21st Century Welfare’ and Universal Credit: Reconstructing the Wage-Work-Welfare Bargain

A previous article by the author (2012, 41(1) Industrial Law Journal 122) examined how successive governments since the mid-1990s have developed welfare-to-work programmes and provided support for low-paid workers after their transition to work. This article considers the way in which the State, having progressively taken on the roles of both regulator and purveyor of financial support for the wage-work bargain, is now set to move to newer forms of in-work welfare support, targeting assistance on a wider range of groups. The focus of the commentary is on what the author terms the 'wage-work-welfare bargain'. The article considers some of the controversies associated with State support for the labour market, including early objections by commentators like J.S.Mill (in 'Principles of Political Economy' - concerns reiterated again when a Conservative government pioneered modern 'in-work welfare' with schemes like Earnings Top-Up. The article goes on to consider recent developments, including Universal Credit (UC), the Coalition government’s flagship scheme under the Welfare Reform Act 2012 - a scheme which among other things supplements contractual wages with what is, in effect, a wage subsidy. The article considers how the scheme will merge most out-of-work and in-work benefits into a single, integrated source of support. As well as supplementing the wages of working claimants, it provides assistance with housing and childcare costs.

The commentary evaluates different aspects of the Coalition's approach to such in-work support.In particular, the commentary focuses on various strands of support including the developing agenda to 'make work pay' and modify schemes that provide housing, childcare, and other support - changes that have already started to impact on more vulnerable sections of the workforce including single parents and couples on low incomes in low paid employment.

In the context of forecasts by the Institute of Fiscal Studies and others that median incomes are set to fall by anything between 7% and 10% in real terms, with 'absolute' and 'relative' poverty set to rise, the article concludes that State support through in-work benefits,tax credits, and changes in the personal taxation regime will be increasingly important. However, as IFS has indicated, although measures like Universal Credit, coupled with improved tax allowances will be important in reducing the worst effects of falls in earnings and income, much of the gain from UC could be offset by a number of factors including the switch from RPI to CPI indexation of benefits and tax credits support.