The government has finally disclosed its plans for welfare reform. The plans include proposals to significantly reduce the number and type of tax credits and benefits available by:
- combining elements of the current income-related benefits, such as income support and housing benefit, with the tax credit system;
- integrating tax credits by bringing out-of-work and in-work support together in a single system;
- supplementing monthly household earnings through credit payments reflecting circumstances (including children, housing and disability).
While in opposition, Work and Pensions Secretary Iain Duncan Smith proposed to replace all benefits and tax credits with just two: a "universal work credit", to replace income support, job seekers allowance and employment support allowance; and a "universal life credit", to replace housing benefit, council tax benefit, and disability living allowance.
At the time, the then Labour administration estimated the proposals would cost £7bn a year annually to implement, whilst Duncan Smith said it would cost half this amount.
Now in power, Duncan Smith has backed off going quite as far as he'd hoped, but the reforms would still be significant. Launching the proposals on Friday, Duncan Smith said:
"A system developed to help the most vulnerable and support people in times of need is trapping people in a cycle of dependency. We now have children growing up in households where neither parent works and where the only future is one stuck on benefits. We are proposing to change forever how the system works. Not tinkering around the edges but a fundamental change from the top to bottom."
Some commentators have criticised the proposals as 'unworkable', however, because they have not been fully costed.
The shadow work and pensions secretary, Yvette Cooper, for one dismissed the plans, saying:
"They are a sham to cover the fact that the budget actually cuts work incentives, cuts jobs and cuts help for people to return to work.
"Labour's minimum wage and tax credits made many families thousands of pounds better off in work. The budget is heading in the opposite direction, cutting tax credits and increasing withdrawal rates.
"Major reform either costs billions or means taking money from those who need it most. Iain Duncan Smith needs to be honest and tell us which it is."