Welfare Reform

The Welfare Reform Bill had its Second Reading this week. Iain Duncan Smith's quest to understand how best to deliver social justice has been a long and worthy journey working alongside politicians right across the political spectrum, including Labour MP Frank Field, a man I admire greatly.

The background is stark — five million people are on out-of-work benefits, 1.4-million have been so for over a decade. Expenditure on these benefits has risen from £52-billion in 1996/97 to £74-billion today.

The arguments for welfare reform are not simply about cost they are about making changes that ensure that the system is fair and works.

Current perverse incentives include the fact that for many, the loss of benefits on going into employment mean that they are simply better off not working.

For some the effective marginal tax rate involved (taking into account benefit loss) can be as high as 96%. And that does not take into account the cost of getting to and from work.

Another issue is the complexity of the benefits system — it is often impossible for someone to even work out if it is worth their while getting a job. The result is that people get stuck on benefits when they would otherwise be working. This can be especially tough on those children who grow up in workless households (around 1.9-million at present).

The Government is simplifying the benefits system by creating an easier to understand Universal Credit that will replace the current myriad of benefits.

This new approach will ensure that those taking work are always financially better off by doing so. This will be achieved by withdrawing the Universal Credit gradually through time rather than as soon as someone takes up a job. A vitally important change.