By Will Horwitz
I think there was a paragraph missing from the Centre for Social Justice’s Dynamic benefits report yesterday. I’ve copied it below, just incase.
Furthermore, the barriers that stop people getting jobs, coupled with low benefits rates, often force them into informal, or cash-in-hand work. The informal economy is worth £120bn each year in the UK, 12% of GDP. Recognising and addressing this could prove vital to the success of our proposal.
People on benefits often take cash-in-hand work because taking on formal work would make them worse off, as we identify above. Reforming the benefits system would help remove the need for cash-in-hand work, thereby boosting the formal economy. Ensuring that those already working in the informal economy are welcomed into the formal economy, rather than punished, would then harness the entrepeneurship and effort of these workers for the rest of the economy.
Being involved in a campaign on the informal economy means I’m usually looking out for it, and yesterday I found it buried on page 295 of the report. I’ll quote in full: “A further advantage is that this more generous disregard will mean that many of those working in the informal economy can be recognised, and have their income regularised.”
It makes the point (specifically in regard to single adults), but just not very loudly – I think they might have missed the significance. Centre for Social Justice – in the event of a last-minute eureka moment over the informal economy, feel free to copy the bit above. Many of those you’re aiming to move off benefits are already working in some way. Formalising this, rather than punishing it, means you’ve created a load of extra jobs and have a load more money flowing into the economy. We’ve covered the details of how this could work elsewhere (pdf).
Still, its glaring omission aside, the report clearly illustrates one of the most significant barriers stopping people getting a formal job: they might well end up with less money. The report recognises (pg 96, if you’re interested) that Community Links – working with people in this situation every day – has said this before(pdf), but usually to counter the charge that people stay on benefits purely out of laziness. Perhaps everyone’s beginning to realise that in the current system, people often need to stay on benefits. This is an important shift in the debate, whether or not the report’s recommendations are eventually taken up.
It proposes to tackle this problem through radical change to the benefits system, and many of the specific proposals are very similar to ideas we’ve been suggesting for a while. Again, it’s nice to hear them talked about so widely. But crucially, what will happen next? Will the ideas be taken on and developed, looking beyond the immediate problems of the benefits system and considering other factors like informal work? Or will they be quietly dropped, as politicians desperately look for cuts and shy away from a large initial investment?
Will, I think this is an excellent point, and it serves to emphasise quite how much policy makers underestimate the extent to which the benefit system keeps a lid on people’s talent and aspirations. As you point out, though, it’s got to be a positive that the report recognises a lot of the financial factors that keep people locked out of the formal labour market – and it’s certainly stronger than most of what’s gone before on the importance to people with very little to on of income security.
Continuing to make these points is, I suppose, the best guard against what you rightly acknowledge as a big risk – that the inherent short-termism of politics means that policies which promise fundamental change are jettisoned in favour of spending cuts today. That the report comes from an organisation as influential as the CSJ has to be a cause for optimism.
And of course, this tackles only the supply side of the labour market. Action on the demand side, on the structural causes of poverty, and which understands the importance of non-financial assets all need to be added to ‘Dynamic Benefits’ for us finally to see the end of poverty in the UK. But that’s for another day…