Alison Garnham

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Executive summary (Download the Executive summary (37 KB PDF file)

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

Copyright and bibliographic information

Published by CPAG 94 White Lion Street London N1 9PF
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Charity No. 294841
© Child Poverty Action Group 2007

The views expressed in this book are the author’s and do not necessarily express those of CPAG.

This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

A CIP record for this book is available from the British Library

IBSN 978 1 906076 10 8

Acknowledgements

Enormous thanks are due to Mark Greenberg of the Centre for American Progress, Washington DC, for his helpful advice and kind permission to use his material. Thanks also to Tim Smeeding for allowing me to reproduce his data in Figure 2. Credit is also due to Kate Bell of One Parent Families for her helpful comments and excellent additional material. Thanks too to Gabrielle Preston for her work on the Executive Summary.

About the author

Alison Garnham is joint Chief Executive of the Daycare Trust, taking up her position in June 2006. Prior to this, for nine years she was the Director of Policy and Research at One Parent Families. She worked for many years as a welfare rights adviser and for a number of women’s organisations before, in 1989, joining Child Poverty Action Group (CPAG), where she co-authored a number of publications about child support. She has subsequently written about lone parenthood and child poverty, including an edition of Poverty: the facts, published by CPAG. Before joining One Parent Families she was Senior Lecturer in Social Policy at the University of North London (now London Metropolitan University) where she has also been an Honorary Research Fellow. She is a member of the Social Security Advisory Committee.

She is writing in a personal capacity.

Executive summary

In 1996, controversial welfare reforms were introduced in the United States. Ten years on, they have been presented as an unqualified success in terms of a reduced welfare caseload. Although it is difficult to compare policy outcomes between countries with very different cultural and social histories, this briefing considers whether the UK should draw on the American 'work-first' approach, whether the US should learn from the UK's experiences, or whether both countries should draw on policies that have proved more effective elsewhere.

Lessons from the US?

In 1996 the Personal Responsibility and Work Opportunity Reconciliation Act was introduced in the US. This replaced the Aid to Families with Dependent Children (the key policy instrument to protect families with children) with the Temporary Assistance for Needy Families (TANF) programme. Individual states now determine eligibility for cash assistance (there is no duty to assist any family), time limits and work requirements for families receiving help. Lone-parent families are the most affected.

TANF was implemented in a context of:

• a near full-employment economy;
• a large expansion of earned income tax credit;
• minimum wage increases;
• a tripling of childcare spending - from $4 billion in 1997 to $11.9 billion in 2004;
• more spending on work supports, and expansion in Medicaid and the State Children's Health Insurance Programme;
• stronger child support enforcement and more money to states through TANF block grants.

However, there are a number of problems associated with the reform programme.

Tough work conditions do not necessarily achieve high employment rates.

Although employment rates for those previously receiving TANF have increased, the impact of tougher conditions, as opposed to increased investment in childcare, in-work support and a booming economy, is unclear.

• Employment rates have risen from a relatively high starting point of 65 per cent for married mothers and 63 per cent for lone mothers.
• The employment rate peaked in 2000 for both groups, but has since decreased slightly.
• The number of lone parents in work but not claiming welfare rose from 32.2 per cent in 1996 to 46.6 per cent in 2004. However, those in work were not necessarily better off.

An increase in employment does not necessarily reduce child poverty.

The increase in employment has not been effective in (nor was it aimed at) cutting child poverty rates. According to the US poverty measure, child poverty levels were:

• 22.7 per cent in 1993;
• 16.2 per cent in 2000;
• 17.8 per cent in 2004 - that is, an extra 1.4 million poor children since 2000.

Tough welfare reforms may drive people into a 'no work, no welfare' group.

The decrease in TANF participation accounts for more than half - 57 per cent - of the decline in caseloads since 1996. Fewer now claim TANF, but it also fails to protect the most vulnerable. The number of people jobless but not receiving cash assistance has increased significantly from 16.4 per cent in 1996 to 32.6 per cent in 2004. Around one million mothers, with two million children, now fall into this 'no work, no welfare' group.

