This report is long overdue. Indeed one can put a date from which it became overdue. When Blair came to power he gave Frank Field the job of sorting out the welfare mess and told him to “think the unthinkable”. Frank Field did just that and the result was that he got the sack - pronto! That’s the date in question!
Ian Duncan Smith - setting a model for aspiring but unsuccessful party leaders - picked up the challenge and set up the Centre for Social Justice which has now produced this excellent radical proposal . They are to be congratulated and we all ought to be very grateful to IDS for lifting the political debate out of the gutter
Christina
TELEGRAPH 16.9.09
Boost welfare spending, says Tory think tank
Benefits rules that create a "couple penalty" and give parents an incentive to live apart should be scrapped in a radical Tory shake-up of the welfare system, a report says today.
By James Kirkup, Political Correspondent
A short-term increase in benefits spending would also give hundreds of thousands of welfare claimants an incentive to find work, according to the Centre for Social Justice.
The think-tank, founded by Iain Duncan Smith, the former Tory leader, has drawn up a plan to replace the existing “tangle” of 51 different benefits with just two.
The plan, published today, says that the existing benefits system creates perverse financial incentives, leaving many people better off if they remain jobless and live apart instead of together.
The answer, the report says, is to reduce the withdrawal rates applied to benefits, allowing claimants to keep more of their benefits when they take jobs or cohabit.
That would increase the total benefits bill in the short term, but the CSJ says the social benefits will generate net savings for the taxpayer.
Under current rules when two people who are benefits move in together, their benefits are reduced to reflect the lower cost of living each faces individually.
But the CSJ report calculates that the Government often reduces payments to couples by far more than they save through cohabiting:
A total of 1.8 million low-earning couples are worse off together than they would be apart, according to the CSJ. That encourages couples to split, with harmful effects for children.
“Among families facing the greatest disadvantage, where strong, stable family units are needed most, they are most penalised,” the report says.
On average, low-earning couples are £1,336 per year worse off solely because they live together, according to the CSJ.
The number of couples separating is rising, and the welfare system has been blamed for contributing to that rise.
Office for National Statistics data published earlier this year showed that 44.4 per cent of live births were outside marriage. The proportion is the highest on record and has risen steadily over the last three decades. In 1976, it was 9 per cent.
In 2005, an ONS report said that one million couples in committed relationships chose to live apart, some doing so in order to maximise their income from benefits.
Marco Francesconi of Essex University this year published research suggesting that the introduction of the Working Families Tax Credit in 1999 has had a "substantial impact'' on the divorce rate among the poorest households, prompting a 160 per cent rise in separations.
The CSJ report also says that current welfare rules create an incentive for many of the 6 million people on employment-related benefits not to seek work.
Because of the rate at which benefits are withdrawn as claimants start to earn, many welfare claimants are no better off when they take low-paid jobs.
In some cases, going to work can even leave someone worse off than if they had stayed unemployed and on welfare.
The answer, the CJS says, is to lower the withdrawal rates of benefits, allowing claimants to keep more of their benefits after they go to work.
Letting working claimants keep more of their benefits would mean spending more on benefits.
The CSJ says the higher benefits payments for working claimants would add £2.7 billion a year to the annual benefits bill, which was £74.4 billion last year.
However, the think-tank says that the new system would produce overall savings to the Government of £3.4 billion a year, more than covering the costs of the change.
Simplifying the benefits system would cut the cost of administering it, the report says, adding: “Broader savings would also come from reducing the indirect cost of unemployment – reduced expenditure on health, crime, policing, and other social costs. “
Mr Duncan Smith said he had presented the CSJ report to David Cameron’s Shadow Cabinet and urged the Tory leader to implement its recommendations as soon as possible.
Mr Duncan Smith said: “Unless we put the system right now, we run the risk of increasing the number of residually unemployed, only this time it will manifest itself as large numbers of younger people permanently excluded from gainful employment.”
However, the Tories gave the report a cautious response.
A Conservative Party spokesman said the report “raises some interesting questions” and said the party will look at it closely.
He said: “Any change to the system need intense and careful scrutiny and we shall be looking at these proposals in that light and in conjunction with our own radical welfare reform policies.”
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BBC Radio 4 - ‘Today’ @08:23 16.9.09
No gov't can save on present benefit system, warns Duncan Smith
• Iain Duncan Smith, Conservative MP
Mr Duncan Smith, outlining Centre of Social Justice proposals for reform of the benefit system, stressed the importance of “making work pay” for people and said long term savings of the plans would be "dramatic". He added that no government could save on the present system.
“At the moment the unemployed person going into work faces the most regressive tax system. The most important decision for them is the decision to go into work. Does work pay? If work pays, people move into work,” he said.
