Benefit shake-up would slash jobless and child poverty, says new CSJ report
Plans to move 600,000 households off welfare and into work will be unveiled today (September 16) in a major new report from the think-tank set up by the former Conservative leader Iain Duncan Smith.
The 370-page report, the most far-reaching review of the welfare system in 60 years, estimates that the shake-up will boost the incomes of the lowest paid by nearly £5 billion.
It also calculates that its radical recasting of state support for the jobless and low-paid – built around measures to make work pay and increasing support for working couples - will lift more than 200,000 children out of poverty.
But although there will be some short-term costs to the taxpayer, these will be offset by savings elsewhere. And in the medium term, the welfare overhaul will save the state money.
The proposals have been presented to David Cameron and senior members of the Shadow Cabinet and are intended to provide an incoming Conservative government will a detailed blueprint for reform of the £74 billion-a-year welfare system.
The report reveals that even before the recession, the welfare bill was growing faster than the inflation rate, up from £57 billion when Labour came to power in 1997. It warns that unless radical action is taken now, the numbers of long-term jobless, currently 5.9 million, will grow further despite economic recovery.
The report Dynamic Benefits, produced by a team of experts headed by management consultant Stephen Brien of Oliver Wyman, calls for a new approach to welfare.
It urges ministers to adopt a so-called “dynamic model” designed to predict the impact on the behaviour of claimants of changes to the benefits system.
It criticises the current “static” model adopted the Government, which fails to take into account the likely impact of the benefit system on claimants.
At the core of the CSJ’s recommendations are measures to make work pay, and reduce the working couple penalty. The report concludes that under the present system, claimants are no better off – and sometimes poorer – if they quit the dole to take on low-paid jobs, typically those paying up to £15,000 a year.
Winners from the shake-up would be low-earning households working fewer than 30 or 16 hours a week. But some higher earning families on more than £30,000 a year and receiving child tax credit would lose modest amounts of money.
In a preface to the report, Mr Duncan Smith, the CSJ chairman, says:
"This review marks a watershed for Britain’s benefits system... The recommendations hold to the simple principle that work is the sustainable route out of poverty. We believe the group’s success in devising a system, which smoothes out the participation and marginal tax rates so that there is no financial disincentive to work, should be taken seriously by members of every political party.
"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.
"That is why we simply cannot go on talking about the importance of getting people into work while we persist in creating disincentives for the very people we say should be in work.
"Our existing complex and inefficient benefits system should finally be laid to rest."
The report says that some 6 million people of working age in the UK are claiming out of work benefits.
But the deterrents to joining the labour market are huge and are built into the current system.
One obstacle is the participation tax rate – the amount of income lost by a claimant taking a low paid job. This can be as high as 90 per cent. The result is many people turn down jobs or fail to apply for them because they calculate – often rightly – they would be worse off as a result. The complexity of the system, which operates 51 different benefits, is a linked deterrent because if claimants take a job and then lose it, they may have to wait months before they can restore their income from benefits.
The other key obstacle is the marginal tax rate, which is 70 per cent or more for the majority of low earners. This deters people from taking a better paid post or working longer hours.
To encourage claimants into work, the report recommends more gradual rates of withdrawal of benefits, which would lower the PTR and the MTR and make taking a job and working harder far more rewarding. In place of the various confusing and high rates of benefit withdrawal (the so-called tapers) there should be a single 55 per cent rate at which benefit is withdrawn as claimant income rises.
Households should also be able to keep more of their earnings from work before their benefits are phased out, the report says.
The report calls for an end to the tangle of 51 benefits. It says there should be only two benefits for working age people: Universal Work Credit “earned” through participation in welfare to work schemes, which would integrate benefits such as Jobseeker’s Allowance and Income Support; and Universal Life Credit providing additional income to people with low or no earnings. All workless households would get ULC, which would absorb benefits such as Housing Benefit, Working Tax Credit and Child Tax Credit.
The report also advocates changes intended to reduce penalties for socially constructive behaviour such as marriage and cohabitation, saving and taking out a mortgage.
For media inquiries, please contact Nick Wood of Media Intelligence Partners Ltd on 07889 617003 or 0203 008 8146 or Alistair Thompson on 07970 162225 or 0203 008 8145.
Ends
NOTES TO EDITORS
The Centre for Social Justice is an independent think tank established, by Rt Hon Iain Duncan Smith MP in 2004, to seek effective solutions to the poverty that blights parts of Britain.
In July 2007 the group published Breakthrough Britain. Ending the Costs of Social Breakdown. The paper presented over 190 policy proposals aimed at ending the growing social divide in Britain.
Subsequent reports have put forward proposals for reform of the police, prisons, social housing, the asylum system and family law. Other reports have dealt with street gangs and early intervention to help families with young children
Copies of Dynamic Benefits and its Executive Summary are available from the Centre for Social Justice on 020 7340 9650 and www.centreforsocialjustice.org.uk.
For media inquiries please contact Nick Wood of Media Intelligence Partners Ltd on 020 3008 8146 or 07889 617003 or Alistair Thompson on 020 3008 8145 or 07970 162225.