Sanctions have impacted on the most vulnerable groups.

Those most likely to be sanctioned are those least likely to be able to get and keep a job - for example, lone parents:

• furthest from the labour market;
• without unemployment insurance;
• lacking skills and qualifications;
• who are sick or disabled or who have children who are;
• who have large families and additional problems perhaps including mental illness or drug addiction.

Very few (37 per cent) stay in jobs for every quarter of the year, suggesting many people cycle in and out of work.

The impact of the reforms on child wellbeing has been mixed.

Positive impacts on school achievement for children aged five are confined to work programmes that increase family incomes through earnings supplements, and are related to attendance at centre-based childcare during pre-school years.

Data for adolescents (aged 10-16) shows below average school performance and a slightly increased likelihood of repeating a grade or needing special education classes. Some adolescents may be taking on early childcare responsibilities because of their mothers' work.

Lessons from the UK?

In contrast, the British government has attempted to increase employment rates through welfare-to-work policies at the same time as aiming to abolish child poverty. Reducing child poverty rather than caseloads has been a priority and the government has:

• increased spending on education, health and early years care;
• introduced a national minimum wage;
• improved the work-life balance through extensions to parental leave and rights to flexible working;
• invested heavily in tax credits.

As a result, child poverty has fallen by around 600,000 children, although it is estimated that halving child poverty by 2010 requires a further £4 billion investment.

Next steps

The US experience highlights the need to:

• build skills, improve job quality, increase family incomes and mix individualised employment, training and other services with attention to local labour markets;
• recognise that job retention and advancement are affected by wages and the quality of initial job placements;
• improve child wellbeing by connecting families with stable, highquality childcare, and ensure that employment translates into increased family income.

However, the TANF re-authorisation Bill, recently enacted by Congress, does not reflect these key lessons, and the focus remains on cutting caseloads.

The UK experience highlights the need for:

• continued investment in tax credits and voluntary programmes such as the New Deal;
• an infrastructure of childcare, employment support, a national minimum wage and employment subsidies;
• continued improvements in work-life balance;
• good, pre-school education, especially for those from disadvantaged backgrounds;
• a national roll-out and further investment in schemes such as the New Deal Plus.

However, the recently published Freud report and the Department for Work and Pensions child poverty strategy discuss introducing higher levels of conditionality and sanctions for lone parents.

Conclusions

• Tough work conditions alone do not necessarily achieve high employment rates.
• An increase in employment does not necessarily reduce child poverty.
• The UK benefits and tax credits system is much more effective at reducing child poverty than that in the US.
• Tough welfare reforms may drive people into a 'no work, no welfare' group.
• An approach that increases both employment rates and the rewards from paid work is required.
• More emphasis is needed on improving the skills agenda, training, placement in suitable jobs, and job progressions and advancement.

The recent UNICEF report places the US and UK at the bottom of the table on a range of indicators of child wellbeing. Both countries have much to learn from those at the top - Scandinavia and Holland - where high-quality, publicly-funded childcare, generous benefits, an effective child maintenance system and better-paid jobs are all in evidence.

Work over welfare: lessons from America?

According to new media-received wisdom, the controversial 1996 Clinton welfare reforms – despite outright opposition from liberal America – have been shown, in practice, to be an unqualified success. Ten years on, it is argued, employment rates are up and child poverty is down. If this is true, why are we not prepared to bite the bullet and accept that the compulsory work-first approach is needed to reduce UK worklessness? Could US-style ‘tough love’ be the answer to UK child poverty? Have we anything to teach the US?

