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Budget
This chapter describes the Government's strategy to expand employment opportunities and make work pay. It describes the further expansion of the Welfare to Work initiative. It also sets out details of the reforms to taxes and benefits. The Government will introduce a new Working Families Tax Credit, reform national insurance contributions and tackle skill shortages. The main measures described in this chapter are as follows:
The New Deal programme will be extended, with additional measures to provide help to:
New linking rules will enable lone parents and disabled people to take a job knowing their benefit will not be put at risk if the job turns out to be short-term.
A £1.4 billion reform of national insurance contributions - the most significant changes for over 20 years - will improve work incentives and make it more attractive to employ people moving from welfare to work.
A new Working Families Tax Credit (WFTC) will replace Family Credit.
A childcare tax credit within the WFTC will improve help with childcare costs.
Disabled Person's Tax Credit will replace Disability Working Allowance.
Benefit rules can sometimes make people worse off when they earn more. Changes will be made to reform these.
Additional expenditure will tackle the problem of structural skill shortages.
3.01 In its first Budget, and in the Pre-Budget Report, the Government set out a new agenda to ensure high and stable levels of employment, and to promote new employment opportunities for those previously denied them. It also asked Martin Taylor, Chief Executive of Barclays, to lead a Taskforce with a view to reforming the tax and benefit systems, in order to improve work incentives, reduce poverty and welfare dependency, and strengthen community and family life. A new approach is needed for the 21st Century, reflecting changes in the labour market, in society and in the global economy. People need to have the skills to adapt to these changing circumstances, through a framework that rewards and encourages work. And, once in work, people need to have the opportunity to progress up the earnings ladder.
3.02 In the UK today, 73 per cent of the working-age population is in work. To raise this on a sustainable basis requires a reduction in the sustainable rate of unemployment, and an increase in the overall rate of labour market participation. To achieve that, it is necessary to ensure that spells of unemployment do not lead on to long-term benefit dependency, and to help those conventionally measured as falling outside the labour force to find a route into work. There are 3 1/2 million working-age workless households. But there is also evidence of skills shortages, which makes action to get the long-term unemployed back into the labour market and improve their skills even more important. This is a symptom of structural weaknesses, which can only be addressed through a comprehensive strategy for radical reform across a wide spectrum of Government activity.
3.03 The Government's strategy is to provide employment opportunity for all - the modern definition of full employment for the 21st Century - through:
3.04 This Budget includes a wide range of measures in each of these areas, including extensions of the Welfare to Work initiative, national insurance reform, the new Working Families Tax Credit, and a package of measures to improve skills.
3.05 Two other policies will support these reforms. The Government remains committed to introducing a new 10 pence starting rate of income tax to improve work incentives still further, but only when it is economically right to do so. It will also ensure that the lowest-paid in work gain from a 10 pence rate. The National Minimum Wage is another essential component of the strategy to make work pay, as well as ensuring greater decency and fairness in the workplace.
3.06 The Welfare to Work initiative is already extending new work opportunities to people detached from the labour market. The New Deals for young people and for lone parents are already producing encouraging early results. During 1998, the New Deals for the long-term unemployed and for disabled people will help to expand employment opportunities even further.
3.07 This Budget extends the Welfare to Work initiative by:
3.08 The New Deal for 18-24 year olds started in January 1998 in 12 pathfinder areas. Early results are set out in the box on page 40.
3.09 As part of the New Deal for 18-24 year olds, young people first go through a gateway programme, providing intensive help with looking for and preparing for work. The gateway is proving a particularly important element of the New Deal, popular with young people and with employers. In recognition of this, the Government will channel a further £50 million into the gateway to ensure that it meets the needs of the most disadvantaged young people, and provides more training and support for mentors to help more young people make the often difficult transition from welfare into work.
3.10 The New Deal for lone parents will offer the first serious national effort to help lone parents find work - through job search help, advice and training. The box on page 40 describes the early results. The New Deal will be extended to all lone parents on Income Support from October 1998. From April 1998, it will be available nationwide to all lone parents making a new or repeat claim for Income Support. The Budget provides a further £10 million for new pilots, looking at ways of extending the help available to lone parents, improving take-up and maximising the effectiveness of the programme.
3.11 The Budget also makes changes to the benefit rules to introduce a 12-week linking rule, so that lone parents on benefits can take a job knowing that they will not be worse off if the job turns out to be short-term and they have to return to benefit. Lone parents will also be one of the groups benefiting most from the Working Families Tax Credit, including the improved help with the costs of childcare.
Two of the Government's New Deals have been running for some months in pathfinder areas, in preparation for their national launch. The New Deal for 18-24 year olds starts on a national basis on 6 April 1998. The New Deal for lone parents will start in October 1998.
