IDS: Rip up the benefit system and start again
Newsnight has seen a leaked copy of the "command paper" to be issued by Ian Duncan Smith tomorrow. Technically a consultation document, the paper "Welfare in the 21st Century" admits that:
"the overly bureaucratic benefits system can act as a barrier to work, trapping people in poverty".
The problem is the rate at which four or five separate benefits are withdrawn as people move off the dole and into work. For 130,000 people, the effect of working more than 16 hours a week is to remove 90p out of every extra pound they earn. For a staggering 1.9 million people the effect is to remove 60p.
The paper explores three solutions, but IDS' clearly preferred option is the so called Universal Credit. This will be spun as "combining elements of the present system" but even the cursory detail in the command paper makes clear this is radical reform.
Housing benefit, income support, council tax benefit, working tax credit and child tax credit would be replaced by one single benefit. This could then "taper off" at a unform rate providing a simple and transparent path back into the workforce for those currently caught in the benefits trap.
The problem is the cost: there are upfront administrative costs and then the much bigger issue of whether the overall benefit bill itself would soar as a result of relaxing the means-test culture that contributes to these marginal penalties.
On the admin cost: IDS points out that about 4.8 bn is lost through fraud or error - in the case of family tax credits, errors are costing about 8% of the whole scheme. By simplifying the credit and moving away from means testing for a core element of the scheme you could probably reduce this markedly; likewise with the introduction of real-time monitoring of people's incomes by the Inland Revenue (a proposal currently on the table).
However I am told the upfront cost of implementing the Universal Credit would be 3bn. For this reason the Treasury told IDS to go away and look at other alternatives, which are given a cursory treatment in the report: a single taper for all benefits; a single working-age benefit, non-means-tested for the first 12 weeks; and the so called Mirrlees model advocated by the IFS, which groups family credits and benefits into a "Family Allowance" style universal benefit.
What's striking is the philosophy behind all the proposed models: all want to move away from the myriad of means tested benefits towards a concept that an individual or family has a level of income in society as of right, and that state support for that income has to be transparent, easy to understand and hard to "game", and must cease to sustain a "benefits culture".
I'm told the Treasury is fighting a rearguard action against the implementation costs. But the bigger question is left hanging. Does the overall benefit bill have to become bigger in the short term? The document says:
"In the current fiscal climate we need to strike a balance between incentives
and affordability. This trade-off would, in particular, affect the rate of withdrawal
that is feasible if a Universal Credit is introduced."
So the crucial question for IDS and his lieutentants is the "rate of withdrawal". There are no costings in the document for the Universal Credit, at any of the theoretical "withdrawal rates" examined. But the whole direction of the emergency budget was to be stingier with benefits, not more largesse.
There lies the fault-line that the Coalition must approach as it grapples with its two strategic goals: deficit reduction and welfare reform.
And I will add one other caveat, which I call the Tony Collins doctrine, after my famous former colleague on Computer Weekly. As Tony always points out: if you walked into Whitehall and proposed to build a bridge from Britain to America you would be laughed at. Propose scrapping the entire welfare system and replacing it with an as yet untried and uncosted, albeit philosophically neat alternative and... well, we'll see the response tomorrow.