Douglas Alexander: Jobs, not threats, get families off welfare

The Government is making the classic Tory mistake – in a shrinking economy, greater work incentives will have a limited impact

"This is what they came into politics for." That was how the Shadow Chancellor, Alan Johnson, explained the cheering of the Tory backbenchers that followed George Osborne's spending review, which had just confirmed the loss of 490,000 public sector jobs.

He was right, but it's also true that the tasks confronting Labour are what we came into politics for – to defend the vulnerable and allow everyone the chance to work and realise their potential. Because for Labour, effective opposition will never be enough. We cannot and should not be a party that is simply against doing things. Regaining people's trust and support means not simply opposing, but showing we have an alternative.

But what is the best way of defending the poorest and most vulnerable people in society from what George Osborne's austerity agenda? And how do we avoid falling on the wrong side of the artificial political dividing lines that the Tories are trying to establish in the public's mind?

Amid the claims and counter-claims, it is wise to take a longer view. We are witnessing the start of the fourth wave of change in the debate about the shape of the modern welfare state in Britain. From Beveridge to the 1960s, welfare policy in Britain was oriented around "rights". The late 1970s and the Thatcher era witnessed "retrenchment", with entitlements and support reduced. And since 1997 we have seen an increased focus on "responsibilities", with new conditions imposed on previously passive benefits.

Yet the only history the Coalition seems interested in is its own distorted view of Labour's recent record in office – which it uses repeatedly to justify its new approach. So those 13 years bear some re-examination. On the plus side, employment hit record highs, the claimant count halved and poverty fell. The lone parent employment rate rose by 11 percentage points and youth and long-term unemployment tumbled. We can also be proud of introducing the New Deal, back-to-work support, tax credits to make work pay, more and better childcare and increasing obligations for those on benefits to take steps towards work.

But election defeat is an instruction to face up to weaknesses, too. Given the priority attached to tackling unemployment, the reform of incapacity benefit came later in our time in government. While work incentives improved through the minimum wage and working tax credit, we should have done more to address the reality of low pay, job insecurity and poor quality of work at the bottom end of the labour market.

And we asked housing benefit to take too much of the strain for generation-long failures in the wider housing market, principally the lack of affordable homes to rent and buy. My real fear is that, in contrast to this record of progress, the new government, like previous Conservative governments, will prove to be much better at cutting benefits than at getting people into work.

We witnessed this strategy in the 1980s and early 1990s, when failure to understand the relationship between the length of the dole queue and the size of the welfare bill contributed to a threefold rise in the number of people reliant on out of work benefits and a doubling of social security expenditure as a share of GDP.

I believe that work is what works. The core task of the welfare state is to provide security and work. This is where the Government, for all its worthy words, is already making mistakes. It adopted policies in the July budget that meant 20,000 more people paying, in effect, marginal rates of more than 90 per cent. And it hit the incomes of working people hard – such as by cutting working tax credit, which weakens work incentives that should be the cornerstone of the system.

Two cases highlight how people will lose much of the existing incentive to move into work under the Government's plans. Excluding tax measures including the VAT rise, by 2014/15, a lone parent with two children moving from Income Support to a low-paying job will lose 35 per cent of the pre-tax gains of moving into work, largely because childcare of £30 a week can no longer be claimed for. Similarly, an individual on Job Seeker's Allowance (JSA) moving to a low-paying job will lose 8 per cent of the pre-tax gains of moving into work, largely because of the Government's plans to stop working tax credit keeping up with JSA.

While we will look carefully at all the proposed measures, we will not accept measures that will make the transition to work harder. There are some steps that we can broadly support, such as reforming the disability living allowance gateway, continuing the incapacity benefit to employment support allowance transition and driving down fraud.

In the next few days, the Government will set out its plan for a universal credit, with the laudable goal of improving incentives to work and simplifying benefits. I'm broadly supportive of a system that could be easier for people to understand and offer better rewards to work. But some of the proposed changes are just plain wrong – such as cutting housing benefit by 10 per cent for people who have been looking for work for a year.

Beyond these individual measures there is also a bigger missing piece of the jigsaw in the Government's plans that risks critically undermining their effectiveness. Labour's job guarantee provided paid work, not merely support, to those at risk of long-term unemployment; and the obligation to work for those simply circling around back to work programmes. The Government seems unable to admit that welfare reform will not work without work and without action to address the real obstacles to work people still face.

It is putting too much faith in the partial solution of a simpler benefit system that, while laudable, will only address part of the problem. Without tough conditions and real guarantees, back-to-work support could end up managing the system rather than transforming it. Without a growing economy and the creation of new jobs, better work incentives can only have a limited impact. The result – as with previous Conservative governments – could be higher unemployment and a rising benefits bill.

Real welfare reform and reductions in unemployment are crucial to bringing down the deficit. We will support the Government where it rewards work and increases security. We will oppose it when it does the opposite, holding it to account for what it isn't doing but should be. At every step, we will be tireless advocates of real welfare reform that protects better and demands more.

That is how Labour will earn the right to govern again, but, more importantly, that is how to shape a welfare system that transforms lives.

Douglas Alexander is the Shadow Work and Pensions Secretary