"The complexity and the way they get thumped when they go into work makes them not go into work.
“You must smooth that path into work to the point where they get the work habit. “
He said simplification of the system, reduction of administrative costs, and long term reductions in health and crime costs would mean that “the savings are dramatic”.
“Every government that came to power said that they would reduce the cost of welfare, every government has failed,” he said.
“This is out of control, If you predict you will save on the present benefit system you will not. So complicated, so out of control.
“Work changes our lives, and the absence of work destroys too many of us.”
Sky News, 10:40
Speaking later, Mr Duncan Smith hit out at Labour critics of the plan, urging an "adult" political debate. He said: "Why don’t they read it first, why don’t they understand that we spent two years constructing this model."
And he challenged the Prime Minister to adopt the report's proposals.
"If you implement this, Gordon, no-one would be happier than me .. I'm not really interested in which party implements this", he said.=
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BBC NEWS @ 0929 16.9.09
May: We need to look at "very confusing" benefit system
•Theresa May MP, shadow Work and Pensions secretary
Ms May said that the current benefit system is "very confusing" and "very complex", and said that the Conservatives would carefully consider the proposals, outlined today by Iain Duncan Smith, to simplify the benefit system and move more people into work.
She agreed that the current system involves "disincentives" that may make it easier for people to stay on benefits than seek work.
"I think that the report that the Centre for Social Justice comes out with today is interesting and raises and number of questions", she said.
She also urged the government to create more apprenticeships, saying: "I think we need to look particularly at the support we give to young people."
TELEGRAPH - leader - 16.9.09
Britain must break free from its welfare trap
A shake-up of the benefits system will cost money, but there will be significant savings in the long term.
By Telegraph View
Gordon Brown stiffened his sinews yesterday and finally admitted to the TUC Conference that cuts in public spending will, after all, be necessary if the budget deficit is to be tackled. It is depressing that it has taken months of pressure from Cabinet colleagues to extract this statement of the blindingly obvious from the Prime Minister.
Yet, true to form, Mr Brown was anxious to sugar the pill for his trade union paymasters and announced that from April 2011, fathers will have the right to take up to six months' paternity leave, six months after their child is born, if the mother returns to work.
This is one of the equality hobbyhorses of his deputy, Harriet Harman, and is being implemented in the teeth of resistance from Lord Mandelson, the Business Secretary, who is all too aware of the cost – particularly to small businesses, particularly in an economy emerging from recession – of such absurdly generous provision. When the Government should be cutting red tape, it is creating it; electoral politics are taking priority over the national good.
Once again, it is left to the Conservatives to ask the big questions, and to suggest some of the answers; few challenges come bigger than welfare reform. Labour came to power with a once-in-a-generation opportunity to deliver change, and funked it. The numbers stuck in welfare dependency have barely shifted during Labour's lost decade and the taxpayer spends nearly £75 billion a year keeping them there. Today, the Centre for Social Justice, the think tank established by Iain Duncan Smith, delivers a searing indictment of a benefits system that traps people in poverty, and sets out ambitious plans for change.
As Simon Heffer argues opposite [below!], the key to reform is both to simplify the benefits system and to make it less inflexible so that it does not act as a disincentive to work. Millions stay on benefit because they are better off than they would be in a job. Until that perversity is ended, we cannot properly tackle the welfare trap. As the report states: "Work must be supported as the primary sustainable route out of poverty."
The shake-up will initially cost money, though in the medium and long term there will be significant savings. More importantly, our society will be healthier if more people enjoy the self-respect that comes with earning a living. It is not difficult to imagine a Blair-led Labour Party endorsing much of this report – if only it had had the courage. The challenge facing an incoming Conservative government would be to pursue such a bold strategy while trying to haul the economy out of the ditch. It is a challenge to which the Tories must rise if the cycle of welfare dependency is to be broken.
2. The undeserving poor will be David Cameron’s biggest headache
We must end the flawed benefit system that encourages people not to work, says Simon Heffer.
The report on reform of the benefits system, published today by the Centre for Social Justice, is necessary reading for anyone who wonders how to improve our welfare state. The £74 billion benefits bill is something a Conservative government would have to tackle – not with a view to punishing anyone for his or her poverty, or causing hardship to those who strive to do better, but to extract better value for the vast sum spent. By the time we get a Conservative government (if indeed that is what happens) the bill will be even bigger, as unemployment rises thanks to the recession masterminded by Gordon Brown.
Today’s report is a thorough, intelligent and rigorous examination of how to get people back into work. David Cameron has a copy, given to him by his predecessor and CSJ chairman, Iain Duncan Smith.
