General election 2015: How did IDS do?

Five years ago, Iain Duncan Smith was a forgotten man. He had been a flop as Conservative party leader in 2001-03. Like many formerly senior people, he tried to do something interesting. He made a study of welfare and founded a think tank called the Centre for Social Justice. But he did not even have a shadow cabinet job. He was a mere backbench MP. His political life could have dribbled away until retirement, as has happened with many other formerly senior Tories.

But then, in a move which surprised most people, David Cameron chose Duncan Smith to become his Secretary of State for Work and Pensions. At that stage, many people probably thought of him as a well-meaning, army officer type—the sort who might make colonel, but probably not general. Not bright enough.

Yet something strange and remarkable happened. Under his leadership, Tory welfare reform has come to be regarded as an electoral asset. Yes, there are those who fulminate at the alleged cruelty of his policies. But the opinion polls show that Iain Duncan Smith's policies have wide support in the country.

Even stranger, his brand new and radical benefits system—Universal Credit—is not actually up and running, except in a tiny part of the country. It has been embarrassingly delayed. Yet, even without the Universal Credit and its supposed advantages, the rate of unemployment has fallen dramatically. Since the latter part of 2011, it has fallen by 813,000. That is an astonishing drop. But most people don't realise just how astonishing. There are only two other times in the past 60 years when unemployment has fallen at a comparable rate. One was in the late 1980s and the other in the mid-1990s. But on both those two occasions, the British economy was roaring along at well above the trend rate. In the late 1980s, the growth rate was about 5 per cent. In the mid-1990s it was about 4 per cent. But this third, dramatic drop in unemployment has not been helped by any such boom. The growth rate since late 2011 has been below trend, running at 1.6 per cent in 2011, then 0.7, 1.7 and 2.6 per cent. That is an average of only 1.65 per cent.

This is unprecedented: a rapid and significant drop in unemployment without a boom. During this time, many people who previously were on benefits and not required to seek work have been told, "Sorry, you now only get benefits if you are available for work." These have been lone mothers who used to be allowed not to seek work until their youngest child was seven, but now have to work when their youngest is five. More tens of thousands have come from the ranks of the disabled who have been deemed fit to work. These two groups of people would normally be considered as less likely than average to get a job successfully.

The drop in unemployment is comparable with the impact of the "Hartz IV" reforms in Germany in the early 2000s. These were a series of labour market reforms proposed by a commission headed by Dr Peter Hartz. He had been asked to make recommendations by the Social Democrat Chancellor Gerhardt Schröder, whose rule was being undermined by the relentless rise of unemployment in Germany, which was nudging towards the politically sensitive level of 4,000,000. Hartz suggested a wide range of liberalisations of the market, such as the creation of "mini" and "midi" jobs which would suffer far less in terms of deductions for tax and social insurance. He also suggested a policy of "help and hassle" to encourage welfare claimants into jobs. Finally, the rise in the German jobless figure peaked in 2005 and started to decline. In seven years, Germany went from having one of the highest rates of unemployment in Europe to having one of the lowest. It went from having the twice the rate of Britain to having a 30 per cent lower rate. It was a triumph which helped to make the German economy outstandingly successful over the past ten years.

There has been one other major success in this area recently. In 1996, President Clinton passed the Personal Responsibility and Work Opportunity Act which enabled American states to introduce radical changes to the benefits regime for lone mothers. As a result, the US  saw falls in the numbers of lone mothers on welfare ; in the state of Wisconsin, for example, these numbers fell by as much as 90 per cent. This was very dramatic. But in this case, the reform only affected one section of the population. The change we have seen under Duncan Smith has been less dramatic, but far more widespread.

But how has it been done? Not through Universal Credit, obviously, because that has only been started in a very limited way. So what has made the difference?

The measures which have attracted all the attention are the Benefits Cap and what is known as the "Bedroom Tax" or removal of the "Spare Room Subsidy", according to your political viewpoint. The Benefits Cap has been set at a limit of £26,000 for couples or lone parents. The aim has been to make benefits no more than the mean income of a working household. The Bedroom Tax has removed financial support for rooms in social housing which are not needed by the family concerned.

These measures have been controversial. Both have had a significant impact in getting the people concerned into work. But the number of people affected by these measures has been small. So that is not where the answer lies. What else is there?

Actually, there are basically only two main ideas for getting people into work. One is to make sure that employment is financially advantageous both for the employer and the employee. The other idea is to give the unemployed a push-cum-helping-hand. Professor Lawrence Mead of New York University, for example, has been insistent that the push matters far more than the financial advantage.

When asked about what caused the big drop in unemployment recently, Duncan Smith pointed to the "Claimant Commitment" as a key factor. This is a piece of paper which benefit claimants sign. Previously they used to go to a Job Centre, fill in forms and be given their benefits. Now they are required to make a commitment to seek work and to put in a lot of hours in their job search. They get benefits only if they are actively seeking work and provide evidence of their efforts on a regular basis. They sign a contract to make the deal very clear to them. They cannot later claim that they did not realise what is required of them. The deal is: "Yes, other taxpayers will support you while you are unemployed, but, in return, your job is to get a job."

