Unusual political times indeed courtesy of the front page of today’s Times. For a long time a central part of Liberal Democrat welfare policy was to integrate and simplify the tax and benefits system. The policy faded away from the party’s priorities, partly because the details were never that straightforward; for example, how do you integrate a system based on weekly payments and assessments (benefits) with another one based on monthly and annual payments and assessments (tax, particularly income tax and PAYE)?
A large chunk of that policy is now very much back on the political agenda, as ConservativeHome reports:
According to the Times, [George Osborne and Iain Duncan Smith have] now reached a settlement, which marks a “considerable victory” for Duncan Smith –
“Millions of welfare claimants will have their benefits scrapped and replaced with one “universal credit” under a ground-breaking deal secured by Iain Duncan Smith.
“Housing benefit, income support, incapacity benefit and dozens of other payments are set to go after the Work and Pensions Secretary won a months-long dispute with George Osborne, the Chancellor, over whether the reforms were affordable.
“The new system will carry a guarantee that anyone in work will be better off than someone on the dole. Claimants will be allowed to keep more of their benefits when they take a job or increase their hours.”
The plan isn’t finalised: “Details under discussion include how quickly the benefit would be withdrawn when a claimant finds work” … The Times points out that “Mr Duncan Smith will be allowed to claim up front “a large chunk” of the expected £9 billion of savings which he predicts can be made every year from lower administration costs and reduced fraud.”
Two changes have made this sort of simplification and integration possible in a way that was not previously. The changing taxation IT systems means that it is moving towards being a system that alters payments or liabilities at a pace which matches that of benefits. The growth too of tax credits means there is a part of the tax system that can more easily be integrated with the benefits system than was the case when this sort of policy was a regular feature in Liberal Democrat speeches.
However, it does all depends on IT systems working and administration savings really being made. Moreover, as Alex Wilcock pointed out to me, the plans also look to require either a substantial increase in benefit for people unable to find work or a sharp cut for those unable to work. The combination of Conservatives and budget deficit means the latter is looking much more likely, though we will have to wait until the details come out to know for sure.
UPDATE: The Wall Street Journal’s Iain Martin credits Nick Clegg with a key role in ensuring that the welfare budget is reformed rather than simply cut. Hat-tip: Olly Grender.
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16 Comments
Will any luck they’ll make considerable savings from universal welfare and transfer it to making sure that the new universal credit does not constitute a cut for the least well off.
@Mark
“the plans also look to require either a substantial increase in benefit for people unable to find work or a sharp cut for those unable to work”
Obviously have my dozy head on today – what does that mean? Are you just saying that people out of work may get more, or they may get less?
“IT systems working ”
Central Gov creating IT systems that work – that’s an interesting concept, they need to be careful or it may become the norm.
“the plans also look to require either a substantial increase in benefit for people unable to find work or a sharp cut for those unable to work”
At a guess, it should have been “a substantial increase in benefit for people _in_ work.”
We won’t know for sure what IDS will do until it’s announced, but if anyone wants some good pointers, have a read of the report on the subject, from IDS’s thinktank (the Centre for Social Justice):
http://www.centreforsocialjustice.org.uk/client/downloads/CSJ%20Dynamic%20Benefits%20exec%20WEB%20NEW.pdf
Basically, it involves simplifying the benefit system, keeping benefits broadly the same, and having a taper that withdraws the benefit as you earn more.
The CSJ argue that a simpler system will make it much easier to eliminate fraud, and much easier to administer. They think the present complex system means many people are reluctant to take on temporary or uncertain work, for fear, if the job finishes, they’ll have to wait weeks to get their benefits back.
The CSJ believe there are substantial savings to be made going for a simpler system, and that this money could be used to fund the slower withdrawal of benefits.
Some on benefits will lose money if they take a low paid job, especially a part time one. This is because some benefits are instantly lost as soon as you take a job, and, when you add in extra costs, like travel, they can easily end up poorer than on benefits. The CSJ argue that if you create a system that makes it worthwhile to work, in the medium term, some people will come off benefits, thus reducing costs.