The Clinton reforms

It has been more than ten years since the introduction of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996. Bill Clinton, who had proposed time limits to social assistance along with work programmes for those who reached the time limits, was eventually strong-armed into agreeing to a much more radical piece of legislation that ended entitlements to assistance for poor families with children and allowed states to cut off and time-limit assistance to families. The centrepiece of the reforms was the replacement of Aid to Families with Dependent Children (AFDC) with the Temporary Assistance for Needy Families (TANF) programme. For ‘families’, read ‘one-parent families’, as they are the main recipients of AFDC/TANF. As Ron Haskins, a key staffer on the Republican House Ways and Means Committee and one of the architects of the 1996 reforms, says: ‘The pattern is clear: earnings up, welfare down. This is the very definition of reducing welfare dependency.1 Clinton, whilst initially reluctant to sign the Bill, was eventually persuaded to do so.

Lessons for the UK?

Does the US experience have any resonance here? Recent interest in the so-called Clinton welfare reforms, seems so far to be media led, rather as interest in Charles Murray and the underclass theorists was in the 1980s. Undoubtedly, belief in the moral and social benefits of work bind US and UK social policy thinking historically, dating back to our export of Elizabethan poor law and returning to us reinvigorated through present day neo-liberal policies. Nevertheless, we should be careful both about comparing policy outcomes and attempting to uproot policy and practice from one country to another with quite different cultural and social histories.2 Clearly, in order to assess the success or failure of the 1996 US welfare reforms, we also need to analyse the context of the reforms, what they sought to achieve, the economic and social background to the reforms and the comparability of the results.

American welfare benefits

The US welfare system is not particularly effective at lifting people out of relative income poverty. In most OECD countries the combined effect of taxes and benefits is to lift, on average, more than half of the population out of poverty.3 But in the US the effect is only to lift out one-quarter of those below the threshold – compared with more than two-thirds in Denmark and more than one-half in the UK.

Social security

The focus on recent welfare reform perhaps risks misrepresenting the US welfare system. Whilst social assistance in the form of TANF is available almost exclusively to poor, lone parents, this is not the sole form of social protection in the US. There is also the system of insurance-based benefits for old age, survivors and disability, commonly referred to in the US as ‘social security’. Introduced as a centrepiece of the 1935 Social Security Act – Franklin Delano Roosevelt’s ‘New Deal’ package – it remains a popular feature of US income maintenance and has been defended successfully against numerous attempts to cut it back, due mainly to its popularity. Observers might note with some irony that whilst in Britain the term ‘welfare’ is now commonly substituted for what was once referred to as ‘social security’, in the US, social security remains the reference point for this most popular form of insurance-based, income maintenance. An unemployment insurance system also provides support for up to 26 weeks for unemployed workers who meet specified requirements. Roosevelt’s New Deal also introduced the idea that to tackle poverty there would need to be continual policy experimentation and development – a piloting approach arguably adopted only recently in the UK.

Welfare

A supplemental security income (SSI) provides means-tested assistance for elderly and disabled people. But the key policy instrument developed to protect families with children was AFDC, a scheme introduced in 1935 and now replaced by TANF – commonly referred to as ‘welfare’. Intended originally to prevent poor lone mothers from having their children taken into care and to provide support without being in the labour market, it unintentionally became a piecemeal social assistance safety net mainly for one-parent families. Couples can claim, but income tests are generally too low for even unemployed families to qualify. There is no further means-tested income support outside of these programmes. The US system is split not only between social insurance and means-tested programmes, but also between federal and state-level legislation. There is massive variation within the US in both the type of schemes implemented and the amounts paid in assistance. Therefore, the results of policy interventions vary state by state.

Race and gender

There is also a race and gender dimension to these benefits. The social security entitlement based on a family wage model means those least likely to qualify include lone parents, widows and disabled people, hence the reliance of many lone parents on welfare and the high risk of poverty this entails. Numbers claiming AFDC increased significantly in the 1970s and 1980s, a ‘welfare explosion’ often credited to the civil and welfare rights movements of the 1960s which enfranchised many black people in the welfare state for the first time.4 Significant cuts to eligibility and benefits were made in the Reagan era in the run-up to the PRWORA, and the demonisation of the (often black) ‘welfare mom’ played a key role in these developments.

