Is £1.4bn the cost of government welfare failure?

22 August 2013

"There is no escaping the fact the government's [welfare] failure will end up costing the taxpayer a staggering £1.4bn by the end of this Parliament"

Liam Byrne, shadow Work and Pensions Secretary, 21 August 2013

Some called it the "last stand" for the shadow Work and Pensions Secretary as Liam Byrne delivered a speech aimed at setting out Labour's approach to the welfare debate. He warned the government's welfare reforms were in serious trouble, even putting a cost on the failure by 2015: £1.4 billion.

Unsurprisingly, the Department for Work and Pensions wasn't impressed, calling his claims "frankly laughable" in the face of Labour's own opposition to some of the government's welfare reforms.

Full Fact got in touch with both camps to get their side of the story, and we've been generously provided with well-sourced arguments.

Where £1.4 billion comes from

This part is simple. It was reported (to varying degrees of accuracy) in several papers this morning. Labour sent out a table with a breakdown to the press:

So they're looking at three key schemes: the Youth Contract, Universal Credit and the 'bedroom tax/spare room subsidy', as well as the Work Capability Assessment for Employment and Support Allowance and 'waste' in the form of Housing Benefit that gets overpaid to claimants and never recovered.

Labour have put up the numbers. But are they a fair measure of the government's 'failure'?

The Youth Contract: a tenuous calcuation

The government aims to help young people into work via this programme, and it's been running since June last year. Labour argue that up to now only about 4,700 people have had an 'incentive payment' paid thanks to their placement on the scheme (employers are given such payments for taking on young people who've been on JSA for more than six months).

This compares to 160,000 wage incentives for which the government provides funding. So the argument goes, if only about 4,700 payments were also made for the next two years (up until 2015), only 14,000 incentives will get paid. That means 146,000 young people who were 'supposed' to be helped on the scheme aren't helped at all.

£457 million is the amount the DWP would have to spend if all these young people were claiming Jobseeker's Allowance (JSA) in 2014/15.

This seems a tenuous calculation at best - it not only assumes the youth contract will continue to pay incentives at the same rate for the next two years (in spite of having grown in most successive months in its first year) but also that all the young people who wouldn't be on the scheme as a result will be costing the government in JSA payments. It also assumes that those who do find work through the scheme will keep it indefinitely, and won't return to claiming out-of-work benefits for whatever reason.

It's clearly too early to cost this kind of thing. This is £457 million worth of 'failure' we can't be sure about at all.

Universal Credit: failure or planned anyway?

£300 million is the amount the Treasury announced this year would be available to the DWP for the rollout of Universal Credit in 2015-16. Labour calls this a failure because the scheme is neither on time nor on budget.

It's correct to say it isn't on time. Back in 2011 the government were saying that the credit "will apply to all new claimants who are out of work from October 2013" but last month this was down to just "six new Jobcentres". It's also a timetable that's been described as "very ambitious" (not in the nicest sense) by the Work and Pensions Select Committee.

But it's much less clear-cut to claim it isn't on budget. £2 billion was originally made available to the DWP for implementing Universal Credit, but this was set out in the 2010 Spending Review which only costed the rollout up to 2014/15. Universal Credit was due to complete its rollout by 2017, so we might assume that some additional costs will be incurred anyway beyond the scope of the 2010 Spending Review.

So we can't say whether the "additional" £300 million represents new money to deal with delays or money that would have been spent anyway but couldn't have been specified as early as 2010.

Work Capability Assessment: failure or just part of the process?

£287 million is Labour's projected cost to HM Courts and Tribunals Service for running appeals procedures for people who've had decisions taken via the Work Capability Assessment. Atos Healthcare runs the assessments and has been criticised - even by Ministers - for poor quality work. The number of successful appeals against the results has been used by others as a sign that the initial tests aren't up to scratch.

£155 million has already been incurred according to the DWP. Labour gets to £287 million by assuming the costs in 2012/13 will be the same for the next two years.

As far as the cost of appeals go, the figures are correct. But the figures don't actually specify the cost to the Tribunals Service of successful appeals, so the numbers don't measure failure of the initial assessments to get it right, they just measure the cost of how much the process is used, for whatever reason.

Housing Benefit fraud and error: proven waste

These figures are accurate. According to government statistics, since October 2010 about £1.4 billion has been overpaid (either by fraud or simply error) in Housing Benefit. Of that, £140 million has been written off as unrecoverable. 

Waste from fraud and error affects all governments, as the DWP point out in their rebuttal. Still, this is the amount of 'waste' in this area that occurred under the Coalition.

Work Programme: missing targets, but at what cost?

The Work Programme is failing to meet its minimum targets, as Full Fact pointed out last year and as is confirmed by the latest figures from year two of the scheme. The DWP scheme aims to get some long-term JSA and ESA claimants into work and defines success as how well it does compared to "doing nothing". In its first two years it's fallen short of the "do nothing" targets.

Costing this is trickier. Labour puts it at £119 million which refers to the estimated extra amount that the government would save in JSA payments to claimants if its minimum targets for the Work Programme had been met. So it's the JSA bill for the 'missing' people who aren't being helped by the scheme.

To get this figure, Labour (with help from the House of Commons Library) has estimated that £1.5 million would be saved in JSA payments for every week that gap between the Work Programme's current performance and its minimum targets was filled in its first year of operation, and £781,900 in its second year. Taken as annual figures and added together, this gives us our £119 million.

There is a proviso here. This money is only 'saved' for as long as the each extra person helped by the scheme continues in their new job, and doesn't claim out-of-work benefits. Labour has assumed that each theoretical 'job outcome' achieved would be continued in perpetuity - that no person helped by the scheme would subsequently go back to claiming JSA or ESA. 

Whether this is a fair assumption to make is more dubious. The most recent figures published by the DWP on job outcomes suggest that while 61% of the people referred to the Work Programme a year ago came off benefits at some point while on the programme, only 22% did so for a six month stretch or more.

Bedroom tax/spare room subsidy: failure or just implementing the reforms?

Labour puts this cost of failure at £102.5 million, made up of £60 million allocated in 'discretionary housing payments' (which help people who can't afford rent left over after Housing or Council Tax Benefit) specifically for "social size criteria".

A further £35 million was announced by the DWP to assist people with the Housing Benefit reductions, and another £7.5 million was given to local authorities, also to assist people affected by the transition.

These are certainly costs associated with the reforms, but they can't necessarily be looked at as 'failures'. Certainly, the additional costs have only been announced months after the policy was, suggesting to an extent that the government has had to change its plans. The DWP argue however that these are just costs associated with implementing the reforms themselves.

Whether or not these are 'failures' is best left to the reader to decide.

£1.4 billion: arguable failure

Overall, several aspects of Labour's cost of 'failure' are contentious. In some cases the costs could just refer to the cost of implementing reforms, which some will argue are good things, and may well save money further down the line. In other cases, the costings make big assumptions that won't necessarily play out come 2015.

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