Key points from 'Dynamic Benefits: Towards Welfare That Works'

The Centre for Social Justice, a think tank set up by Iain Duncan Smith, has released a report calling for the replacement of 51 separate working age benefits with just two:

• Universal Work Credit would replace out of work benefits (JSA, IB, ESA, and IS), and would require participation in welfare to work programmes in order to 'earn' it
• Universal Life Credit would replace more general support benefits (HB, CTB, DLA, WTC, and CTC).

The other main element of the proposal is tapering the benefits so that they are gradually reduced as people do more work. The authors claim that the proposal would cost money in the short term (£3.7bn a year) but would be self-financing in the longer term.

They claim that the proposals' impact will be to:

• Not reduce out of work benefits for any recipient of them. This presumably means that many of the existing rules within each benefit will be rolled into the new benefit
• Remove the marginal tax rate barrier to job entry, where up to 95% of the extra money earned in a job is immediately taken off a person's benefits
• Remove the benefit risk of job entry, where taking a job and leaving benefits can introduce long delays and potential refusal if the job doesn't work out
• Reduce benefit 'penalties' for families, home owners, and people with savings
• Reduce the overall complexity of dealing with the benefits system, making it simpler, easier, less stressful, and cheaper to start and stop claims

Will I lose my benefits or get less money?

Like many other welfare reforms in recent years, this proposal claims that it won't make people on benefits worse off. This is because it will not change the amount of money awarded to workless recipients, instead focusing on moving all the benefits under one roof (the DWP's) and applying a taper mechanism. However, I'm still reading up on eligibility - the Universal Work Credit appears to have different conditionality to the existing system.

The taper mechanism means that people in work will experience a very different system. No benefits will be lost or stopped when a claimant starts work, with any benefit reductions instead being taken out of PAYE. This also removes the need to reclaim benefits if the work stops or ends, and the attendant delays and paperwork. The proposal claims that only two groups will be worse off: families earning over £30,000 a year, and a few people working just over the number of hours required claim Working Tax Credit.

What happens when I get a job?

The key change beyond merging the different benefits is that they will all be withdrawn using a simple taper mechanism. This means that once earnings reach a certain level, a proportion of earnings above that will be taken out of the person's benefits. This means that, as the person earns more, they gradually get less and less benefit, until they earn enough that all of the benefits are repaid and their entire income comes from employment. Because this is taken out of earnings using PAYE, if the earnings go down or stop in a particular month, then the benefit reduction in PAYE automatically adjusts to take account of the new circumstances.

A basic earnings level, called an earnings disregard, will be set for each household. The earnings disregard depends on factors such as number of children, rent and council tax supplements, and lone parent status. 55% of post-tax earnings above this level will be taken away from the benefits, with HMRC handling the benefit reduction through the PAYE system. Interestingly, this also removes means-testing of benefits, as benefits can be awarded without looking at earnings, then taken away again by HMRC as and when the earnings reach appropriate levels.

What it would mean for Jobcentre and provider staff

On the face of it, the new proposal would remove a hefty proportion of the current roadblocks to getting people back to work. It would make work far more attractive by letting people keep more of the money they earn. People could take on casual, part-time, or temporary work without going through shedloads of paperwork and a long reclaim period. The in and out of work process being rolled out across the country would itself be superseded by a simpler and more friendly system.

It would also potentially resolve the benefit trap. London especially has had a Housing Benefit trap that can make it difficult and risky to get lone parents back to work, but all out-of-work families with low earning prospects and more than a few children have historically been trapped in unemployment.

However, this will impact on delivery in unexpected ways. How would programmes cope with customers who had a habit of getting a couple of days of work whenever a meeting was scheduled, or who cycled in and out of work every couple of weeks, or who were in work on low hours with no intention of increasing them? Would it become more difficult to get people into 16 hours plus employment if there is no similar cut-off point for benefits? Would programmes start to focus exclusively on casual labour as a means of getting people off benefits? Would it open up innovations such as cycling people through different work opportunities until they found one that fit them? At the very least, such a system would require a full review of existing contracts.

