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

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A previous article by the author (Industrial Law Journal, 2012, Vol 41(1), 122) examined how successive governments since the mid-1990s have introduced welfare-to-work programmes and provided support for low-paid workers after their transition to work with a view to promoting retention in the labour market. This article considers the way in which the State, having progressively taken on the roles of both regulator and purveyor of financial support for employment, is now set to enter a new phase as part of Coalition welfare and labour law reforms. As part of securing the key policy objective of 'making work pay', it considers the newer forms of in-work welfare support being developed, including the targeted assistance being given to a wider range of groups. The focus of the commentary is on detailed aspects of what the author has termed the 'wage-work-welfare bargain'. The article considers some of the controversies associated with this kind of State support for the labour market, including early objections by commentators like J.S.Mill (in 'Principles of Political Economy'). Those concerns were reiterated more recently when a Conservative government pioneered modern 'in-work welfare' with schemes like Earnings Top-Up, aspects of which were criticised by welfare and labour economists. The article evaluates some of the effects of supplementing contractual wages with what is, in effect, a wage subsidy. It also considers detailed aspects of the merger of 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 expectation will be that workers who are 'underemployed' will be expected to remain jobseekers so that they take up additional working hours, and thereby reduce the burden that would otherwise fall on the community.

The commentary evaluates various strands of support, including new approaches to assistance with housing and childcare costs. As the article discusses, some of the Coalition's changes have 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 (IFS) 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 the 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.