An old Liberal Democrat policy rides again courtesy of Iain Duncan Smith (UPDATED)

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The plan isn’t finalised: “Details under discussion include how quickly the benefit would be withdrawn when a claimant finds work” …  The Times points out that “Mr Duncan Smith will be allowed to claim up front “a large chunk” of the expected £9 billion of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

  • @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.

  • Anthony Aloysius St 1st Oct '10 - 5:23pm

    “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.”

  • @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.

  • Andrew Duffield 1st Oct '10 - 11:09pm

    If this moves us closer to a universal, unconditional Citizen’s Income / Dividend then it gets my vote.

  • patrick murray 2nd Oct '10 - 10:42am

    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.

  • Paul Griffiths 2nd Oct '10 - 5:23pm

    @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.

  • 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.

  • Ian Sanderson (RM3) 28th Nov '10 - 9:27pm

    @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.

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