Work first

From the 1960s onwards, work requirements began to be introduced in some states. Starting in 1988, all states were required to operate work-related services for AFDC families with children aged three and over. Federal matching funds were made available to support childcare. In the 1980s and 1990s, there were early indications that more sustained impacts were likely from programmes emphasising a range of services including job search, work experience and education and training. Nevertheless, evidence from random assignment trials showed schemes relying chiefly on one service such as job search or basic education alone showed weak impacts. This evidence was used to dismiss all education and training schemes in favour of a ‘work-first’ approach with rapid labour market attachment and strong job search requirements,5 despite evidence of mostly very modest rises in employment rates due to work-first programmes. Nevertheless, it was the cheapest and most politically expedient conclusion to draw. From 1992, President Bush allowed states to apply for waivers to alter programmes in favour, for example, of more work requirements and time limits. This approach continued with Clinton.

Mixed programmes perform best

Under TANF, states were given broad discretion to use their block grant funds to operate programmes to help lone parents find employment (among other purposes), but states generally focused on immediate employment rather than skill-building strategies; less than 1 per cent of funds were used for education and training by 2000.6 This, despite the fact that the strongest employment results came from mixed welfare-to-work programmes such as the Portland programme, which places a strong emphasis on employment, but also on job search, education and training. Career interests and job skills were identified and opportunities provided to train for high-demand jobs and job search to match the new skills. Rather than take the first available job, participants were urged to wait for a good job, one paying at least 25 per cent above minimum wage and offering a chance for stable employment.7

The 1996 reforms:
the Personal Responsibility and Work Opportunity Reconciliation Act

Key changes

• Replacement of AFDC with TANF block grant.
• Block grants mean a fixed sum (with no inflationary increase since 1996 – a real-terms cut of 22 per cent 8) to provide:
  o social assistance to needy families;
  o programmes to ‘end dependence’ through job preparation, work and marriage;
  o reduce extra-marital childbearing; and
  o promote marriage.
• Maintenance of effort. States are allowed to reduce their own spending to 75–80 per cent of the amount they had been spending in 1994.
• Individual states can determine eligibility for cash assistance, who for and how much – but certain groups are prohibited and there is no duty to assist any family.
• Time limits for assistance. States cannot use federal funds to provide assistance for more than 60 months – exceptions for up to 20 per cent of the caseload; states can choose to impose shorter time limits.
• Work requirements for families receiving assistance. States will be penalised unless a specified percentage of families are participating in work activities, but the requirements are reduced if state caseloads fall, resulting in a strong incentive to simply cut caseloads.
• Education and training can only count to meet requirements for a limited period.
• Childcare. TANF funds can be transferred into childcare programmes.
• And, $55 billion cuts in:
  o Food Stamp Programme ($28 billion in cuts);
  o income assistance;
  o nutritional aid and Medicaid to legal immigrants ($22 billion in cuts, including food stamps, over six years – although cuts for elderly and disabled migrants later reversed);
  o restrictions in eligibility for SSI programme for disabled children.

The broader context in which TANF was implemented

• Near full-employment economy.
• Large expansion of earned income tax credit in 1990 and 1993.
• Minimum wage increases in 1996 and 1997.
• Tripling of childcare spending – increasing from $4 billion in 1997 to $11.9 billion in 2004.
• Work supports – including transport and work expenses – expanded, though available less widely than childcare.
• Expansions of Medicaid and the State Children’s Health
  Insurance Programme in the late 1980s and 1990s.
• Stronger child support enforcement – up from 20 per cent receiving any in 1996 to 51 per cent by 2004 (an 82 per cent increase in collections).
• More money to states through TANF.

Since 1996 federal funding of in-work support has increased. Essentially, resources have been switched from social assistance benefits to support for low-income working families. See, for example spending increases in Wisconsin under the block grants.

