There is clearly much that both countries have to learn about policies that both reduce child poverty and increase child wellbeing, illustrated by those countries at the top of the table, such as the Nordic countries and Holland.53 One obvious point of contrast is the existence of high-quality, publicly-funded childcare services as well as more generous benefits, more effective child maintenance systems and better-paid jobs.

Yet, despite significant differences in the policy instruments in use, there is evidence that some rather similar conclusions can be drawn from both sides of the Atlantic – the UK being in the happy position of not having had to suffer the consequences of the more radical US approach to find this out. These conclusions may not be new, but it is important to reiterate them. From the US we have learned about the importance of trying out new ideas and focusing more help on transitions to work and in-work support. In the UK, tax credits, the New Deal, New Deal Plus and Employment Zone pilots are perhaps evidence of this. We have also seen both countries demonstrate the vital role played by infrastructure developments such as childcare, employment support, national minimum wage and employment subsidies. In the UK, we have also had the advantage of improvements in work–life balance measures not seen in the US. And we know that pre-school children can gain educational advantages from good, pre-school education, especially those from disadvantaged backgrounds.54 However, from the US there are alarm bells about the possible impacts on teenage children, concerns which have perhaps been ignored in the recent welfare reform debate.

Despite projects underway – it is fair to say that on both sides of the Atlantic we have yet to master the skills agenda, training, placement in suitable jobs, retention and advancement. On this we can learn from the New Zealand experiments, where full work-search for lone-parents with school-aged children was shown to be counter-productive in terms of staff time and resources, chasing non-attendance and applying sanctions.55 The income supports and childcare infrastructure needed to make it effective had not been developed. The results were poor, both in terms of movements off benefit and failure to raise incomes. As a result, the scheme was scrapped and replaced by an enhanced case management approach providing assessment and support into sustainable paid work according to personal circumstances and as their parental responsibilities allowed. Evidence from the UK’s Employment Retention and Advancement Project will give us further guidance on what works best here. The US also has perhaps much to learn from the UK, both about the benefits of voluntary and tailored programmes such as NDLP and universal programmes such as the National Childcare Strategy.

On work first and compulsion to work, being able to judge the outcomes depends almost entirely on what your objectives are. Stated baldly, if you make work compulsory, then more people will end up in work – but this has no automatic pay-off either in terms of child poverty reduction or child wellbeing. Indeed, where poverty reduction is concerned, the US has much to learn from the UK.

From the UK perspective, we need to acknowledge the success of programmes such as NDLP and invest further in the positive extensions of these programmes, such as in the New Deal Plus – aspects of which currently wait on the back burner for the resources needed to roll them out across the country. Rather than look to America for solutions, we could do worse than look to our own results for a more positive model.

Notes

28. See note 3
29. D Freud, Reducing Dependency, Increasing Opportunity: options for the future of welfare to work, Corporate Document Services, 2007
30. Department for Work and Pensions, Households Below Average Income 1994/95 – 2005/06, Corporate Document Services, 2007
31. M Brewer, A Goodman, A Muriel and L Sibieta, Poverty and Inequality in the UK: 2007, Briefing Note No. 73, Institute for Fiscal Studies, 2007
32. See note 30
33. One Parent Families, Meeting the Target: how can the Government achieve a 70 per cent employment rate for lone parents? Part 2 – routes forward, OPF, 2005
34. M Evans, J Eyre, J Millar and S Sarre, New Deal for Lone Parents: second synthesis of the national evaluation, DWP Research Report 163, DWP, 2003
35. See note 34
36. See note 33
37. G Knight and S Lissenburgh, Evaluation of Lone Parent Work-focused Interviews: final findings from administrative data analysis, DWP Research Report 182, DWP, 2004
38. G Knight and A Thomas, Lone Parents Work-focused Interview and Review Meetings Administrative Data Analyses and Qualitative Evidence Final Report, DWP Research Report 315 DWP, 2006
39. R Blundell, M Brewer and A Shepherd, The Impact of Tax and Benefit Changes Between April 2000 and April 2003 on Parents’ Labour Supply, Institute for Fiscal Studies, 2004
40. P Gregg, S Harkness and L Macmillan, Welfare to Work Policies and Child Poverty: a review of issues relating to the labour market and economy, Joseph Rowntree Foundation, 2006
41. See note 34
42. Lord S Leitch, Prosperity for All in the Global Economy: world class skills, HM Treasury, 2003, available at www.hm-treasury.gov.uk/independent_reviews/leitch_review/review_leitch_index.cfm
43. S Middleton and others, Britain’s Poorest Children: severe and persistent poverty and social exclusion, Save the Children, 2004; M Magadi and S Middleton, Britain’s Poorest Children Revisited: evidence from the BHPS CRSP Research Report 3, Save the Children, 2005. Severe poverty is defined as below 27 per cent median income, persistent poverty as three or more years in poverty.
44. See note 34
45. M Evans, S Harkness and R Arigoni Ortiz, Lone Parents Cycling Between Work and Benefits, DWP Research Report No 217, DWP, 2004
46. L Hoggart, V Campbell-Barr, K Ray and S Vergeris, Staying in Work and Moving Up: evidence from the UK employment retention and advancement (ERA) demonstration, DWP Research Report 381, Corporate Document Services, 2006, available at www.dwp.gov.uk/asd/asd5/rports2005-2006/rrep381.pdf
47. L Harker, Delivering on Child Poverty: what would it take?, Cm 6951, The Stationery Office, 2006; D Freud, Reducing Dependency, Increasing Opportunity: options for the future of welfare to work, an independent report to DWP, Corporate Document Services, 2007
48. Department for Work and Pensions, Working for Children, Cm 7076, The Stationery Office, 2007
49. House of Commons Hansard, 12 March 2007, col 4
50. Daycare Trust, Childcare Today, Daycare Trust, 2006
51. P Whiteford and W Adema, What Works Best in Reducing Child Poverty: a benefit or work strategy?, OECD Social, Employment and Migration Working Papers, No. 51, OECD, 2007
52. See for example, A Park and others, British Social Attitudes, The 21st Report, NatCen, Sage, 2004. The British public were keener on ‘carrots’, such as income top-ups, than ‘sticks’, such as benefit sanctions, but a modest majority supported sanctions if people failed to take advantage of help to find work.
53. UNICEF, Child Poverty in Perspective: an overview of child well-being in rich countries, Innocenti Report Card 7, UNICEF, 2007
54. Sylva, Meluish, Sammons, Sirai-Blatchford and Taggert, The Effective Provision of Pre-School Education (EPPE) Project: findings from the early primary years, Department for Education and Skills, 2004
55. M Evans and J Millar, Lone Parents and Employment: international comparisons of what works, CLASP/DWP, 2003

Contents

Executive summary

Section 1
The Clinton reforms
Lessons for the UK
Americal welfare benefits
The 1996 reforms: the Personal Responsibility and Work Opportunity Reconciliation Act Key changes
The broader context in which TANF was implemented
US poverty measurement

Section 2
What are the key US findings?

Setion 3
The UK context
What are the key UK findings?

Notes

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