The person in charge of the DWP is responsible for the biggest spending department in government, spending £217bn on pensions and benefits in the last financial year, as well as the nearly £10bn a year it costs to run the department.
She is responsible for a huge range of issues from employment and disability support to child maintenance and pensions.
DWP responsibilities
And with the public finances under immense pressure, first in response to the pandemic and now in response to the cost of living crisis, she will be under pressure from the Treasury to find savings in the benefits bill and in the costs of running her department.
The shadow of the Treasury is ever-present for ministers in the DWP – as the DWP is responsible for such a large part of government spending, it gets particular attention from the Treasury.
Smith has the advantage of having spent one year of her varied ministerial career in the Treasury so she will have some understanding of the Treasury view, but every cabinet minister struggles to do anything without the approval of the chancellor and his officials.
One thing I have observed with successive secretaries of state at DWP is that their attention ends up being increasingly focused on the ‘working age’ part of their department, with DWP pensions policy heavily devolved to the pensions minister.
An early political call will be whether the triple lock on the state pension should be restored.Although the secretary of state is ultimately responsible for the whole department, there is a massive programme of welfare reform under way, involving millions of people being transferred across to universal credit, and those issues will form a large part of her focus.
In addition, if unemployment rises as expected, DWP will need to make sure that its JobCentres are well equipped to help people find their next job in the context of a severe economic slowdown.
Even within the pensions brief the department will not be short of things to do, though it is worth noting that key pensions policy issues such as the future of pension tax relief are not even within the remit of DWP, falling to Treasury to decide.
An early political call will be whether the triple lock on the state pension should be restored in the next round of upratings due in April 2023. Having broken the triple lock once, the government will be very reluctant to do so again.
But with inflation in the year to September likely to be in double digits, linking state pensions and benefits to inflation will cost far more than was originally planned when the department’s budget was set a year ago.
In reality this will be a call made at the top of government, with input from the DWP but with the final say ultimately resting with the prime minister and the chancellor.
Workplace pensions
In terms of wider pensions policy, a new ministerial team probably needs to step back and reassess whether all the different things going on at the moment represent the right set of priorities.
One of the most pressing issues, and one where policy has really been in limbo for the past five years, is driving up the amount of money going into workplace pensions.
Some will argue that now is not the right time to ask employees or employers to put more aside for their pensions.This year we celebrate the 10th anniversary of automatic enrolment and pretty much everyone accepts that getting 10mn people saving into a pension for the first time is a huge achievement.
But once the celebrations are over it will be necessary to grasp the nettle on getting contribution rates up to a more realistic level. The DWP ran a review of auto-enrolment in 2017, which recommended a couple of modest but sensible reforms.
These were to start auto-enrolling at age 18 rather than age 22, and to apply the mandatory 8 per cent contribution rate to all earnings and not just a band of qualifying earnings.
Unfortunately, this 2017 review report has sat gathering dust for the past five years. Although the DWP has signed up to the conclusions, the Treasury has blocked implementation, presumably because of the additional cost in pension tax relief that would arise if people saved more in a pension.
Some will argue that now is not the right time to ask employees or employers to put more aside for their pensions when they are struggling with the cost of living and the cost of doing business.
To be an effective government minister you do not just need good policy ideas, you need the political skills to get buy-in for them.But at the very least the new ministerial team could make sure that the necessary legislation is in place so that, if and when the time is right, the step up in contributions can be implemented straight away rather than with a further delay.
Progress is also stuck in others areas such as creating a legal framework for defined benefit pension superfunds, which could help DB pension schemes meet their obligations more cost-effectively, and the new team will need to resolve the conflicts across government, which have held up that legislation.
To be an effective government minister you do not just need good policy ideas, you need the political skills to get buy-in for them across government and in particular from the Treasury. I wish Smith and her team well as they go into battle.
Steve Webb is a partner at LCP and was pensions minister at the DWP 2010-15
