Peter Hoskin

At last, IDS gets his chance to reform benefits

For some time now, we on Coffee House have been raving about Iain Duncan Smith’s plans for reforming benefits. And, today, it finally looks as though they – or something like them – will soon be put into action. The DWP is releasing a consultation document which aims to simplify and straighten out a benefits system which now acts as a barrier to work. Over the next few months, various think-tanks and other organisations will submit their own ideas for doing just that. Someone who will no doubt take part in that process, Policy Exchange’s Neil O’Brien, has a written a very useful summary of the main questions and arguments here.

The expectation, though, is that the end result will follow the broad contours of the “dynamic benefits” system proposed by IDS’s Centre for Social Justice last September. We’ve summarised that here and here, among other articles and posts – but the basic idea is that various out-of-work benefits can be rolled together into a universal benefit, which would then fall at a uniform rate as claimants get back into work. This avoids the alarmingly high marginal effective tax rates that claimants currently face. For some, an extra £1 in earned income can effectively put less than 10p into their pocket, as tax increases and benefit withdrawals kick in.

When IDS first proposed his system, George Osborne and David Cameron were said to be put off by the cost. Yes, it would imply savings in the medium to long term, as more claimants got off benefits and back into work – but the upfront costs would be around £3-4 billion. The question was: can we afford that kind of moolah in the age of austerity? And, sifting through the

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