The New Deal started in January 1998 in 12 pathfinder areas. In the first nine weeks, 12,800 young people have entered the programme. 8,800 have been matched to employers and 620 have already found work.
The vast majority of young people have welcomed the New Deal, and have noticed a real difference in the help provided by their personal advisers. The early success stories include:
Employers continue to offer a great deal of vital support for the New Deal and the principles underpinning it. The large employers recently signing the employer agreement - signifying formal commitment to participate - include Allied Domecq, British Airways, BT, Rover Group, Securicor, Tate and Lyle and Unipart. Tesco have agreed to offer 1,500 opportunities for young people, with support for training and mentoring. Rail and bus companies continue to come forward with schemes to provide discounted fares to young people seeking work or commuting to their new job. And, in the biggest commitment to the New Deal so far, there will be around 40,000 new employment opportunities across the hotel and catering industry. Radisson Edwardian Hotels, in conjunction with the British Hospitality Association, will use the New Deal to address a skill shortage problem in this expanding industry. Training for the new recruits will be provided through a new national network of training centres, partly funded through the training subsidies available through the New Deal.
Since July 1997, the New Deal for lone parents has been available in eight lead areas of the country. During the first six months, 3,760 lone parents attended an initial interview with a personal adviser, with 3,370 (90 per cent) of these joining the New Deal. More than 1,100 (one-third of those who decided to take part in the New Deal) have already successfully moved into employment. The consistent message from participants is that they welcome the New Deal and the support it offers them. Examples of early success stories are:
3.12 The 1997 Budget set out the Government's plan for a £75 a week subsidy to help people unemployed over two years find work. This element of the New Deal will begin as planned in June 1998. Existing employment and training measures will be focussed on this group, to provide a "gateway" onto the New Deal for the long-term unemployed, to increase the numbers getting jobs, both before and after the start of the subsidy period.
3.13 This Budget extends the New Deal for the long-term unemployed, through a series of innovative pilots starting in November 1998. The Government will provide 70,000 opportunities for the long-term unemployed aged over 25, modelled on the New Deal for the under 25s. The pilots will involve a gateway of intensive help with looking for and preparing for work, similar to that provided for young people through the New Deal. For those who do not find work through the gateway, there will then be a programme of training and work experience, lasting for three months, during which participants will have a variety of options, including self-employment, work trials with employers, job-specific training, programmes to improve basic skills, and work placements with the voluntary and environmental sectors. Those finding work will benefit from the six months subsidy of £75 a week. Additional support will be provided to help those who find work to remain in work.
3.14 The pilots will be carefully evaluated, to yield valuable evidence about what works best and to inform the future development of the Welfare to Work programme. Different approaches will be tested through the pilots. Although the main focus will be on those unemployed over 18 months, the pilots will also look at helping those unemployed for between 12 and 18 months. The pilots will be delivered through the New Deal partnership arrangements pioneered for the under 25s, with the private sector leading delivery in some areas.
3.15 People aged over 50 have suffered most from the failure of the UK labour market to extend employment opportunity to all. The proportion of working-age men over 50 out of work has doubled over the last 20 years, while women over 50 have failed to share in the increasing rate of female labour market participation. This Budget therefore includes new measures, as part of the New Deal pilots, to help unemployed people over 50 to move back into work.
3.16 Partners of the unemployed are disproportionately likely to be without work themselves - contributing to the 3 1/2 million working-age households with no-one in a job. There are nearly 300,000 partners of people receiving income-related Jobseeker's Allowance. This Budget sets aside £60 million from the Windfall Tax receipts to ensure that partners over 25 have the option to receive the help they need to get back to work. Partners aged under 25 will be included in the New Deal.
3.17 In the past, the benefit system has defined people with disabilities and long-term sickness by what they cannot do. This has meant condemning many people to a life of benefit dependency and low expectations. The New Deal for disabled people will instead restore the opportunity to work for disabled people, by offering people with disabilities the help and support they need to overcome the particular obstacles to work that they face, to let them fulfil their potential. Because the needs of this group have been too often neglected in the past, new strategies need to be developed and tested. The emphasis will be on innovation and flexibility, and on involving the private and public sectors as well as Government.
3.18 £195 million was set aside in the 1997 Budget for this New Deal. The Pre-Budget Report announced that this will finance innovative schemes proposed by private, public and voluntary bodies to test and develop new ideas. There have been over 120 bids to run one of the first tranche of schemes. Successful bids will be announced in the late spring, and will begin in the summer.
3.19 These innovative schemes will help inform the development of a personal adviser service to offer disabled people, if they want it, the personalised support they need to find and retain work: advice, assessments and action plans, access to work placements, work trials and training. The personal advisers will also offer advice to employers looking to employ or retain disabled members of staff. Participation will be voluntary. Pilots will begin in September 1998, with a national roll-out beginning from April 2000.