Although the numbers look different for different states, in general, cash benefits fell and work supports increased, but the growth in use of TANF to support work entry was not as big as the overall decline in cash spending.

US poverty measurement

The official poverty line in the US is an absolute threshold – often referred to as the Orshansky measure. Over forty years ago, it took the costs of an ‘economy’ diet, multiplied by three (because at that point, food was around one-third of spending) and has since only been adjusted annually for inflation. For a family of four, this represents less than 30 per cent median disposable income. In the early 1960s it was about half median disposable income. Arguably, it now fails to represent anything like adequate living standards and measures only those in the most severe poverty. In cash terms, the poverty line for a family of four in 2006 was $20,444 or about £10,423 per year (£200 per week).10

According to the official US definition, 17.6 per cent of children under 18 were below the official poverty line in 2005, nearly 13 million – up from 16 per cent in 2001.11 And the child poverty rate for children in female-headed households was 39 per cent. More than half of all poor children live in these lone-mother households.12 Even by comparing trends in absolute poverty, the US results do not compare well (see Figure 2).

According to the US poverty measure, in 1993, 22.7 per cent of children were poor. The same year, child poverty rates began to fall and reached 16.2 per cent by 2000.13 By 2004, the rate was 17.8 per cent, with an extra 1.4 million poor children since 2000.

What are the key US findings?

The intended consequence and leading indicator of success of the 1996 reforms was to be falling welfare caseloads – and in this respect they have been an unqualified success – see Figure 1. But to rely on this is to repeat the error made by Tommy Thompson, Governor of Wisconsin, in believing that the reduction of welfare rolls is the same as a reduction in poverty.14 In fact, caseloads began falling as early as 1994 and in 2005 reached the lowest they have been since 1966.15 It is certainly worth noting here that the fall started well before the 1996 reforms, probably due to an upturn in the economy.

Employment up, welfare down

Employment rates have also risen, but from a reasonably high starting point (see Figure 3). Before 1996, employment grew for both married and lone mothers to 65 per cent of married mothers and 63 per cent of lone mothers.16 In the 1970s lone mothers were more likely than married mothers to be employed. Rates for single (never-married) lone mothers and those with children under six are lower. Unfortunately, the numbers are not strictly comparable to UK employment rates for lone parents, because figures for single mothers in the US include cohabitating single mothers.

Ron Haskins of the Brookings Institute (recently quoted in an Observer article by Will Hutton17) concludes that falling welfare rolls, increased employment rates among single mothers and the increase in the proportion of income from earnings rather than benefits represents ‘a triumph for the federal government and states – and even more for single mothers’.18 He claims raised employment rates for low-income lone mothers, up from 58 per cent to nearly 75 per cent and from 44 per cent to 66 per cent for single lone mothers (he does not define low income). This, despite child poverty increases since 2000. But he acknowledges the role played by a strong economy and the childcare, Medicaid, tax reliefs and credits designed to help low-income families.

'No work, no welfare'

Parrott and Sherman acknowledge that outcomes are usually discussed in terms of falling TANF receipts and both rising employment rates and child poverty reduction in the 1990s.19 But, they argue, this ignores important factors, such as subsequent child poverty rises, particularly for those below half the poverty line. And, as fewer now claim TANF, it now fails to protect the most vulnerable. Employment rates for lone parents are now higher than in the mid-1990s but they have fallen since 2000. Rates rose from 61.7 per cent in 1995 to 73 per cent in 2000, falling back to 69.1 per cent in 2005. And, typically, these working lone mothers remain poor, or near-poor. Also, the number now both jobless and receiving no cash assistance has increased significantly, so despite one million more lone mothers in paid work, roughly one million mothers, with two million children, now fall into this ‘no work, no welfare’ group. And, TANF helps fewer families – by 2002 only 48 per cent of eligible families qualified, down from 80 per cent in the early 1990s (see Figure 4). So, it is not that fewer families are poor enough to qualify, but that TANF is no longer available to them. This drop in TANF participation accounts for more than half – 57 per cent – of the decline in caseloads since 1996. While lone parents in work but not claiming welfare rose from 32.2 per cent in 1996 to 46.6 per cent in 2004, the ‘no work, no welfare’ group rose from 16.4 per cent in 1996 to 32.6 per cent in 2004 – see Figure 5 below.

