Can IDS successfully reform the benefits system and get the unemployed back to work

This is a piece I wrote quite some time ago but I think much of its content is still relevant and pertinent to the present time.

Can Duncan-Smith Successfully Reform the Benefits System and Get the Unemployed Back to Work?

It has long been recognised that the benefits system is in need of reform.  Successive governments have tried to effect changes intended to create a fairer system and get the work-shy back to work, but few of these efforts have had any real impact.  As a result of these initiatives though, the system has become bewilderingly complicated.  The last government made numerous attempts to create a more effective benefits system but the reality was that by the end of their tenure, the number of different but equivalent benefits was greater than ever before and the different elements of the benefit system were being run by a number of different bodies spread across two different government departments.  This is the system that the present government has inherited and as ever (in fact, as never before), it is in dire need of reform.  Over-complicating the system has not worked and has provided a backdrop to a shocking number of mistakes which have left many thousands of people either receiving huge 'overpayments' which then need to be repaid, or missing out on benefits they have been entitled to.

In this context, Iain Duncan-Smith's proposed Universal Credit, with its proposed simplification of the system by eventually unifying all benefits into one is very welcome and, many would say, long overdue.

However, it must be asked, if the benefits system is to be reformed, what does the act of reform aim to achieve?
An obvious answer to this, and the one most relevant for the treasury and the government's desire to reduce the deficit, is a substantial reduction in costs.  Welfare spending currently accounts for a third of all government spending and the benefits system accounts for a large element of this.  Making substantial cost savings in benefits will thus reduce the government's overall welfare bill.
What else?   The Prime Minister's 'Big Society' - everyone playing their part.  This includes people getting off their sofas and joining the ranks of working tax paying people, contributing to the public finances rather than living off them, perhaps for the first time.
Further aims might be to create a fairer system where people get exactly what they are entitled to, with less chance of mistakes and fraud and to redistribute the benefits bill more equitably among its recipients.

Although the full details of Mr Duncan-Smith's Universal Credit proposals will not be seen until later in the autumn when they will be released as a white paper, certain details have been made public during the Conservative party conference.   We have learned that Universal Credit should come into effect in 2013 and that it will streamline the benefits system, making it simpler and easier to understand, reducing the chances of fraud and errors.  It will be tapered so that it is gradually reduced as income rises.  It will also contain an 'Enterprise Allowance' which will allow unemployed people to try to set up their own business ventures while still receiving some level of benefits.  Notably, Mr Duncan-Smith has stated that no one should be worse off working than they would be on benefits.

So much then for Universal Credit.  What will it replace?  Presently a benchmark line exits known as the 'level of income support'.  This is a notional amount of money calculated by the government to be the minimum sum which a person can survive on in our society - the poverty line if you will, and which is adjusted each year in line with inflation.  The level of income support (not to be confused with the benefit, confusingly, of the same name) varies according to a person's circumstances.  In this much at least, I doubt that there would be change.  People will still have a basic level of needs and the government will have to continue to assess this in order to calculate benefit amounts.  As things stand presently though, many people's benefits fall slightly below this 'income support' line.  In order that they should still receive an amount equal to their calculated level of income support there are a range of top-up benefits intended to bring them back up to the correct level.  However, these are not well known and even jobcentre and benefits service staff frequently fail to apply them correctly.  Talking to frontline jobcentre staff myself in fact, I have often been disturbed by the level of ignorance of the existence of top-up benefits and the calculated level of income support.  Naturally this ignorance will have resulted in many thousands being left living below the government's own calculated poverty line.  A simplification of benefits would certainly be both timely and overdue if it were to end this anomaly.   Benefits could be calculated as a standard amount, supplemented by clearly defined additions according to specifically defined circumstances.  To save on the costs of administration, rather than the many tiered system for calculating benefit eligibility  currently used, a broad banded system of thresholds similar in nature to those used for income tax brackets might usefully be employed.  The reduction in the overall numbers of benefits would also cut down substantially on administrative costs.
The other major area which Universal Credit appears to aim to effect change in, certainly where the unemployed are concerned, is the system which presently traps people in unemployment.  Here, a scandalous situation exists, where on one hand, people are encouraged to go out and seek work and on the other hand, are actively penalised for doing so.