Not everyone agrees with them.
The FT argue that, while the savings from reduced fraud are potentially significant, simplification will actually cost money, because, under the current system, a huge number of people underclaim. With a simpler system, people would be much more likely to claim their full entitlement, and the cost of this would dwarf the savings from reduced fraud.
http://blogs.ft.com/westminster/2010/08/the-hidden-expense-of-eliminating-benefit-fraud-and-the-ids-reforms/
And the biggest problem is that slowing down the withdrawal of benefits is potentially extremely expensive. If it’s too gentle a withdrawal, then people on £30,000 will still get benefits, and the cost to the treasury would be prohibitive. If it’s too sharp a withdrawal, then the poverty trap will remain.
In my opinion, these reforms are going to have to come in stages, and the full reform may not be achievable in this parliament. But I think it’s extremely important that something is done about the poverty trap. In my opinion, this is an appalling injustice, and should take priority.
From what I’ve read, Clegg’s support for IDS has been extremely important. This isn’t just a progressive policy from a Tory, it’s a policy that probably wouldn’t be going forward without Lib Dem support. (And, of course, a policy the party has proposed in the past)
Lib Dem Minister, Steve Webb, is an important member of IDS’s team. Steve has alluded to welfare reform in an interesting interview in the Guardian: http://www.guardian.co.uk/politics/2010/sep/17/steve-webb-conservatives-kneejerk-reactions
@Chris_sh
“Are you just saying that people out of work may get more, or they may get less?”
Looks like they get the same. The benefit to them is that the system will change so it pays for them to take a job. IDS intends that benefits will be withdrawn more slowly. And he has said that the changes won’t hit the poor. “I have made a commitment that whatever changes I make do not materially affect the worst-off in society. I certainly did not come into this department to see the poor suffer more.”
http://www.guardian.co.uk/politics/2010/sep/15/welfare-reform-universal-credit
Of course, any reorganisation of benefits is going to create losers as well as winners. And, with a massive deficit, and Osborne demanding cuts in the benefit bill, we should wait for the details. I’m hoping it’s middle class benefits that get hit.
That’s the point. Money is better spent on benefits that are income-based rather than universal. Just as child tax-credit is more efficient than child-benefit. The only problem is having multiple means-tested benefits on multiple different bases is expensive and difficult to administer. Hopefully IDS’ benefit reforms will combine the elements from both giving a system that efficiently spends money on those that needs it with the efficiency and simplicity of a single benefit.
I just hope the government releases the money to properly fund it. Even in these times of austerity doing this right must be a priority.
@George Kendall
“…people would be much more likely to claim their full entitlement, and the cost of this would dwarf the savings from reduced fraud”
Well, that may not be a bad thing. How often in the last 13 years have we heard politicians claiming that they have brought in x which will raise x people in the x population out of poverty. Then later we find out from charities that only a tiny portion claim because it’s to complicated or a complete fiasco (e.g. working tax credits, you can have this much this year, but next year we’re gonna take a far bigger wadge back).
In fact I’d have no problem with the bill going up if I knew that it was going to the truly needy.
“If it’s too gentle a withdrawal, then people on £30,000 ”
Well this is always a debating point when it comes to universal benefits. Where I live 30k is a very good wage because house prices are relatively low. Not certain if it could be classed as good in areas where the mortgage repayment is going to swallow a big chunk of that.
Thanks for the links and clarification (all) – thought it was that, but thought I could be losing the old marbles.
A very good set of comments from George. We really must be careful about tapering away more slowly. Indeed, we fought the last election (if I remember rightly) on tapering away more rapidly in some cases, so that those on above average incomes did not get as many means tested benefits, and used the money to pay for the pupil premium.