This requirement to seek work is backed up by sanctions. If a claimant persistently fails to do what he or she has agreed to do—such as seek work or come to meetings or attend training courses—then their benefits may be withheld for a week or more. The use of sanctions has more than trebled since 2010.

Claimants are being required to come into the office and sign on more frequently than before, too. Under previous governments, the frequency of signing on had been reduced. The Treasury probably saw this as a way of saving money. But that was a short-term gain. Front line staff at the DWP say that coming in to sign on keeps a claimant focussed on seeking work. It can also disrupt any working in the shadow economy which the claimant may be doing. Official estimates of the amount of fraud in welfare are dramatically short of the reality. Jobcentre officials have been given the power to require people to sign on more frequently and at varying times of day if they believe a claimant may be working on the side or otherwise not being serious about finding legitimate work.

The Work Programme has been an important part of trying to help or push people into work. This is a programme only for those who have been unemployed for over a year. By this stage, it is quite hard to get them into work, but a big effort is made. Companies and charities are paid according to how much success they have in managing it. The initial results seemed disappointing and were widely reported as such. But after the first two years, the success of the programme has increased and now it is getting more people into work than the previous system. This has gone almost entirely unreported.

Myriad other schemes and changes have been introduced. For example, social landlords are now paid directly by their tenants which has encouraged them to take more interest in their tenants. Advances are taking place across a broad front, but everywhere the theme is the same: the alternative to welfare is work.

But what of financial incentives? Has it been made more advantageous to work? Yes, in various ways. The Benefits Cap improves the relative attraction of a wage packet. The removal of the Spare Room Subsidy means that a number of people need to bring some extra money in or else move. Then there is the limit in the increase in benefits to only one per cent for three financial years starting in 2013/14. Other measures, not the responsibility of the Department of Work and Pensions, have helped. There has been the dramatic rise in the personal tax allowance which makes it very clear to people that they will not be taxed on a very low earnings. The government has also avoided errors. It has not dramatically increased the minimum wage which would have cut out the sort of entry-level work which many of those who are hard to employ must take up to begin with. France, for instance, took the opposite course. It increased the real value of its minimum wage. Its record on unemployment over the same years is far worse than Britain's.

So there has been some progress in making it more financially worthwhile to work. But this has been on a relatively modest scale. In this case, it looks as though the push-cum-help approach is what should take most of the credit for the fall in unemployment.

It seems very likely that what we have seen is a structural shift in the level of British unemployment. Mark Carney, the governor of the Bank of England, made a blunder soon after he was appointed in suggesting that the bank would not consider raising interest rates until unemployment fell to 7.0 per cent or lower and he thought this could take three years. He evidently did not understand what was going on in the labour market because unemployment fell below this level in less than six months. It has now reached 5.9 per cent. He had worked under old assumptions about what cuts in the rate of unemployment Britain could achieve without causing inflation. But the reform of welfare means that we can achieve a significantly lower rate of unemployment before triggering inflation. That is what Germany did a decade ago. It means we can grow more, with more people in work.

There is further improvement to come, too. The early tests of the Universal Credit, which is gradually being rolled out, starting in the north west earlier this year, indicate that it will achieve still further reductions in unemployment. One of the great advantages is that when you get a job, you do not come off Universal Credit so you do not have to worry about applying to get back on it if you then lose the job. Another plus is that it is always financially worthwhile to work, whereas under the old system there were always cases in which the advantage was negligible.

What Duncan Smith has achieved is the biggest change in welfare to have taken place since the Attlee government. Arguably, it is even bigger because there were unemployment benefits long before that government came to power.

By the middle of this year, the drop in unemployment since 2011 is likely to amount to a million people with more to come. This is a sensational result. Why has Iain Duncan Smith done it now and why wasn't it done before? It was not done under the previous Labour government because Gordon Brown did not understand the issue, which is typical of Chancellors of the Exchequer. Frank Field, the one real reformer in senior Labour ranks, was pushed aside and a succession of ministers did the best they could in the time allotted to them.

Duncan Smith was the first secretary of state with responsibility for welfare ever to be appointed to the job actually to have a proper background in the subject. He arrived in Whitehall with a clear vision and a determination to put it through. David Cameron tried to move him from the job, but Duncan Smith was committed to the task and stayed with it. He understood, like his lieutenant David  Freud, that this is extraordinarily important. Getting a million and more people into jobs means that they feel better, are better off, more secure, more independent, happier and literally healthier. They are also more likely to be good citizens.

This transformation has surely been the greatest improvement to have been made by a British government in the last 30 years. Duncan Smith and Freud are doubtless aware of what they have achieved. But they also know that after the election, they are probably going to be moved aside. The question then will be the following: will those who take over at the DWP understand what has been achieved and how? Will they take unemployment to even lower levels or will they—as politicians in the 1960s and 1970s did—gradually ruin what they have inherited?