Welfare reform cannot be an excuse for cuts

Reforming Britain’s expensive and cumbersome welfare system is long overdue.  The ideas’ behind the approach of the work and pensions welfare secretary Iain Duncan Smith – to make the system less complicated and to provide people with more incentives to find work or work for longer – are laudable. But today’s news that a typical family will lose £600 a year under the plan to replace jobseeker’s allowance, tax credits, income support, employment and support allowance and housing benefits with a single Universal Credit should give pause for thought.

So too should the concerns of 70 charities and lobbyists who have warned that the new system will disadvantage the 8m Britons who have no access to the internet and 14 million more who lack computer skills.  Those are not the only worries. There are anxieties in Whitehall that the computer system to be installed to cope with the reforms may not be up to the job but is rather, as one civil servant put it, a “car crash waiting to happen”. (Whitehall does not have a good track record on the efficiency of its new huge computer systems.) There are worries that the new system will alter the dynamics within families, skewing control and autonomy away from women. And moving from fortnightly to monthly benefits payments could increase the grip of pay-day loan sharks on those in society who lack budgeting skills. Fair and sustainable reform must take account of such factors.

The government has said that from Day One of the new system no individuals will see their benefits fall – and that any longer term squeeze, as benefits rise less than the real rate of inflation – will be offset by shifts elsewhere in the tax and benefits system. That should be taken with more than pinch of salt. Rates which were previously based on the Retail Prices Index are now to be tracked against the Consumer Prices Index which is a far less accurate measure of how prices will rise for the low-to-middle income families who qualify for Child Benefit or in-work tax credits. There are always losers when changes are introduced to any complex financial system. That is a hard fact of political life. But the shift to the Consumer Prices Index will hit the least well-off disproportionately as prices rise faster than benefits will.

But there is another, far bigger, political reality which cannot be ignored. It is that in a time of economic austerity the temptation will grow increasingly less resistible for reform to be used as cover for all round cuts in welfare. The Chancellor George Osborne has made no secret of the fact that he wants £10bn cuts in the welfare bill. But reforms like those proposed by Iain Duncan Smith, though they might eventually produce savings, will initial cost more up-front. Reforms usually do. The Work and Pensions Secretary knows that, which is why he dug his heels in when the prime minister asked him to switch jobs in the Cabinet reshuffle. He suspected that a new occupant of his post would be far less able than him to resist pressure from the Treasury for wider and deeper cuts.

If welfare is to be reformed it is vital that Mr Osborne and his Treasury number-crunchers are not effectively allowed to take charge. Reform must be driven by principle, not by deficit-reducing pragmatism. What is needed is shifts in incentives, not the slashing of payments to the least well-off.

Mr Osborne should bite a more potentially explosive political bullet and take another looking at stopping the payment of universal benefits – winter fuel payments, free bus passes and the like – to the comfortably-off. It will not raise the £10bn it wants, but it will save the Treasury between £2bn and £3bn, and that is a start. Whatever form reform takes it must not sacrifice the central principle that our welfare system needs radical changes on incentives. It cannot be a mask for big cuts which would hit the poorest hardest.

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