TPA welcomes Iain Duncan Smith's proposals for radical reform of welfare and argues reforms can save money for taxpayers

The TaxPayers' Alliance (TPA) today welcomed the 21st Century Welfare report released this morning by the Department for Work and Pensions (DWP) which cites TPA research and argues for a major simplification of the benefit system. The proposal in the recent major TPA report Welfare Reform in Tough Fiscal Times is cited as the illustrative example
of a "single benefit/negative income tax model".
The TPA has made benefit reform a priority for their research and campaigning.  In the TPA Manifesto reforms to taxes and benefits were set out as one of the TPA's priorities for this Parliament.  At the same time, the TPA has also been a key voice arguing for cuts in spending to address the fiscal crisis and secure better value for taxpayers, and therefore does not believe welfare reform should increase spending.
Welfare Reform in Tough Fiscal Times pointed to five key failings of the current system, which fails the poorest families:

1.   It is too complicated, with more than 50 different benefits (the take-up rate for Working Tax Credit is only 57 per cent)

2.   It is poorly administered, with fraud and error costing £4.5 billion each year

3.   It’s unfair on couples because some lose up to £1,336 by living together

4.   Those who work and progress in work are financially penalised, the minimum wage of £5.80 an hour can be worth as little as 26p

5.  The number of people living in severe poverty has increased from 5 per cent to 6 per cent in the last decade
 
The report describes how the ‘iron triangle’ of benefit reform means it is generally only possible to fulfil two of these three objectives at any one time: directly raise the incomes of the poor, increase the employment of the poor and reduce welfare spending.  Employment is the most sustainable way out of poverty, and at a time when the government is trying to save money, reducing welfare spending is essential.

This new paper proposes a single negative income tax, shows how it could be administered and provides a model of costs for various tax levels and taper rates (see table below).  High taper rates put people off work, our preferred option is a 55 per cent taper, whilst reducing the poverty line to 50 per cent of median income (costing £62 billion, a saving of £1.7 billion, even before getting more people into work). The cost of the benefits that the proposed negative income tax would replace, under the existing system, is £63.7 billion.
The cost of the TPA’s Negative Income Tax
Proposal in 2007-08
(£ billions)


 

Matthew Sinclair,
Research Director at the TaxPayers’ Alliance, said:
 
"It is great news that Iain Duncan Smith has not backed down from radical reforms, of the kind recently recommended by the TaxPayers' Alliance, to benefits that are costing taxpayers a fortune but failing the poorest. Continuing to trap people in the treacly complexity of a welfare system that has suffered from too many sticking plasters over the years just isn't acceptable, and a new approach is clearly needed to get people back into work. But with taxpayers struggling under a rising tax burden and the public finances in a crisis thanks to sharp rises in spending over the last decade, more money just isn't there to smooth the path. It is vital that the Government make the tough choices that would make it possible to reform welfare and save money now.
 
To discuss TPA research into welfare reform or to arrange broadcast interviews, please contact:

Matthew Sinclair,
Research Director of the TaxPayers' Alliance, on 07771 990 174 or at matthew.sinclair@taxpayersalliance.com
 
Or direct media enquiries to 07795 084 113
 

Notes to editors:

1. The TaxPayers' Alliance (TPA) is Britain's independent, non-partisan campaign for lower taxes and better services. Founded in 2004, it has over 55,000 supporters nationwide.
2. The recent major TPA report on welfare, cited in today's DWP paper, can be found here.
3. Severe poverty is defined as living on 40 per cent or less of median income.
4. The TPA Manifesto, which lays out policies the new Government should pursue in the first 3 months, 1 year and 5 years in
power, is online here: http://www.taxpayersalliance.com/tpamanifesto.pdf
5. The TPA report is cited as the illustrative example of a "single benefit/negative income tax
model" on page 25 of the new Department for Work and Pensions report 21st Century Welfare.
To book an interview with a TPA spokesman call 07795 084 113
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