There is good evidence that making people better off when they take work (which is already almost always the case) is important, but that taper rates have only modest behavioural rates (see any number of IFS reports over the years)
I would certainly understand it were I to lose my child benefit, were my Professorial colleagues to lose their free bus passes. I would also understand it if I were expected to pay the full cost of using the tube and bus in central London as well. I am also not sure why I am in line to get a £75k tax free lump sum when I retire. Perhaps that one could be limited to 1.5x median earnings? It would be very progressive.
Chris_sh: At the moment, those unable to work receive more generous benefits than those able to work but unable to find a job. The proposals to simplify the system look to involve brining those two different payment levels closer – which can be done by increasing one, cutting the other or some mix of the two.
If this moves us closer to a universal, unconditional Citizen’s Income / Dividend then it gets my vote.
@Chris_sh
I said: “…people would be much more likely to claim their full entitlement, and the cost of this would dwarf the savings from reduced fraud”
You said: “that may not be a bad thing. Then later we find out from charities that only a tiny portion claim because it’s too complicated or a complete fiasco”
I completely agree. It’s one reason why I strongly support what IDS is trying to do.
I listed some of the arguments against, to explain why this will take some time to implement – so we need to be patient. To explain why this process will be difficult and painful. And also to demonstrate that this is not some flaky policy whose supporters haven’t considered the problems, but a policy which should be taken seriously.
Personally, I’m a very strong supporter of this policy. So much so that, elsewhere on this site, I’ve been accused of being obsessed about it 😉 I’m proud that Lib Dems in government are an important reason why this may happen.
@tim leunig
“There is good evidence that making people better off when they take work (which is already almost always the case) is important, but that taper rates have only modest behavioural rates”
I think the CSJ report refers to this, and while it recommends tapering more slowly, it says that allowing those on benefits a bigger earnings disregard (so they can earn more without losing any benefits) is more important – because if they start a low-paid part-time job, it’s a much smaller psychological step to full-time work.
good stuff. i’ve written before about the barrier that benefit provides to work, particularly housing benefit for those millions in private sector temporary accomodation. its good to see that tapering may finally come in. obviously there needs to be care to make sure that those still on benefits can afford to live, particularly the most vulnerable, but judging by comments here and elsewhere that is still the idea.
*** UPDATE ***
I’m not sure I believe it, but it looks like IDS has won a huge victory over the treasury.
http://www.bbc.co.uk/news/uk-politics-11459055
According to Robin Brant, of the BBC, IDS “has managed to get them to give his department extra money now – while almost everyone else will get less … the plan will cost more initially as claimants retain some of their benefits when they go back to work.”
If the BBC is right, extra money will go into allowing low paid workers to keep more of their benefits. Something, frankly, I didn’t expect to see for years. And, as expected, his proposal to bring in a new universal credit will go ahead.
Of course, the devil is in the details. But I’ll be ecstatic if this is what it seems to be.
And it probably wouldn’t have happened without us!
@George Kendall
“And it probably wouldn’t have happened without us!”
Er, really? Nice if true, but I can’t help feeling that you’re wearing yellow-tinted glasses.
@Paul Griffiths “I can’t help feeling that you’re wearing yellow-tinted glasses.”
Maybe. But maybe not …
http://conservativehome.blogs.com/thetorydiary/2010/07/in-praise-of-clegg-the-radical.html
Can LibDems please make sure that this is going to be a fair system of paying benefits and doesn’t disadvantage the vulnerable especially the mentally ill? Reading other blogs where mentally ill people are saying how suicidal with worry they are of what is going to happen to them makes me really sad that in a so called ‘first world country’ we can’t take care of our disadvantaged people. Even one death as a result of this policy will be too many.
@Mark Pack
‘to integrate and simplify the tax and benefits system.’
One aspect of this that didn’t work to well under the late government was putting tax people in charge of recovering overpaid benefits. People used to recovering unpaid tax from the comfortably off, who had savings and borrowing facilities, really need re-training before they are let loose on people living hand-to-mouth, who inevitably use any windfall for deferred necessities or paying something to their most pressing creditors, and therefore don’t have it when the repayment is demanded.