The figure of a 90+% tax rate on the unemployed has frequently been quoted in the media over recent months.  What does this mean though in practical terms?  Presently, if a person on Job Seeker's Allowance, goes out and finds a part time job, after crossing a threshold of £5 of earnings, one pound is deducted from the person's benefit for every pound earned, meaning that the achievement and effort of working have left the person better off financially by only £5.  Even this is likely to have been eroded by any travel costs the person has incurred in getting to and from work.  Certainly there is no incentive for people to travel to find work, even if there is work available relatively close by, which is not always the case.  This is sufficient to discourage many benefit claimants from looking for further work, as they realise they may be worse off by doing so.  In fact the reality can be even worse than this.  Although Job Seeker's Allowance and Housing Benefit are administered by different bodies, they are in constant communication with each other and thus if a person actually earns more than the entire value of his or her benefit, he or she can be further penalised by money being deducted from his or her Housing Benefit.  This is hardly an encouragement to go out and find work.  The story gets worse still though.  Jobcentre Plus, which was talked of in such glowing terms so frequently by former minister Tony McNulty, for reasons best known to itself, considers sixteen hour's work (at whatever rate of pay) to constitute enough work to disqualify a person from receiving benefits.  Thus anyone who has the temerity to work for sixteen hours or more, in addition to having their benefits curtailed almost to the point of non existence finds their benefit claims cancelled, meaning that if they have not succeeded in transferring themselves successfully to the world of work, they will have to go through the process of applying for a new benefit claim, spending three quarters of an hour on the telephone whilst someone at the jobcentre's call centre crawls through the application form with them, being required to attend an often demeaning interview at the jobcentre where jobcentre staff will often show undisguised suspicion of them, and then a three week wait before they receive any money.  Any further short term work taken just exacerbates this problem.  In eight years of advising people on benefits and strategies for returning to work, these are by far the biggest disincentives I have seen to people making the effort to get back to work.  Many people would like to be working but the present system teaches them that it is not worthwhile to do so.  Further disincentives, which are just as real, are the fact that taxation may bring earned income to a level where it falls below the actual rate received in benefits and the fact that council tax will be imposed as soon as the person is no longer on benefits, which for many people living on low incomes is a very frightening prospect.  Now, it is true that households on low incomes can receive Housing Benefit payments, but they are not always told this by jobcentre and Benefits Agency staff and even if these payments are received, it is likely that the household will still be badly off, especially if, as is frequently the case these days, the household is having to cope with bills and debts which were built up when the income earner was working and earning sufficient to cover his or her costs.
At present it is possible for the unemployed to qualify to receive money from Jobcentre Plus to cover the cost of training courses.  Obviously this should be an incentive, but the unfortunate reality is that to even apply for such funding, a person has to have been continuously in receipt of benefits for at least six months.  It is the motivated though who are likely to benefit from extra training but many of these miss out thanks to their efforts to get work, as any work, even that which lasts only a few days,  will set the clock back to zero.  For those who have been out of work for some time, extra training might be the one thing which allows them to get work which pays enough for them to do without benefits.  If the new 'Enterprise Allowance, were to successfully address these issues, it might prove to be a truly useful thing.

There are many thousands (perhaps tens of thousands) of people receiving benefits who feel that no matter how badly off they are on benefits, they will be worse off in work.  In many this has become a way of thinking which will be very hard even for the most enlightened of policies to change.  If Iain Duncan-Smith's plans really do intend to make benefits fair and get large numbers of the unemployed back to work, then not only must benefits be made truly simpler and more easily understood by all parties involved, but enlightened policies need to be put in place which will create the cultural shift in both the jobcentres and their hierarchy and amongst the unemployed, which will encourage people to return to work and remove the disincentives to doing so.