On reforming benefits


 I was on both Sky and BBC News last week talking about Work and Pensions Secretary Iain Duncan Smith's proposals on welfare reform. I basically advanced three main arguments, all in favour of the most radical of Duncan Smith's reform options - replacing the entire benefits and tax credits system with a single, 'universal credit' that would be withdrawn at a flat taper rate as a person's income increased.

The first was that the current system is a nightmare, that it is complex, bureaucratic and riddled with perverse incentives that mean it often makes more sense for a person to be on welfare than in work. No one would ever has designed such a system intentionally - it is just the result of one political initiative being piled on top of another, until you're left with a Byzantine mess that makes no sense whatsoever. Given that the current system is so bad, Duncan Smith is absolutely right to want to tear it up and start again. That fits entirely with the  zero base, 're-booting government' ethos that the ASI's has been promoting ahead of the Comprehensive Spending Review. 

My second point was that the key aspect of welfare reform was to make sure that work always paid, that people were always better off working more rather than working less. Getting people back to work, I argued, is the only way we can sustainably reduce welfare spending in the long run. As it is, the welfare bill is just going to keep rising - so again, Duncan Smith is right to be radical.

My third point was that of the various options outlined in the government's consultation document, the single 'universal credit' was by far the most appealing. There are several reasons for this: firstly, having a single credit with a single rate of withdrawal is the best way to ensure that perverse incentives are, as far as possible, removed from the benefits system. A lot of the problems at the moment come from the complex interaction of various different programmes - having only one will make things much easier. Moreover, having a single credit also allows for the greatest short-term savings to be made in terms of reduced bureaucracy and administration, and less fraud, abuse and error. That makes the up-front costs of setting up a new system more palatable.

All in all, the government's consultation document is very promising: if the right choices are made, Iain Duncan Smith's proposals could have a hugely beneficial, transformative effect on the welfare system.