Added to this, many immigrants are no longer eligible for assistance such as Medicaid and food stamps during their first five years in the US, and many, including their children who are US citizens, continue to shun benefit programmes, partly for fear of deportation or loss of citizenship rights.20 Nearly one-quarter of poor children have an immigrant parent and they make up a significant portion of low-paid workers – benefit claimant rates are now well below that of the general population.

Mixed results

Studies find that most lone parents enter low-paid work, with limited earnings growth and employment instability. There is also a group of lone parents who remain unemployed after leaving assistance with little evidence overall of any improvements in child wellbeing.21 The results are commonly described as ‘at best mixed’. For example, Mark Greenberg of the Center for American Progress in Washington points out that it is clear in the 1990s employment went up and child poverty went down for lone-parent families, but he contends that there is neither any consensus on what role the welfare changes played, nor on how to disentangle the effects of changes in welfare from the role of the strong economy, and the expansions of other supports.22 In his view, it is also clear that during this time welfare caseloads fell much more than employment increased or child poverty declined (see Figure 6), and there has been an increase in the ‘disconnected’ population of families not in work and not in welfare. Also, those most likely to be sanctioned off the welfare rolls were those least likely to be able to get and keep a job – eg, the lone parents furthest from the labour market, without unemployment insurance, lacking skills and qualifications, who may be sick or disabled or have children who are, who may have large families and additional problems perhaps including mental illness or drug addiction.

According to Ron Haskins, the number of mothers in the poorest fifth of income who report zero earnings and zero welfare-income continues to rise year on year.23 Moreover, in the current decade, child poverty has grown and lone-parent employment has fallen, even as welfare caseloads continue to decline. The number and proportion of poor children getting any help through TANF continues to fall (see Figures 6 and 7).

Sustainable jobs?

The US evidence on job retention suggests that although a high proportion (71 per cent) are in work at some point in the year after they left TANF and three-fifths are working in both the first and fourth quarters of the same year, very few (37 per cent) were in work for every quarter of the year.24 This suggests a lot of people must be cycling in and out of work. The evidence below for Milwaukee confirms this pattern for every year since the 1996 reforms. Claimants may be getting jobs and leaving TANF, but they do not seem to be staying in them for very long.

Child wellbeing

The debate also raises concerns about child wellbeing and the impacts of maternal employment. Pamela Morris analysed seven random assignment trials across thirteen programmes looking at children aged two to nine.25 She found positive impacts on school achievement for children five and under but these were confined to work programmes that increased family incomes through earnings supplements. The impacts faded after three years. These positive impacts were related to attendance at centre-based childcare during pre-school years. But data for adolescents (aged ten to sixteen) is not so encouraging, showing below average school performance and slightly increased likelihood of repeating a grade or needing special education classes.26 The adolescents concerned seemed to be those with younger siblings, suggesting they may be taking on early childcare responsibilities because of their mothers’ work. Documented levels of hardship for TANF applicants have also significantly increased – see Figure 9 below.

TANF re-authorisation

The 1996 Act came up for review and re-authorisation in 2002, but only after considerable debate did the Deficit Reduction Act finally officially re-authorise TANF last year. It gave states new requirements to raise work participation rates while narrowing the range of activities that can count towards this. It is now harder to tailor welfare-to-work packages to meet individual requirements, therefore, giving strong incentives to help fewer families and further reduce caseloads. Key academics are arguing that the troubling trends of increased child poverty and ‘no work, no welfare’ families stand to increase following re-authorisation. This all illustrates how hard it is for the block grant approach to respond in times of economic downturn.

