Welfare reform: The coalition’s next train crash

Shadow employment minister Stephen Timms MP writes on the failures that lie at the heart of Iain Duncan Smith's Welfare Reform Bill - the coalition's next train crash.

Stephen Timms MP (Labour, East Ham) is the shadow employment minister

NHS reform is in a mess. Now the Welfare Reform Bill is about to return to the chamber of the House of Commons after its committee stage – and it’s in trouble too.

When the Bill was due to be published in January, it was rumoured it would be delayed for key policy decisions to be made. In fact, it was only a couple of weeks late. But it was published without the key decisions. And, almost five months later, the decisions have still not been made.

Ministers boasted their Bill would solve the problems in the benefit system; it would always pay to be in work, the system would be far simpler, thousands would be better off and nobody worse off, the benefits bill would be cut…

But they hadn’t actually worked out how to deliver on their boasts.

We still have no idea how the costs of childcare will be supported in the new system. Effective support for childcare in tax credits was key to the big jump in lone parent employment under Labour. To qualify, you have to work more than 16 hours per week.

Iain Duncan Smith wants to remove the hours threshold and support childcare even for those in so-called ‘mini-jobs’ – but the Treasury won’t allow him to spend a penny more than the old system. So those getting help with childcare costs now will have to have their support cut – for many making work no longer affordable.

Mr Duncan Smith told the Welfare Reform Bill committee in February his proposals for childcare support would be available before the committee wound up in May. They weren’t. In the end, all he was able to do was host a seminar for committee members to discuss the options.

That’s not the only major gap in the policy. At the moment, families receiving means tested Income Support or Jobseeker’s Allowance are eligible for free school meals – but Income Support and Jobseeker’s Allowance are being abolished, and ministers haven’t worked out who should be eligible for free school meals in the new system – nor other so-called passported benefits like free prescriptions and mortgage interest support.

The answers to these questions will decide whether people are better off in work or not – the central goal of the bill. But, as the Bill is about to leave the Commons, we still don’t know the government’s plans. And neither does the government.

The central proposal in the Bill is to merge out of work benefits (Income Support, Jobseeker’s Allowance, Incapacity Benefit) with in work benefits (Tax Credits, Housing Benefit) into a single Universal Credit. In principle this is a good idea – it has the potential to greatly simplify the system.

But the Bill also introduces a benefit cap, to limit the total benefit a household receives to the average wage, £25,000 per year. The interaction between the cap and Universal Credit puts all the complexity straight back in.

The Liberal Democrats don’t like the benefit cap. In Committee, they spoke against it. But they didn’t vote against it. At one point they even voted against amendments to the cap they had themselves tabled. It is hinted concessions will be extracted behind the scenes.

The Conservatives often used to condemn couples’ penalties, but, with the benefit cap, they are introducing the biggest ever. The cap will be particularly hard for larger families who rent their home privately. With child benefit, child tax credits etc, it has been calculated that the cap will not leave enough to rent any four-bedroomed house in the UK. If, however, a couple with four children was to separate, the two separate households could be entitled to £25,000 per year each.

With key policy decisions still undecided, the chances of the IT to deliver Universal Credit being ready on time by October 2013 are remote. It will require that every employer in the country starts sending salary data electronically every month for every employee to Her Majesty’s Revenue and Customs.  HMRC will pass it on to the Department for Work and Pensions, for Universal Credit to be calculated. We still have no idea how this will all work for self-employed people.

This will be hugely challenging. It doesn’t augur well when the Green Paper last summer blithely informed its readers this vast undertaking “would not constitute a major IT project”!

And, in addition, there is serious trouble brewing for the government’s rushed efforts to cut disability benefits.

Ministers have simply failed to grasp the difficulties in delivering their grandiose boasts. They will find out soon enough. But it will be people who depend on the benefit system who will really have to pay the price.

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