Annual Policy Review 2014

Jobs and Welfare

Jobs and Welfare


  • Introduction of the £1bn Youth Contract unemployment initiative
  • More apprenticeships
  • Cap on household benefits of £26,000
  • Pension auto-enrolment (600,000 estimated new savers)

More to do

  • The Work Programme had a poor start, with initial figures failing to hit Government targets — although recent figures show improvement
  • Youth unemployment remains high despite an overall good story on jobs
  • Passing of the the Pensions Bill, radically overhauling the pensions system including the introduction of a sing-tier pension and changes to the pension age
  • Universal Credit implementation

The unexpected

  • Appeal Court ruling that the Government had acted unlawfully in forcing a university graduate to work for her benefits at Poundland
  • Project difficulties with Universal Credit


  • Youth unemployment remains a huge problem across Europe. The Government will continue to face significant pressure to tackle the problem
  • Universal Credit implementation providing more headaches
  • Coalition division – Liberal Democrats, led by Chief Secretary Danny Alexander, reject further reductions to the welfare budget while Conservative Chancellor George Osborne supports new cuts


Welfare reform remains a dominant political issue, with the Conservatives in particular keen to make it a dividing issue at the 2015 Election.

Alive to this tactic, Labour have begun to talk tough on welfare with Ed Miliband committing Labour to a cap on welfare spending.

Secretary of State Iain Duncan Smith has placed a lot of emphasis on his Universal Credit scheme removing complexity and perverse incentives from the welfare system, but delivery has proven hugely problematic: the Government has been forced to admit that the 2017 deadline for implementation is now unachievable. However, given the importance of the project to welfare reform, the Government will hope to demonstrate significant progress ahead of the 2015 election.

On pensions, the Government introduced its flagship Pensions Bill to Parliament in May and the legislation has now reached its Lords stages. The radical changes include the introduction of a flat rate (single-tier) State Pension from April 2016 and raising the State Pension age from 66 to 67 gradually between 2026 and 2028. Further, the Chancellor announced at the Autumn Statement that this rise will continue so that the retirement age is 69 by the late 2040s. The Government is seeking to use the reforms to demonstrate that the Coalition is taking difficult and long-term decisions.

In an interview to mark the start of the New Year, David Cameron promised to raise the state pension by a minimum of 2.5 per cent per year, or more if either earnings or inflation are higher. This puts pressure on Labour and the Lib Dems to do the same.

In terms of job growth, Official figures released in January 2014 showed that the UK unemployment rate had fallen to its lowest level since the autumn of 2009 with the number of people out of work falling to 2.32 million, a figure used by the Prime Minister and Chancellor to claim that their economic plan is working.

Arguably the Government’s biggest challenge to date centred on an Appeal Court ruling that its flagship back-to-work scheme was unlawful – the decision was sparked by a university graduate taking legal action after being forced to work for free at Poundland. The result was an embarrassing Government u-turn.

Meanwhile, the Work Programme got off to a poor start, missing targets and facing accusations that it is failing to help those most in need.

Initial figures showed that just 3.5 per cent of those on the scheme stayed in work for six months or more. However, more recent figures highlight an improving performance in the programme with 208,000 people having found lasting employment (normally at least 6 months) by September 2013. In comparison, by September 2012, just under 55,000 people had found lasting work. However, questions remain as to the viability of the programme and the contracts offered.

Critics point to the decision by Deloitte to sell its stake in the programme as evidence that the Government has failed to create a viable market in the welfare to work industry.

The political investment will last a little while longer.