The Secretary of State for Work and Pensions (Alan Johnson): With permission, Mr. Speaker, I should like to make a statement on the Government's five-year strategy, "Opportunity and security throughout life."
Since 1997, the Government have begun to transform the welfare state from a passive one-size-fits-all system to an active service that tailors help to the individual, enabling people to acquire the skills and confidence to move from welfare to work. When the Conservatives were in power, boom and bust twice led to unemployment reaching 3 million, and the numbers on incapacity benefit trebled to 2.6 million. By 1997, one in five families had no one in work and one in three children were growing up in poverty.
There are now more people in jobs than ever before. Unemployment is at its lowest for 30 years, with long-term youth unemployment 90 per cent. lower than in 1997. With almost three-quarters of the working age population in work, our employment rate is the highest of any of the G8 countries. By supporting people in work and providing financial security for those who cannot work, we have lifted 2.1 million children and 1.8 million pensioners out of absolute poverty since 1997.
But we can and will go further. Today's strategy sets our course for the next five years. It is a difficult course that will take us beyond concern for the unemployed to help those who are even further away from the labour market and who have more complex and substantial barriers to overcome. Its goal is genuine inclusionstamping out the discrimination and disadvantage that prevents people from fulfilling their true potential.
The backdrop to the strategy is a healthier society where people are living longer. Two years from now, the number of people over state pension age will overtake the number of children. In just over 30 years, the proportion of the population aged 65 and over will increase by 50 per cent., while the number of pensioners aged 80 and over will double.
If we are to meet the challenges of our ageing society, we cannot afford to squander the skills and contributions of those who can and want to work but remain outside the labour market. Our strategy establishes a long-term aspiration of moving towards an employment rate equivalent to 80 per cent. of the working age population. That could involve supporting as many as 1 million people on incapacity benefit into work, as well as an extra 300,000 lone parents. We also envisage 1 million more older workers in the labour force, including many who will choose to work beyond the traditional retirement age.
As I have saidit bears repeatingbetween 1979 and 1997 the numbers on incapacity benefit trebled. Had that trend continued, there would now be 4 million on incapacity benefit instead of 2.7 million. New claims are down by almost one third since 1997 and we have even experienced the first small fall in the total numbers. People who claimed incapacity benefit have too often been told that they should not expect to work again. Yet we know that perhaps a million claimants say that they would like to work if they were given sufficient help and
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support. We also know that nine out of 10 people coming on to incapacity benefit expect to get back to work quickly.
There is growing medical evidence that for many conditions, such as back pain and depression, working is much healthier than being inactive, so failing to help those on incapacity benefit is bad not only for the economy, but for the people on incapacity benefit.
We already know that active intervention works. We have invested in Jobcentre Plus and the new deal to give people employment support regardless of the benefit they happen to be on. The Government's pathways to work pilots build on that platform and have achieved startling success, with six times as many people getting back to work help and twice as many people recorded as entering jobs, compared with the rest of the country.
The intervention is succeeding partly because it focuses on what people can do rather than on what they cannot. Although involvement is mandatory only for new claimants, more than 10 per cent. of those who take part are existing claimants who asked whether they could participate.
As my right hon. Friend the Chancellor announced in his pre-Budget report, the pathways pilots will soon be extended to cover one third of the country. Alongside the extension of pathways, today's strategy sets out the wider changes that are needed. Employers, health professionals and the Government must all work together more effectively to get people into work and help them stay there.
Employers must create healthier workplaces and play a bigger role in the rehabilitation of their employees. The Health and Safety Executive will trial and develop "Workplace Health Direct", which will provide support for occupational health in small and medium-sized firms. General practitioners and other health professionals must reinforce the message that work is a route back to health.
Against the background of the wider change, and when we have the extra support of pathways in place, we will implement a radically reformed incapacity benefit so that, like pathways, it focuses on what people can do rather than on what they cannot.
The main purpose of incapacity benefit is to support those who, through no fault of their own, are restricted in their ability to work because of a health condition, disability or injury. Financial security will always be essential. Society has a responsibility to provide financial support to people who are denied the opportunity to work because of health problemsand to do so for as long as necessary. That is why our reforms are not about cutting or time-limiting benefit.
However, the current incapacity benefit system is anomalous. Incapacity benefit classifies those receiving it as incapable of working, even before they have a formal medical examination. When they have the examinationthe personal capability assessmentthose who are entitled get no appraisal of their likely future ability to return to work. Furthermore, no distinction is made between terminal cancer and back pain. There are few incentives in the system to encourage those with more manageable conditions to consider their potential for work. Indeed, the benefit increases with time, thus creating an incentive to stay on it for longer.