There is much in it that he needs to take seriously. However, he should be aware that implementing it would solve only part of the problem of pushing Britain towards recovery. It is not merely the benefits system that is a drag on prosperity: it is the whole regulation of employment.
The study addresses a perennial problem, familiar to many who were around to write about the recovery from the great unemployment of the early to mid-1980s. It is that the cost of taking a job – despite those jobs being supported by a minimum wage – is often too much to be of any appeal to those on benefits.
The report is laced with models and case studies. “Why”, it asks, “do those most in need of encouragement have the greatest penalty”? A young man working 25 hours a week in a part-time job will, they show, lose 84 per cent of his new wage in taxation and loss of benefits. A lone parent would lose 61 per cent. A low-income couple who choose to live together – such as for the purpose of bringing up children – will lose £1,350 a year by doing so. So the benefits system, as we currently have it, has failed. It keeps people from looking for work, because their marginal gain is frankly not worth it; and it institutionalises the breakdown of society, not just by removing incentives for individuals to be productive, but by encouraging that underclass of single parents that sociological surveys since Charles Murray have shown lead to poverty, criminality and underachievement by their children.
In the late 1980s, the Institute of Economic Affairs had a plan to deal with this problem, and to an extent its remedies are echoed here. The institute advocated a median level of earnings for each family unit – whether people living alone, single families, couples or couples with children – and decreed that until earnings in the family rose to that level, no taxation would be paid. When earnings were below it the family would benefit from receiving a negative income tax – benefits by another name – to bring them up to the median level.
This simple scheme ran into one insuperable hurdle, which was the bureaucracy. At the time it was suggested, I wrote a piece for this newspaper about it, and in the course of my researches went to Somerset House to interview a senior official of what was then called the Inland Revenue. I needn’t have wasted his, or my, time. He looked me in the eye and said: “We can’t possibly do things that way, because we’ve never done things that way.”
The Centre for Social Justice report proposes a simplification of the benefits system, with a more gradual scheme of the withdrawal of benefits so as to avoid the sudden shocks that make it highly unlikely that anyone offered under £15,000 a year to go into work will feel the urge to do so. The present system of 51 benefits would be replaced by just two for people of working age: Universal Work Credit, the entitlement to which would be through participation in welfare-to-work schemes; and Universal Life Credit, which would provide additional income to those on low earnings or with no earnings. The ULC would absorb such things as housing benefit, the working tax credit and the child tax credit.
Importantly – and we shall see of what Mr Cameron is made if he decides to implement this part of the report’s recommendations – there would be reduced financial penalties for those couples who engage in what the report calls “socially constructive behaviour”: marriage (and cohabitation), saving and taking out a mortgage.
This will cost money, in the short term: the additional benefits bill is put at £3.6 billion, though there would be increased tax revenues of almost £900 million. The study argues that there would in fact be a net saving of £700 million, thanks to a reduction in the number of claimants, the simplifying of the administration and the savings from fewer errors and less fraud.
It also argues there would be savings on the NHS bill, which I am sure is right, and from less crime, about which I am less convinced. It was a bane of the lives of Conservative home secretaries in the 1980s and 1990s that as the economy recovered from various shocks the rate of crime started to rise, largely because there was so much more to steal.
Yet the other assumption that underpins the report is that there are jobs out there waiting for people to do them, if only benefits were not so attractive. I am not sure how far that is the case now, and how far it will be the case in the next year or two.
There is one big difference between now and the recoveries after the recession of the early 1980s and the slowdown of the early 1990s, and that is the minimum wage. [- -which Brown yesterday promised to keep increasing -cs] It typifies the sort of regulation that prevents employers from creating jobs and slows down the expansion of businesses.
The market, and not the state, should dictate what someone is paid. A minimum wage is a feasible ideal in times of full employment: in times of unemployment it merely keeps more people on the dole than should be there.
I understand the political impossibility of abandoning it; but some flexibility in regards to it, say in terms of raising the age limit at which it starts for the duration of the economic crisis, would seem likely to work well in tandem with the sensible reforms advocated by this report.
Mr Cameron should look at this very seriously; for it seems to be a logical and productive first step on the road not just to recovery, or to benefit reform, but to our whole philosophy of how we treat those who would make a claim on the state.
These are ugly terms to use these days, but in its incentivisation of effort, thrift and responsibility, it reminds one of the great Victorian distinction between the deserving and the undeserving poor. The deserving, decent poor are easily dealt with; it is the undeserving that will be the big headache for the next government. Mr Cameron should put Mr Duncan Smith in his Cabinet not just to implement the findings of his own report, but to mastermind the assault on a culture of fecklessness that an over-generous state and our failure to deal with the drugs problem have made one of the most toxic and profligate features of our society.
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