Think-tank identifies £6.5bn benefit savings

3 Mar 10
A government ‘of any stripe’ should claw back recent benefit rises and restrict child benefits for better-off families to save £6.5bn, a Right-wing think-tank has urged
By Tash Shifrin

3 March 2010

A government ‘of any stripe’ should claw back recent benefit rises and restrict child benefits for better-off families to save £6.5bn, a Right-wing think-tank has urged.

Policy Exchange said that £5.1bn of these  savings should be used to fund a guarantee that claimants who find part-time work for up to 16 hours a week could keep £92.80 of their earnings before losing benefits. This would improve the present ‘very poor’ incentives for long-term unemployed people to move off benefits and into work.

The remaining £1.4bn savings could be shaved off the £81bn annual welfare bill, the think-tank said in its March 3 report, Escaping the poverty trap.

Lawrence Kay, the report’s author and research fellow at Policy Exchange’s economics unit, said: ‘The choice between leaving benefits and going into work should be an easy one. If we make these savings, we can significantly increase the amount of money benefit claimants can keep to encourage them to find work, while still reducing the overall welfare bill.’

The think-tank noted that the government must, by law, ensure that benefit increases are pegged to price rises. But it argued that the 1.5% benefit rise announced in the Pre-Budget Report will amount to a 2.9% real rise for claimants, because of a 1.4% decline in the retail price index.

‘Given the state of the public finances, there is no logical reason for this,’ the report said. The government should reclaim £700m of the hand-out by ‘reducing the increases in the value of affected benefits by a sufficient percentage each year until the money is recouped’, it added.

Policy Exchange said the remaining £5.8bn could be saved by ‘tapering away’ Child Benefit and the family element of Child Tax Credit payments to richer parents.

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