New reforms welcome but risk people getting stuck in part time work, says think tank

30 July 2010

The Government's announcement today on its benefit reform plans sets out an ambitious agenda for reform but raises questions that must be answered if it is to be successful, says the Social Market Foundation, a leading UK think-tank. Secretary of State for Work & Pensions, Iain Duncan Smith, has announced today a consultation on the Government's plans to simplify the benefit system by rolling all benefits and tax credits into a single Universal Credit. The aim is to make work financially worthwhile for people to work a small number of hours each week, as well as to make the system easier to understand for claimants.

Commenting Ian Mulheirn, Director of the Social Market Foundation said:

"There are two big goals here: making the benefit system simpler and getting people off benefits and into work. These are both good aims. The benefit system is unhelpfully complicated, making it hard for claimants to understand. And too many people are inactive on benefits when they could be making a useful contribution in work.

But simplifying the system means there will be winners and losers. The impact of the government's plans will be to reduce support for people working 16 hours-or-more each week and increase it for people who work less than 16 hours. The government's aim is that doing any paid work should make you better off than being on benefits, even if it is only for as little as 8 hours.

The big challenge is now to make sure that people don't get stuck only working 8 hours a week. The Government hopes that people will progress from working just a handful of hours to being fully engaged in the workforce. But there is a risk that those on short hours will get stranded in low-paid work on the fringes of the job market, without opportunity to progress and struggling to make ends meet.

If this reform is going to succeed as we hope it will, we have to make sure that it is accompanied by a strategy to help people to progress once they are in work."

 

Editors Notes

• Today, Iain Duncan Smith announced a consultation on the Government's plans to simplify the benefit system by rolling all benefits and tax credits into a single Universal Credit. The aim is to make work financially worthwhile for people to work a small number of hours each week, as well as to make the system easier to understand for claimants.

• The current system involves a patchwork of benefits withdrawn at different rates as people's incomes rise. The current system also rewards people with extra payments once they work 16-or-more and 30-plus hours per week.

• Under the proposed system, all of these things would go, to be replaced by a single steady withdrawal rate of the Universal Credit as incomes rise.

• Simplifying the system in this way is likely to mean that those employed at around 16 and 30 hours per week will receive less support, while those working under 16 hours will get more. The hope is that the new system will encourage people to try out work and then find it rewarding to increase their hours worked, where currently the incentives to do so are weak.

• It is likely that the reforms will have significant cost implications, although costings have not yet been established.

• Ian Mulheirn is the author of Vicious Cycles, which proposes radical reforms to improve the welfare to work system - including the extension of payment by results for welfare to work providers

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