Tougher benefit rules have boosted employment in the UK in the past 25 years but only at the expense of trapping workers in dead-end jobs, according to a leading thinktank.
The Institute for Fiscal Studies (IFS) said successive waves of welfare changes since the late 1990s had imposed more stringent conditions on those claiming jobless benefits and increased the incentives to find a job.
Yet its research also found that many of the jobs found were part-time, low paid and had scant chance of career progression.
As a result, the thinktank found those encouraged to enter paid work had tended to remain on low pay, were paying little in tax and were often still entitled to in-work benefits.
The IFS said there had been at least three waves of what was touted as benefit reform over the past 25 years, all of which had encouraged benefit claimants to find work.
According to the institute, a low earner with children in 1997 to 1998 on average had lost 50p in reduced benefits or higher taxes for every £1 earned when they moved into part-time work. Today that figure is 38p.
By contrast, the incentive to move from part to full-time work had been weakened. In 1997 to 1998, that transition implied losing 52p to taxes or withdrawn benefits for every £1 earned, on average. Today it results in losing 58p.
The latest official figures from the Office for National Statistics show that more than 8 million people – a quarter of the workforce – is in part-time work.
Tom Waters, a senior research economist at the IFS, said: “We spend more than £100bn each year on working-age benefits. About half of it now goes to families in work.
“This reflects changes in the underlying nature of low income in the UK, to which the benefits system naturally responds: we have high employment and chronic low earnings growth, meaning that an increasing share of the lowest-income families contain someone in paid work.
“It also reflects some major changes to benefits policy, including the introduction of universal credit, aimed very deliberately at encouraging more paid work. The challenge here is that the kind of work they have tended to produce has been part-time and low-paid – which generally does not serve as a stepping stone to higher-paid work further down the line.
“Policymakers would do well to look beyond the headline employment number when setting benefits policy, and consider how the system – and other parts of policy – can be shaped to promote longer-term career progression.”
