High-speed benefits, sunshine benefits and reforming benefits

Afternoon all,

I hope you enjoyed your pancakes and/or your iftar this week. We went for an English breakfast in a pancake in my house – recipe available on request.

Alongside ongoing geopolitical turbulence, this week has also brought some much-needed clarity on long-awaited employment reforms – catch up on our event* discussing earnings volatility to discover why our panel thought the right to guaranteed hours and notice of shift changes were important.

I also made my Today programme debut this week (1 hour and 56 minutes in, if you missed it). Things are never as nerve-wracking the second time, right?

Have a great weekend,

Ruth

Chief Executive
Resolution Foundation

*If you prefer, you can listen in podcast form!

Talking about taxes. We know the Chancellor is thinking about spending and welfare cuts, but it is not yet clear whether tax will feature on 26th March. Just in case it’s helpful…here’s some work on how to successfully pitch tax increases. This study examines how business leaders respond to narratives around fiscal policy and reveals which narratives increase support for higher taxes. The authors test two narratives: on the one hand, they framed taxes as the price paid for a balanced government budget, and on the other as a tool for redistribution after income disruptions resulting from bad luck. The former proved more effective at persuading business leaders to raise taxes, and in particular Capital Gains Tax (CGT). When compared with a control group, participants exposed to narratives of fiscal responsibility wanted a CGT rate which was 4.1 percentage points higher. I hope you’re taking notes – firms appreciate narratives that emphasise fiscal prudence and counter-financing government expenses.

Spendthrift solar. Here’s some good news for polar icecap fans – renewable energy keeps getting cheaper, and more profitable. Combined falling installation costs and a rising market price for electricity is paying dividends for early investors (including countries such as Spain, Japan and Germany). Looking specifically at Germany, the authors find that by 2041 the profit generated by the country’s renewable energy industry will be twice the size of initial investments and subsidies, contributing profits of €10 billion each year, worth 0.5 per cent of Germany’s economy. It’s worth noting however, without careful policy considerations, the household savings from the net zero transition will not be fairly distributed.

Budgeting and beer. How does financial stress contribute to substance use? Common sense may well tell you the answer, but this report goes into the details. Looking at American households between 2019 and 2022, they found that a 15.6 per cent increase in rent cost lines up with a 15.2 per cent increase in (low-cost) beer purchases, with no observable effect on purchases of (intrinsically more expensive) spirits, wine or cigarettes. So, protecting households from financial distress may well have wider consequences for public health.

Terrific trains. Getting excited about trains is cool again (was it ever actually???). But here are some cold hard facts about the economic benefits of High Speed Rail (HSR). It focuses on China and digs into GDP per capita at local level. HSR is positively linked to local economic development in urban and rural areas but has higher impact on urban areas. HSR links to urban areas drive up economic growth in nearby *non-urban* areas but has an adverse effect on neighbouring *urban* areas, as a result of competition for both investment and human capital. Good news for Abbey Wood, but bad news for Belvedere?

Something for the Weekend? | Weighing the benefits

Ok, so it’s not clear whether it’s coming next week, or in the next few weeks, but at some point announcements (and a Green Paper) on incapacity and disability benefits are coming. Here’s what you need to know.

Last summer, we set out recent trends, revealing that real spending on disability benefits increased by 89 per cent in ten years. This isn’t because these benefits are any “easier” to claim, with award rates for new PIP claims broadly steady (around 45 per cent) since 2015-16. Overall, total welfare spending is about 1 per cent of GDP higher than in 2008 and was forecasted by the OBR in the autumn to remain flat as a share of GDP over the next five years. That still represents a real-terms rise in the forecast (which comes from rises in pension benefits as well as disability) which is not fully offset by real-terms cuts in other areas.

So, if the Government must shrink this bill, where should it start? First, it could choose to target either disability benefits which are paid to compensate for the costs of being disabled regardless of income; or incapacity benefit which is paid to those whose health conditions means they are unable to work.  Broadly, there are three options: restricting eligibility, reducing entitlement and increasing off-flows.

• Restricting eligibility would mean large loses for those deemed ineligible and create tricky transitional questions. One-fifth of the rise in health-related benefit caseloads comes from an aging working-age population.
• Reducing entitlement is both politically risky and materially damaging for disabled claimants who already face additional costs and are at a higher risk of poverty. However, a rebalancing of the amount of Universal Credit paid to those with and without a health condition could improve incentives to work.
• Supporting more existing incapacity benefit claimants into work (and fairly and efficiently reassessing the health of people who are receiving disability benefits) would help the DWP’s balance sheet and the individuals in question. It’s complicated by the fact that many health-related claimants have been out of work for a long time and face barriers to work, but there are some promising initiatives out there.

Sorry to say, there are no easy answers here, and any efforts to find ‘quick savings’ could create greater problems in the long-run. You can find our five key principles that should underpin benefit reform here.

Chart of the week

To mark International Women’s Day, Chart of the Week looks at changes in women’s flexible working patterns since the financial crisis (men are relegated to the dashed lines…). Two things stand out. First, there has been a long-term decline in the share of women working part-time – down from 41 per cent in 2018 to 34 per cent in 2023 – as more women have shifted into full-time work. With men’s average working hours (and the gender pay gap) trending down over time, more and more women are becoming breadwinners. Second, the upsurge in working from home brought on by the pandemic looks here to stay – despite the best efforts of CEOs and political parties, who are cackhandedly trying to bring flexible working into the culture wars. But, while the WFH revolution was once touted as a route to boosting female employment, it turns out men are just as (if not more) keen.