UK Politics

Turn benefits into repayable loan, says Tory group

Kwasi Kwarteng
Image caption Kwasi Kwarteng says free enterprise is the answer to Britain's problems

Young unemployed people should be forced to repay their benefit money when they get a job, an influential group of Conservative MPs has said.

The proposal to pay benefits as a loan would give them "an additional incentive to find work rather than allow the debt to build up".

The idea is included in a new book setting out a "radical" free market agenda for the Conservative government.

Author Kwasi Kwarteng is seen as a rising star on the right of the party.

The Conservative MP and junior ministerial aide argues that free enterprise - rather than government interference - is the answer to the problems facing Britain.

Chancellor George Osborne is understood to be considering reducing tax credits for millions of working families in his July Budget, as part of the government's efforts to "make work pay", although critics accuse him of making the poor pay for the mistakes of bankers.

'Stingy' benefits

Mr Kwarteng's book argues for a more radical shrinking of the welfare state to return it to the contributory principle envisioned by its founder Sir William Beveridge - that you get benefits in return for contributions.

It says: "Strains on the welfare state are often blamed on benefits being too generous, but the truth is that welfare is so expensive - over £90bn for working-age benefits alone - because too many people are eligible.

"In fact, JSA - the main out-of-work benefit - is fairly stingy for those who have contributed to the tax system for years and find themselves out of work for the first time."

Image copyright PA

The book says the government should "look at other ways to encourage work - while making sure that the system is not cruel to those who have simply been unlucky".

"Young individuals who have not yet paid national insurance contributions for a certain period, five years say, could receive their unemployment benefit in the form of a repayable loan.

"An unemployed teenager would still receive the same amount of cash as now, for example, but they would be expected to repay the value once in work.

"Turning an entitlement into a loan would mean that people would still be supported while out of work, but would have an additional incentive to find work rather than allow the debt to build up."

Even if someone was out of work for the entire seven years between 18 and 25, "the total sum repayable would be £20,475 - considerably less than the tuition fees loan repayable by many of his or her peers".

Maternity pay

At the same time, those who have paid into the system for many years should get a "fairer deal" if they unexpectedly lose their job later in life.

Other ideas in the book include scrapping maternity and paternity pay to ease the burden on business. Instead, new parents would get a flat rate "baby bonus" paid directly by central government.

It also calls for the scrapping of some government departments, tax raising powers for local authorities, a regional minimum wage, allowing free schools to generate a profit, encouraging banks to use a common IT system allowing "portable" bank accounts and scrapping the BBC licence fee.

The book pulls together policy ideas from the Free Enterprise Group of Conservative MPs, set up by Environment Secretary Liz Truss and other members of the 2010 intake of Conservative MPs to promote a leaner state and boost entrepreneurship. It is backed by the Institute for Economic Affairs think tank.

Writing in the foreword to a Time for Choosing: Free Enterprise in Twenty-First Century Britain, published by Palgrave Macmillan, Mr Kwarteng says: "The capacity of individuals, companies and other groups to generate prosperity and well-being, when left to their own devices, is too often overlooked.

"We should allow a competitive and free economic environment to flourish in Britain, to challenge monopolies and oligopolies, and to allow individuals to create, innovate and take risks."

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