Duncan Smith's welfare plans might be derailed by Treasury

1 Jul 10
Radical plans to reform the welfare system are already being undermined by the Treasury and other government departments, casting doubts on their viability, Public Finance has learnt
By Lucy Phillips

01 July 2010

Radical plans to reform the welfare system are already being undermined by the Treasury and other government departments, casting doubts on their viability, Public Finance has learnt.   

Headline proposals set out by Work and Pensions Secretary Iain Duncan Smith this week included: a reassessment of Incapacity Benefit claimants; giving long-term unemployed people incentives to move to employment-rich areas; and introducing payment-by-results contracts for external welfare-to-work providers.   

The proposals follow the announcement of £11bn of cuts to the £192bn welfare bill in the June 22 emergency Budget. Chancellor George Osborne revealed new caps on the amount people could claim in Housing Benefit, a reduction in Tax Credits, a freeze on Child Benefit and new medical tests for those on the Disability Living Allowance.  

But welfare experts are now warning that cuts sought by the Treasury and other government departments, such as increasing the withdrawal rates for Tax Credits and plans to scrap free school meals, are putting wider reforms at risk.

Kayte Lawton, research fellow at the Institute for Public Policy Research, told PF that there was ‘a big contradiction between what Iain Duncan Smith is trying to do and what the Treasury will allow. They come from different positions. In the short term it will cost money and he has not yet convinced them... The Treasury has already gone in the opposite direction.’

The concerns come despite  Duncan Smith’s steadfast commitment to the agenda. The former Tory leader’s work at the Centre for Social Justice before going into government have made him one of the most influential thinkers in this area. Outlining his plans at a conference in London on June 30, organised by the think-tank Reform, he denounced the welfare system as ‘perplexing and perverse’, with claimants given little reason to risk finding a job and moving off benefits.

‘There is nothing big about a society that seems content to let a growing number of people become dependent on the state,’ he said.  

Duncan Smith admitted that the search for savings in other areas of government would make his plans difficult in the short term but said he had ‘an ace in my back pocket right now, which I will be playing shortly’.  

He added: ‘Whatever short-term changes we make will be swept up as we move forward in the next stage of reform.’  In a tongue-in-cheek remark, he also commented:  ‘Why do you suppose anyone in the rest of government will make it difficult for me... we are all in this together. We are a coalition, which is wonderful.’

But third sector leaders also warned of a rift between Duncan Smith’s DWP and Osborne at the Treasury.

Stephen Bubb, chief executive of the Association of Chief Executives of Voluntary Organisations, told the conference that the Treasury would have to give the voluntary sector incentives to get involved in work programmes. ‘The government has not considered how capital flows into organisations so they can operate that scheme. The banks don’t lend to our sector so unless we design a system that brings in capital we are not going to be able to step up to the plate.’

His concerns were echoed by Sally Burton, chief executive of the Shaw Trust welfare-to-work charity. Burton said that despite an annual turnover of £100m and reserves of £33m, ‘that won’t be enough money to play the kind of role we would like to’. While wanting to be ‘at the heart of the Big Society movement’, the risks associated with payment by results were too great, she said.  

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