3.20 This New Deal will be complemented by the introduction of a Disabled Person's Tax Credit in place of the Disability Working Allowance (DWA) from October 1999, described in paragraph 3.47, and by changes to the benefit rules. Existing benefit rules create disincentives for sick and disabled people to move into work. The Government will therefore introduce, in October 1998, a one-year linking rule. This will allow people on Incapacity Benefit or Severe Disablement Allowance, and who have been unable to work for over 28 weeks, to move into work knowing that they can return to benefit and receive the same rate as before, if the job turns out to last less than a year. This will complement the existing linking rule in DWA, and will significantly reduce the financial risks of trying out work. It addresses a major disincentive to work in the benefit system, in which disabled people can lose as much as £40 a week benefit entitlement in taking a job. The restrictions on voluntary work by recipients of Incapacity Benefit and Severe Disablement Allowance will also be removed from the same date, and eligibility to some Employment Service programmes will be extended in pilot areas from April 1999.
3.21 The New Deal will help those most detached from the labour market to find work and improve their long-term employability. But for those in the most deprived areas, labour market detachment can interact with other social and economic problems to create a downward spiral of disadvantage. In the most deprived estates:
3.22 The Government recognises that, to address the particular problems faced in the most deprived areas, we need a New Deal for Communities. This new initiative will extend economic opportunity, tackle social exclusion and improve neighbourhood management and quality of life in some of the most rundown areas in the country.
3.23 The Government will begin by launching a number of pathfinder projects. The lessons learnt will inform the full initiative and the Government's broader strategy on social exclusion. It will also be part of the broader strategy to make public expenditure work more effectively in deprived areas. Further details will be announced in the Summer as an outcome of the CSR and the Social Exclusion Unit's work to develop integrated approaches to the problems of the worst estates. But as a start, £15 million will be made available for pathfinder projects across the UK in 1998-99, financed from within the Control Total.
3.24 The receipts of the one-off Windfall Tax on the excess profits of the privatised utilities are being used to fund the Welfare to Work programme. The first instalment of the Windfall Tax was collected as planned in December 1997. The total receipts are expected to amount to about £5.2 billion. Table 3.1 sets out the latest estimates of the allocation of the Windfall Tax receipts between programmes. These figures take into account the additional measures announced in the Pre-Budget Report and in this Budget. They reflect current levels of unemployment, and the latest estimate of the phasing of expenditure between years. The expenditure plans build in an unallocated reserve.
| £ million | ||||||
| 1997-98 | 1998-99 | 1999-00 | 2000-01 | 2001-02 | 1997-2002 | |
| Spending by programme3,4 | ||||||
| A New Deal for the young unemployed | 100 | 580 | 650 | 640 | 640 | 2 620 |
| A New Deal for the long-term unemployed | 0 | 120 | 160 | 90 | 80 | 450 |
| A New Deal for lone parents | 0 | 50 | 50 | 50 | 50 | 190 |
| A New Deal for the sick and disabled | 0 | 10 | 20 | 80 | 80 | 200 |
| A New Deal for partners of the unemployed | 0 | 0 | 20 | 20 | 20 | 60 |
| A New Deal for schools | 100 | 300 | 300 | 300 | 300 | 1 300 |
| Childcare(5) | 0 | 40 | 0 | 0 | 0 | 40 |
| University for Industry(6) | 0 | 5 | 0 | 0 | 0 | 5 |
| Total Expenditure | 200 | 1 090 | 1 200 | 1 170 | 1 170 | 4 850 |
| Unallocated | 350 | |||||
| Windfall Tax(7) | 2 600 | 2 600 | 5 200 |
1 The spending in this table, financed from the Windfall Tax, is outside the Control Total. It updates Table 2.1 of the July 1997 FSBR, to reflect new assumptions about unemployment, and policy announcements made in this Budget and in the November 1997 Pre-Budget Report.
2 Rounded to the nearest £10 million. Constituent items may not sum to totals because of rounding.
3 Illustrative levels of spending based on current levels of unemployment. Actual provision for any particular year will be decided in the light of the number of eligible people and the effectiveness of the programme.
4 The Departmental breakdown of spending on the basis of these illustrative figures will be set out in "Public Expenditure Statistical Analysis", to be published in April.
5 Includes £30 million for out-of-school childcare. The costs of the 1997 Budget improvements in childcare support through Family Credit are included from April1998 until October 1999, when the measure will be incorporated within the Working Families Tax Credit.
6 As part of the £15 million finance for the University for Industry, with the remaining £10 million funded from within the control total.
7 Outturn for 1997-98, estimated receipts for 1998-99.
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