Criticisms of the report

Tapered benefits are not a new idea, although the mix of benefit unification and tapering is a particularly elegant solution to the handling of it. Criticisms include:

• It would discourage full time work and lead to a culture of partial benefits dependency - I've heard Labour ministers (Purnell?) pooh-pooh the idea for this specific reason
• It would cost more money than it saved
• It wouldn't make the individual benefits much simpler, so the two resulting benefits would be incredibly complex to claim and administer - this could be countered with the argument that going between a whole range of different agencies to claim the different benefits would still be more difficult and costly than filling in one big-ass form. Advisers and decision makers would need some fairly heavy training to understand the whole lot though
• It didn't work in Ireland - While tapered benefits have been tried in Ireland, there's an argument that the implementation was bungled
• It's a recession. There aren't enough jobs to go round so there's no point in this now - I'm not totally sure what the argument is in this, but I've seen it put forward
• Merging benefits would remove tailored support - This was a Lib Dem criticism. Their alternative appears to be tinkering with the present system
• The benefits system is actually pretty good - This was the gist of Jim Knight's response for Labour. Possibly he didn't watch Benefit Busters

What are the chances of it actually happening?

The report is not a Conservative Party report, and has not been endorsed by the Conservatives. Iain Duncan Smith's work in the social policy arena has attracted respect from all sides, but his previous Broken Britain report doesn't appear to have been fully taken on board by his own or other parties.

The big halfbrick of an objection that could stop this from becoming Conservative policy is that it requires £3.6bn of extra funding a year, plus transition and setup costs. This goes completely against the current plan of drastically decreasing government spending over the next few years. It's also worth noting that the experience of other countries that have successfully cut spending suggests the welfare state is the most likely target.

As a counter to this, the proposal doesn't demand that everyone keep the same benefit entitlement, so much as it deliberately ignores benefit changes. It's entirely possible to set up the new system and simultaneously reduce individual benefit amounts or eligibility, although it's far from certain that £3.6bn could be saved in the process.

Another barrier to acceptance is the localisation agenda, with Conservatives such as the leader of Essex County Council arguing for complete devolution of the benefits system to a local level. Each local area could of course implement something similar to this proposal if they chose.

With these objections in mind, it would still offer a way for the Conservatives to break ranks on welfare reform - Theresa May has been trying hard to differentiate their policies from Labour's in recent speeches, without success.

Responses to the report

• Public Finance have a generally positive response by the Institute for Fiscal Studies
• Links UK blogger highlights the importance of the proposals to bringing the 'informal' (i.e. black and grey) economy into the work-declaring, tax paying mainstream. However, this article in the Independent points to research that shows most of the informal economy is powered by illegal immigrants
• The Independent portrays Labour and Liberal Democrats as hostile, Conservatives as stand-offish
• Child Poverty Action Group welcome the principle of tapering but want more support for specific needs and less expectation of job entry for people who can't work
• Herald columnist writes a detailed, somewhat sceptical response, then goes and spoils it by calling Pathways to Work 'well-designed'
• Daily Mail columnist calls Iain Duncan Smith a 'heroic figure'
• BBC forums have the usual selection of dole-scrounger rants

Resources

• Report homepage
• Executive summary of the report (pdf)
• BBC article
• An earlier site discussion on the universal benefit idea. The new proposals sidestep many of the identified issues by not seeking to simplify many of the basic eligibility rules, but some of the points raised are still very applicable
• The Citizen's Income is a more radical idea that would give everyone a fixed benefit, paid each month regardless of earnings. This removes all conditionality from the system, making work a matter of choice rather than necessity
• The attachment below summarises a paper by Deven Ghelani covering some of the same ground, originally submitted as part of the recent welfare reform consultations