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Our reforms will offer more support and help than is currently available for those with the most severe health problems and impairments, while ensuring that there are clear rewards for moving into work, and that the financial risks of trying out a job are minimised. In future, there will be an initial holding benefitat jobseeker's allowance ratepayable until the personal capability assessment has been completed, which should be within 12 weeks.
This assessment will become the gateway to the new benefits, accompanied by an employment and support assessment which will provide a fuller evaluation of potential work capacity. The assessment will lead to one of two allowances. The majority will receive a rehabilitation support allowance, which will require claimants to engage in work-focused interviews, in return for which they will receive a conditional extra payment. At the interview, claimants will agree an action plan, and fulfilment of the plan will lead to a further conditional payment.
Recipients who co-operate fully will get more than the current long-term rate of incapacity benefit, but any who completely decline to engage will receive only the holding benefit minimum. Those with the most severe health conditions or disabilities will receive a disability and sickness allowance. Far from having their benefits cut, those recipients would get more money because they are at most risk of persistent poverty. But we are not writing anyone off, so their engagement in some work-focused interviews would be encouraged, in line with the pathways to work programme.
Our message is clear. There will be a basic benefit below which no one should fall; a speedy medical assessment linked with an employment and support assessment; increased financial security for the most chronically sick; more money than now for those who take up the extra help on offer; and less money for those who decline to co-operate.
As with the pathways programme, we will develop these reforms in partnership with all our stakeholders, including those on the benefit itself. The reforms will need to be shaped on the basis of the evidence of what works, with piloting playing an important role. The timetable for implementation will depend on the continued lessons learned from pathways, on the available resources, and on the timing of any necessary legislation. However, our goal is to have the main elements of the new system in place by 2008.
These reforms are, of course, only part of the much wider programme at the heart of our strategy for opportunity and security throughout life. Our approach must continue to provide tailored help and support at every stage of life, to offer real opportunity for those who can and want to work while ensuring financial security for those who cannot. We will continue to support families and children to ensure that every child has the best start in life and parents have more choice about how to balance work and family life. We will support parents in their parenting role by extending rights to paid maternity leave and enabling families to
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have access to affordable, flexible and high-quality child care. Our new deal for lone parents has already helped nearly 300,000 lone parents into work and taken the lone parent employment rate over the 50 per cent. rubicon for the first time ever. In fact, today I can announce that we have hit a new lone parent employment rate of 55.8 per cent.a 10 per cent. increase since 1997.
Today's strategy sets out our intention to go further and to pilot a pathways to work model for lone parentsa more progressive model of active engagement and persuasion for all lone parents on benefit, based on clearer guarantees of advice and support. In line with our overall approach to rights and responsibilities, it will guarantee a clear financial gain from work, guarantee child care support, and guarantee the ongoing help of trained professional advisersall in return for a responsibility to engage more intensively with our employment advisers. For those with children aged 11 or over, we will pilot the automatic payment of an activity premium, on top of all existing benefits, conditional on taking up agreed activity to help lone parents move into work.
Giving people the choice and opportunity to work for longer will also be crucial. That is not about raising the state pension age, but about helping people to work up to that age and offering better rewards for those who choose to work beyond it. Improved arrangements for state pension deferral will mean that a typical person who delays taking their state pension for five years could receive a lump sum payment of between £20,000 and £30,000, or an increase of 50 per cent. in their weekly pension for the rest of their life.
Working for longer, together with the increased confidence in saving that will result from the pension protection fund and other measures, will play an important part in helping people to save to meet their retirement aspirations. Guided by the work of the Pensions Commission, however, we will meet the long-term pensions challenges of our ageing society. We will set out the principles on which we will base our pension reforms separately in the near future.
In delivering this five-year strategy, my Department will continue to modernise its service delivery, reducing overheads, streamlining processes and delivering a more efficient organisation. Over the next five years, the Government will build on our employment record to open opportunity for those beyond the traditional definition of unemployment, and to move towards a ground-breaking aspiration of an 80 per cent. employment rate. We will build on the lessons learned from our successful pathways to work pilots to reform incapacity benefit and, with the support of employers and the medical profession, help and support incapacity benefit recipients who want to work to do so.
We will build on our progress in fighting discrimination, moving to a world in which opportunity and security are not dependent on age, disability or ethnic background. And we will build on our progress in tackling poverty, halving child poverty by 2010, continuing to lift pensioner income and helping another 300,000 lone parents into work.