Duncan Smith reveals details of his Universal Credit11 November 2010
Work and Pensions Secretary Iain Duncan Smith today set out the details of his £2bn Universal Credit benefit system, pledging it would 'start to change' a culture of worklessness among Britain's poorest households.
However, the secretary of state has already come under fire for his proposals, which critics argue will prove difficult to put into practice, be undermined by other coalition policies, and not be worth the outlay.
Duncan Smith said his plans - including rolling Housing Benefit, Tax Credits and Jobseeker's Allowance into a single payment - will increase the incomes of 2.5 million households and lift 300,000 families out of long-term unemployment.
The reforms are set to be piloted in 2013 and implemented nationally in 2015.
Speaking before his white paper was released this afternoon, Duncan Smith said he wanted to create a system that 'isn't seen as a doorway to hopelessness and despair but instead as a doorway to real aspiration and achievement'.
He added: 'I can't say it will change everything - but I do say it's a start.'
Duncan Smith said the reforms would reduce administration costs and money lost to fraud and error by £1.5bn, while rewarding those who look for work and continuing to support the most vulnerable people.
The white paper, Universal Credit: welfare that works, says £2bn of Department for Work and Pensions money has been set aside to implement the scheme. However, it is not yet clear if all of that will be spend on administering the changes, or if some will go on financial incentives for people on benefits to move into work.
There will also be a new 'conditionality' regime, with tougher sanctions for those who do not take up jobs offered to them, and more checks on people in part-time posts.
Central to the reforms will be a new computer system in Whitehall, which will automatically calculate the amount payable to each household by adding up their various benefit entitlements and offsetting them against earnings.
This will require re-launching the Pay As You Earn system and closer working between the DWP and Revenue and Customs.
Stephen Overell, associate director at the Work Foundation, agreed with the emphasis on making employment pay and easing the transition into work. But, he said the reforms, far from simplifying welfare, would still result in a system of 'colossal complexity', reflected in the five-year timetable.
Ian Mulheirn, director of the Social Market Foundation, told Public Finance that a 'big win' was in integrating the systems of in-work and out-of-work benefits, making it less risky for people to go into work.
But, he added: 'Making the system smooth to go up also makes it smooth to slide down', and might encourage some workers to reduce their hours, knowing the state would step in with benefit payments.
Patrick Nolan, chief economist at the Reform think-tank, said the proposals would not work in practice, as it would be difficult to design a computer system able to track fluctuating household earnings and entitlements, and sometimes erratic domestic arrangements.
'We don't think this is value for money,' he added. 'It is not buying a big improvement - 300,000 more households in work is not a big proportion of the number of households on benefits - we're spending a huge amount of money but not improving employment incentives that much.'
He added that DWP data showed that 300,000 of the lowest earners, who are not paid enough to qualify for income tax, would be losing more money through National Insurance payments and lost benefits than they currently do.
Nick Pearce, director of the Institute for Public Policy Research, said the principle was right but it would be 'critically undermined' by the impact of previously announced cuts to tax credits. He added: 'You can only guarantee that people will always be better off in work if their additional earnings are not wiped out by the costs of childcare and travel to work.'