Think-tank calls for reform of benefits in favour of the poorest

17 Sep 09
The benefits system needs to be radically reformed to get people back to work and protect the lowest paid, a think-tank has urged
By Richard Staines

17 September 2009

The benefits system needs to be radically reformed to get people back to work and protect the lowest paid, a think-tank has urged.

The Centre for Social Justice, set up by former Conservative leader Iain Duncan Smith, said benefits should not be taken away immediately from people who find low-paid work but only gradually withdrawn. This would help get households back to work and children out of poverty.

According to the report, Dynamic benefits, the existing system of 51 benefits should be reformed and replaced with just two: a Universal Work Credit, earned through participation in
welfare-to-work schemes; and a Universal Life Credit for people with low or no earnings.

All workless households would get ULC, which would replace housing benefit, working tax credit and child tax credit.

Central to the report is a plan to increase the income disregard – the amount of money a worker can earn before the state starts to withdraw benefits.

The disregard for lone parents would be at least £1,660 per year.

Currently, thresholds are difficult to calculate because they vary according to individual circumstances, such as hours worked and which benefits are received.

The report estimates that the changes will increase the incomes of the lowest paid by almost £5bn and lift 200,000 children out of poverty.

Duncan Smith said: ‘[The proposals] smooth out the participation and marginal tax rates so that there is no financial disincentive to work.’

But Mike Brewer, director of the tax and welfare research programme at the Institute for Fiscal Studies, pointed to the immediate £3.6bn estimated annual cost of the proposals, reduced to £2.7bn by an anticipated increase in VAT receipts.

‘This reform is not intended as a way to solve the current crisis in the public finances – instead, it is an attempt to design a benefit system that will lead to higher employment,’ he said.

The Child Poverty Action Group welcomed proposals to increase the income disregard to make work pay.

But John Dickie, head of CPAG Scotland, said: ‘The benefits system is not just about getting people into work, it is about protecting people unable to work.

‘There is an over emphasis in this report on getting people back into work.’

A Department for Work and Pensions spokesman said: ‘Our welfare reforms and our £5bn investment in Jobcentre Plus brought over 330,000 people off unemployment benefits in August alone.’

The Conservative Party said the report ‘raised interesting questions’.

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