Today's welfare white paper

November 11, 2010 5:30 PM

Iain Duncan-Smith launched his long-awaited white paper on welfare reform in Camden Town this morning. The aims are well known: “simplifying the system” and “making work pay” are mantras ringing around the heads of politicos this afternoon. The stats announced at Arlington House this morning sounded great – 2.5 million households will have higher benefit entitlements; 350,000 children and 500,000 adults will be lifted out of poverty; 700,000 low earners will receive more.

We also heard there would be “no losers” but page 53 of the white paper notes:

“This simplification means that, in the long term, some households will be entitled to less under Universal Credit than they would have been had the current benefits and tax credits system continued.”

Of course the intention here is to get people back to work, so those receiving less than they do now could be a positive thing. And trying to ensure that there are no “losers” in the welfare system means that taxpayers lose out. But you can see how sensitive the issue is.

Last month we submitted to the consultation 21st Century Welfare. We recommended a Negative Income Tax (NIT), which you can read more about in our research paper Welfare reform in tough fiscal times. It’s an apt title, because welfare reform is usually something you’d want to attempt while supported by a healthy economy. And it has been tried; just ask Frank Field. But it’s so important this opportunity is seized now, despite the deficit. Our proposal would have saved money immediately: dropping the poverty line to 50 per cent and varying withdrawal rates can pay for a switch to a NIT.

Our proposal is actually name-checked in the white paper. While we disagree with the DWP’s conclusion on the NIT – it seems like they largely disagree with us about dropping the poverty line to 50 per cent of median income – the Universal Credit outlined today is similar to our proposal in lots of ways. It’s simpler, merges the raft of benefits currently administered down to one and will be accompanied by sensible but firm conditionality. We also suggested a 55 per cent taper rate but the Universal Credit will have a 65 per cent withdrawal rate. See our video for an explanation:












The reforms have their critics. One article yesterday said the focus should be on creating jobs, and this argument was echoed on a blog today:

“Despite all the media spin, prior to the recession unemployment fell dramatically under the last government. This was not a result of harsher benefit sanctions, but of a growing economy.”

Yes, true. But what’s also true is that the welfare bill exploded at the same time – by 40 per cent in the last decade. Many of the jobs created during the good times went to overseas workers; not necessarily a bad thing in itself but it’s indicative of how the current welfare system makes it worthless for benefit claimants to take lower-paid work.

Overall it’s great to see real action being taken to tackle the benefits system. We can all agree that it’s horribly complex – so much so that DWP don’t actually know how many types of benefits there are. And we can also all agree that the system has trapped people in dependency, and quite often poverty. It’s notoriously difficult to get anything done at DWP, as the last eight Secretaries of State serving in a little less than nine years will testify. The job seemed to be a poisoned chalice under the last administration and frankly that’s understandable. So it’s extremely encouraging to see the department heading in the right direction. Look out for more on this as the details are unpicked from the white paper.

Iain Duncan-Smith launched his long-awaited white paper on welfare reform in Camden Town this morning. The aims are well known: “simplifying the system” and “making work pay” are mantras ringing around the heads of politicos this afternoon. The stats announced at Arlington House this morning sounded great – 2.5 million households will have higher benefit entitlements; 350,000 children and 500,000 adults will be lifted out of poverty; 700,000 low earners will receive more.

We also heard there would be “no losers” but page 53 of the white paper notes:

“This simplification means that, in the long term, some households will be entitled to less under Universal Credit than they would have been had the current benefits and tax credits system continued.”

Of course the intention here is to get people back to work, so those receiving less than they do now could be a positive thing. And trying to ensure that there are no “losers” in the welfare system means that taxpayers lose out. But you can see how sensitive the issue is.

Last month we submitted to the consultation 21st Century Welfare. We recommended a Negative Income Tax (NIT), which you can read more about in our research paper Welfare reform in tough fiscal times. It’s an apt title, because welfare reform is usually something you’d want to attempt while supported by a healthy economy. And it has been tried; just ask Frank Field. But it’s so important this opportunity is seized now, despite the deficit. Our proposal would have saved money immediately: dropping the poverty line to 50 per cent and varying withdrawal rates can pay for a switch to a NIT.

Our proposal is actually name-checked in the white paper. While we disagree with the DWP’s conclusion on the NIT – it seems like they largely disagree with us about dropping the poverty line to 50 per cent of median income – the Universal Credit outlined today is similar to our proposal in lots of ways. It’s simpler, merges the raft of benefits currently administered down to one and will be accompanied by sensible but firm conditionality. We also suggested a 55 per cent taper rate but the Universal Credit will have a 65 per cent withdrawal rate. See our video for an explanation:












The reforms have their critics. One article yesterday said the focus should be on creating jobs, and this argument was echoed on a blog today:

“Despite all the media spin, prior to the recession unemployment fell dramatically under the last government. This was not a result of harsher benefit sanctions, but of a growing economy.”

Yes, true. But what’s also true is that the welfare bill exploded at the same time – by 40 per cent in the last decade. Many of the jobs created during the good times went to overseas workers; not necessarily a bad thing in itself but it’s indicative of how the current welfare system makes it worthless for benefit claimants to take lower-paid work.

Overall it’s great to see real action being taken to tackle the benefits system. We can all agree that it’s horribly complex – so much so that DWP don’t actually know how many types of benefits there are. And we can also all agree that the system has trapped people in dependency, and quite often poverty. It’s notoriously difficult to get anything done at DWP, as the last eight Secretaries of State serving in a little less than nine years will testify. The job seemed to be a poisoned chalice under the last administration and frankly that’s understandable. So it’s extremely encouraging to see the department heading in the right direction. Look out for more on this as the details are unpicked from the white paper.

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