Five years of social security reform

New work by the Institute for Fiscal Studies reveals that since 1997, reforms to social security have:

• redistributed to the poor, pensioners and children
• increased means-tested payments
• weakened the link between National Insurance and benefit entitlements.

Labour has traditionally been thought of as against expanding means-testing, but New Labour has increased means-tested benefit rates considerably - by, for example, 33% in real terms for an eligible lone parent with two young children, and by 31% for a low-income single pensioner under 75. These increases do not show up in social security expenditure: it is forecast to fall as a share of national income from 11.9% (1996/7) to 11.3% (2003/4). Nor have numbers on means-tested benefits changed much. Report author Mike Brewer explained: "Despite Labour's increases in means-tested benefits, expenditure on them has remained steady. This is because falling unemployment and increasing private pensions have helped contain the number of people entitled."

Together with personal tax changes, these social security reforms have redistributed from rich to poor: the poorest third of households will gain by an average of £25 per week by 2003, and the richest tenth will lose an average of £11 per week. These measures helped reduce child poverty on the Government's preferred measure by 500,000 between 1996/7 and 2000/1. But in spite of the reforms overall income inequality changed little in Labour's first term.

New credits from 2003 - for children, the low-paid and pensioners - will make means-testing even more central. But the Government claims it can reform income assessment to reduce hassle and stigma for claimants. This could encourage more entitled families to claim their benefits.

Ends

Notes to Editors

1. The paper, Social Security Under New Labour: What did the Third Way mean for welfare reform? (by IFS economists Mike Brewer, Tom Clark and Matthew Wakefield) was presented at an ESRC-funded conference held at the IFS on 22nd May. At the conference, speakers from outside IFS also presented work on aspects of Labour's reforms to social security since 1997. Most of the papers or presentations are available online. The IFS, which has no corporate views, is not responsible for any of the views expressed.
2. The outside speakers at the conference were: Ed Miliband (special adviser, HM Treasury), Lord Raymond Plant ( King's College, London), John Hills (Centre for the Analysis of Social Exclusion), David Hirsch (Joseph Rowntree Foundation), James Sefton (National Institute for Economic and Social Research and Imperial College, London), Fran Bennett (University of Oxford).
3. Social security spending is defined to include tax credits which have replaced benefits since 1997.