Single benefit payment among 'radical' welfare plans

Iain Duncan Smith: "We need nothing less than a complete re-think of the benefits system"

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All out-of-work benefits and tax credits could be scrapped and replaced with a single payment in a "radical" shake-up of the welfare system.

The idea is one of several options being considered by Work and Pensions Secretary Iain Duncan Smith to make work pay.

He says the current system is "on the verge of breakdown".

Labour have said the start-up costs of a new system - which would apply across the UK - could be as much as £7bn.

Mr Duncan Smith refused to be drawn on the cost of the changes but has claimed billions could be saved in bureaucracy, fraud and error with the introduction of a "radically" simpler system.

Officials in his department say £9bn a year is currently wasted in these areas.

In a speech in London, Mr Duncan Smith said "ghettos" of worklessness had been created in Britain where generations were growing up without hope or aspiration.

He said the danger of providing benefits that were adequate in amount and indefinite in duration was that "men settle down to them", and the benefit system had created pockets of worklessness where "idleness" had become institutionalised.

He said he hoped his proposals, which have been put out to consultation, were the "beginning of the end" for the current "antiquated, piecemeal" benefits system.

A White Paper setting out the government's preferred options will be published in the autumn.

'Trapped on benefits'

Mr Duncan Smith has said it is a scandal that there are five million people on out-of-work benefits, nearly 1.5 million of them for nine out of the last 10 years.

He wants to remove disincentives in the tax system to finding work, making sure that claimants do not find themselves worse off when starting a job than on state support, which some say is often the case under current arrangements.

Start Quote

Major reform either costs billions or means taking money from those who need it most”

End Quote Yvette Cooper Shadow Work and Pensions Secretary

To achieve this, Mr Duncan Smith has set out three options.

  • Combining elements of current income-related benefits and tax credit systems
  • Bringing the 50 or so jobless benefits into a single "universal credit"
  • Supplementing monthly household earnings through credit payments reflecting circumstances such as children, housing and disability.

At the moment, benefit payments and tax credits taper off at different rates when people work extra hours, but Mr Duncan Smith said there would be a single rate of taper under whichever new system was chosen and it would reward people taking on a few extra hours the most.

He wants a system under which claimants would be up to 40p for every pound extra they earn.

Asked about criticism there would not be enough new jobs for everyone, he said he would rather get "workless households" into employment than increase the overall number of hours worked in the economy, arguing that many households had taken on extra work in recent years while others had continued to languish on benefits.

"The purpose of this is to make it clear and obvious to them that there is a route out for them," he told reporters in a question and answer session after his speech.

Officials said people who genuinely could not work, such as those on disability living allowance, would carry on receiving the same level of benefits but for the rest, work would be made more "attractive" than staying at home on benefits.

ANALYSIS

How much will Iain Duncan Smith's plans for sweeping change in the benefits system cost the taxpayer?

The answer to that question will not be found in this consultation paper.

All would-be benefit reformers say their ideas will save money in the end. Most - including Mr Duncan Smith - accept there will be some cost in the short term.

He says his department has done the maths. But he is not going to reveal how the sums add up until a White Paper is published in the autumn.

There is plenty to chew on in this document though.

It says the coalition's first budget is set to make a key problem faced by the unemployed - the rate at which they lose benefits and incur tax as they do more work - worse.

It says working legitimately is not a rational choice for many poor people to make.

And it marks the beginning of a key stage in a hugely important political debate.

First Mr Duncan Smith needs to convince his ministerial colleagues, and the Treasury, his plans are worth the money.

Then he will have to make that case to the public, and to explain which individual claimants will be better off, and which will lose out, under his final plans.

The cost of the programme was estimated at £3bn when the Conservatives were in opposition, but Mr Duncan Smith said this was just one of many figures cited.

While "not denying" that it would require additional up-front spending, he said reforms would lead to "dramatic savings" as well, as they would eliminate billions spent in dealing with over-payments of tax credits every year.

Will Hutton of the Work Foundation think tank, said he believed the Treasury would favour the third option, extra credit payments to reflect circumstances, but he said this would add yet more complexity to the system and he urged Mr Duncan Smith to "hold out" for the single benefit payment idea.

'Catch 22'

Labour have questioned whether the plans are affordable and suggested they may result in cuts in welfare provision elsewhere.

Shadow work and pensions secretary Yvette Cooper said the proposals were "a sham to cover the fact that the Budget actually cut work incentives, cut jobs and cut help for people to return to work".

"Major reform either costs billions or means taking money from those who need it most. Iain Duncan Smith needs to be honest and tell us which it is," she said.

The SNP said the government must "proceed with care" while Plaid Cymru warned ministers against "regionalising" benefits - effectively paying different amounts in different parts of the country - as a means of saving money.

The TUC said Mr Duncan Smith's aims had "merit" but he was in a "Catch 22" situation.

"You can only make work pay in two ways," said its general secretary Brendan Barber. "Either you make those who are out of work poorer.....or you can boost income in work either through more generous benefits or a higher minimum wage.

"The first should be morally unacceptable while the Treasury will not allow the second."

Kate Stanley, of the left-leaning Institute for Public Policy Research, said "we have not seen anything so radical from a secretary of state before".

She said the proposals could work but added there was a "danger of obsessing over work incentives".

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