The re-authorisation debate has been beset with rows about large state budget deficits that impede innovation and an inability to reach agreement over the nature of future work requirements, childcare spending and the role of government in promoting marriage. The Duncan-Smith ‘Social Justice Commission’ report from UK Conservatives, published earlier this year, with its emphasis on the importance of marriage, is redolent of last year’s TANF re-authorisation debate in the US, with George Bush’s emphasis on his ‘Healthy Marriage Initiative’ and promoting responsible fatherhood as part of the block grant subsidy. Haskins, indeed, recommends a ‘National Marriage Movement’.

Next steps

Mark Greenberg concludes the research is clear that new approaches need to focus on building skills, job quality and increasing family incomes.27

• ‘The most effective programs do not simply focus on job search or basic education, but blend a mix of individualized employment, training and other services with attention to local labor markets;
• retention and advancement are affected by wages and other aspects of the quality of initial job placements, the premise that any job is as good a starting point as any other job is not true; and
• to see improvements in child well-being, it’s important to connect families with stable quality child care and ensure that employment translates to increased family income.

Unfortunately the reauthorisation Bill enacted by Congress reflects almost none of these key lessons.’

And, following reauthorisation, the focus remains on cutting caseloads.

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

1. R Haskins, Testimony of Ron Haskins to Committee on Ways and Means, 19 July 2006, available at www.brookings.edu/views/testimony/haskins/20060719.htm
2. For a useful and cautionary account of the history of US ‘welfare’ reform and its influence over UK policy, see D Bull, ‘Foreword’ in R J Link, A A Bibus and K Lyons, When Children Pay: US welfare reform and its implications for UK Policy, CPAG, 2000
3. M Forster and M d’Ercole, Income Distribution and Poverty in OECD Countries in the Second Half of the 1990s, OECD Social, Employment and Migration Working Papers, No. 22, OECD, 2005
4. N Ginsberg, Divisions of Welfare, Sage,1992
5. M Greenberg, ‘The US: rising employment, explanations, implications, and future trajectories’, in J Millar and M Evans, Lone Parents and Employment: international comparisons of what works, CLASP/DWP, 2003
6. See note 5
7. See note 5
8. S Parrott and A Sherman, TANF at 10: program results are more mixed than often understood, Centre on Budget and Policy Priorities, 2006, available at www.cbpp.org/8-17-06tanf.pdf
9. Wisconsin Department of Workforce Development website at www.dwd.state.wi.us/dws/tanf/default.htm
10. M Greenberg, What Now for Welfare Reform and Poverty: recent US developments, presentation to DWP conference on welfare reform, ‘Challenges, Choices and International Insight’, 26 March 2007, available at www.dwp.gov.uk
11. US Census Bureau, Income, Poverty and Health Insurance Coverage in the United States: 2005, US Census Bureau/Economics and Statistics Administration, 2006
12. See note 5
13. See note 8
14. See note 2
15. See note 1
16. See note 5
17. W Hutton, ‘Britain Would Benefit from Clinton’s Tough Love’, The Observer, 3 September 2006
18. B Haskins, Welfare Reform, Success or Failure? It worked, Policy and Practice, American Public Human Services Association, 2006, available at www.aphsa.org/Publications/Doc/PP/0603ART1.pdf
19. See note 8
20. See note 8
21. See note 5
22. M Greenberg, Welfare Reform, Success or Failure? With Mixed Results, Policy and Practice. American Public Human Services Association, available at www.aphsa.org/Publications/Doc/PP/0603ART1.pdf
23. See note 1
24. See note 10
25. P Morris, L A Gennetian and G J Duncan, ‘Effects of Welfare and Employment Policies on Young Children: new findings on policy experiments conducted in the early 1990s’, Social Policy Report 19, pp3-22, 2005
26. L A Gennetian and others, How Welfare and Work Policies for Parents Affect Adolescents: a synthesis of research, MDRC, 2002
27. See note 22
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