Friday, July 30, 2010

IDS: Rip It Up & Start Again

On Wednesday night on my LBC Show I did an hour long phone in on the revelation that last year the NAO said that more than £3.1 billion of the welfare budget was wasted due to fraudulent claims and overpayments. That's 0.5% of entire government spending! So I asked the question of LBC listeners: Is it time to rip up the welfare system and start again?

I wonder if Iain Duncan Smith was listening!

Reading reports of the leaked welfare white paper you could be forgiven for thinking so.

All out-of-work benefits and tax credits could be scrapped and replaced with a single payment as part of a "radical" shake-up of the welfare system. The idea is one of three options being considered by Work and Pensions Secretary Iain Duncan Smith to make work pay.

He says the current system is "on the verge of breakdown". Labour have said the start-up costs of a new system could be as much as £7bn. Mr Duncan Smith has refused to be drawn on the cost, but argues that billions could be saved each year in bureaucracy and fraud with a much simpler system.

Since coming to office, Mr Duncan Smith has vowed to tackle what he says is a "culture of worklessness" and "entrenched" welfare dependency and poverty in parts of the country.

Full story HERE. It's certainly radical and will be fought tooth and nail by Labour and vested interests, but it's right that we have a debate. It's not about thinking the unthinkable, it's doing the doable. And IDS seems determined to go for real change.


Adrian said...

I'm an anti-tax-credits campaigner so I'd be happy to see the back of them. They should be replaced with a cut in income tax.

Jonathan explains it all said...

Isn't government spending this year about £600 billion? That would make £3.1 billion about 0.5% of it not 5%!

Anonymous said...

Jonathan Iain is a publisher not a mathematician. Decimal points are not his speciality - except when it comes to royalties !!

But I am with Adrian; a tax credit ought to encourage people to take a job, but clearly it has become so vast and all encompassing that it has lost sight of the original objective.

thehoatzin said...

mmm, it's all very well, but you might want to start heading somewhere towards full employment before making peoples' lives more miserable. There are not the jobs out there with 2.5 million (officially, so guess the real amount LOL), yet it doesn't stop the politicians going on about 'making work pay'.

No matter the shade of the government, the way we are running our economy seems geared to having large numbers of people out of work, and even larger numbers on very low wages.

Unknown said...

Adrian - Agreed. The tax credit system is a scam that Labour have used to buy votes. Replacing the credit system with an allowance system will remove abuse and reduce the amount of money given away to the lazy and feckless.

David Lindsay said...

Iain Duncan Smith, good Social Catholic and therefore good Eurosceptic (the closer to those roots a party on the Continent has remained, the less happy it now is with what David Cameron casually calls "the secular EU"), is fundamentally sound.

The trick with the Conservatives is always to convince them that it was their idea. Cameron has opened the door to being so convinced of the need for the maximum multiple. And IDS has now blown it wide open to being so convinced of the need for a unified system of taxation, benefits, pensions, minimum wage legislation and student funding to ensure that no one's tax-free income ever falls below half national median earnings.

Over to you, Simon Hughes and Vince Cable?

Libertarian said...


I do agree that we need an incentive stimulus to create more jobs. Say tax incentives for investment, allowing rollover of reinvested profit in a business instead of paying corporation tax ( as in Germany and Finland) and of course the one that every business survey has highlighted as the number one disincentive to create more jobs The payroll tax should be scrapped.

Basically taking your and @Adrian's argument we should be implementing a combined flat tax with the first £12k exempt.

As a specialist in the job and enterprise creation market I would like to point out though that there are currently more than 498,000 unfilled job vacancies in the UK and over 85% of them are paying way in excess of minimum wage

Grand_Inquisitor said...

I agree with the hoatzin - there is not a shortage of workers at the moment, so where are all these 'jobs' to come from in the short timescale that IDS wishes for?

As we all know, the Devil is in the detail - so having taken millions out of paying income tax will everybody now have to file a tax return?

Also, the taxman does not make payments every month - so what mechanism is to be used to pay this 'negative income tax'?

I suspect significant administrative costs/cock-ups will happen in this new regime.

Roger Thornhill said...

It is unclear when these benefits age out.

I wonder if they ever will. So, if you have been working all this time, you will take home far less than someone who has finally been bribed to start work* and is earning what you are.

If we want to go towards a Citizens Basic Income, i.e. a universal payment not means tested, then propose it.

However, IDS's idea seems to penalise those who are working now. I hope I am wrong.

* based on the supplied concept of "institutionally unemployed".

Adrian said...

Photocopy of part of my tax credits form, showing that we can earn £75,000 and keep the cash: The limit is set so high not out of any innate generosity but because the system is so constructed that to reduce this to £50,000 (as the government is proposing to do) would create the kind of chaos that existed when the system was first introduced. (Something for us all to look forward to...)

The problem with Tax Credits... Let's say you're now on a low income. Well, you won't get much help this year. But you will get money next year. Trouble is, if your income increases next year, you have to pay it back. Since you've probably had to use the money to pay off the previous year's bills, you won't have any of it left to pay back. So we have a benefit designed, in 10-20% of cases, to create debtors and criminals. And if your income drops back again, it becomes even more fun since your previous higher income has stopped you getting tax credits...

So, where is this bloody Mr (or Mrs) Kafka of Whitehall? He or she deserves a good flogging.