Make work pay – for all

Stephen Brien

13 March 2010

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Stephen Brien explains how Britain’s welfare system must change

Make work pay

Benefits create barriers to employment. As soon as a claimant starts earning, their benefits are withdrawn – and erratically. Some even have their payments reduced by 90 pence for every extra pound of income they earn, so they simply don’t see the point in work. Government should look to steady the withdrawal of benefits from the employed. At the Centre for Social Justice we believe this can be achieved by ensuring that benefit reductions should be reduced by no more than 55 pence for every extra pound of earned income; that the threshold at which claimants have benefits withdrawn should be raised; and that the overlaps between benefits should be eliminated so they are not all taken away at the same time. Much of this can be achieved within a year, without primary legislation.

Rework the tax credits system

Tax credits are now paid according to a previous year’s earnings, and then reconciled through a claim for arrears. This doesn’t work. In the first place it does not account for the claimant’s immediate situation. In the second, it creates a vast paper-trail of claims and counter-claims between users and the Treasury. A neater solution would be to pay tax credits in full, and then withdraw them along with income tax. Even better, eligibility for tax credits should be dealt with by one department – Work and Pensions – rather than by the Treasury too.

Build a universal credits system

The system must be simplified and all of these changes could, with certain exceptions such as specific child benefit, be dealt with by just two credits: a universal work credit and a universal life credit. These would show a clear, financial reward for work. They could even be withdrawn, quickly and effectively, through the income tax system, in line with earnings.

In the end, reforming the benefits system will not, alone, be enough to tackle the evil of welfare dependency. The government will also need to make changes to how welfare providers are contracted, but these four, relatively simple steps can begin to transform Britain’s most deprived communities for the better. Over to you, Prime Minister.

Dr Stephen Brien is chairman of the Centre for Social Justice working group on economic dependency.