Leading article: A good idea hobbled by austerity

We agree with Iain Duncan Smith, the Secretary of State for Work and Pensions, that the welfare system is "broken, trapping in 'idleness' the very people it was designed to help", although we are not convinced that the Government is dealing with the problem the right way. Even before unemployment started its recent rise, many claimants were discouraged from seeking work and many children grew up in households where worklessness was a way of life. As Mr Duncan Smith says, writing exclusively for The Independent on Sunday today, "there is nothing progressive about destroying aspirations and limiting opportunities for the poorest".

He is right, too, that the feebleness of Labour's welfare reforms was one of that government's greater failings. But there is a danger in inferring from this that any drastic changes are right, especially if they save a lot of public money. This danger is compounded by the popularity of the symbolic policy at the heart of the reforms, the cap on total benefits for the able-bodied unemployed of £26,000 a year. The cap is popular because the principle is right that work should pay and that people should not be better off on benefits. But if the benefits rules give some families more than £26,000 a year, there is more wrong with the rules than a crude cap can put right. Above all, housing benefit needs to be looked at. The only way that most of the families affected reach the level of the cap is because their landlords are raking in the money. Yet we can be sure that it will not be the landlords who suffer.

We report today that the latest official estimates are that 67,000 families will lose an average of £83 a week. To realise the scale of what is about to happen, imagine that coming out of your family budget. With luck, the cap will put some downward pressure on rents, but only as an indirect effect of people being forced to move home. Instead, it would make more sense to tackle this problem at source and to do more to cut all rents paid for out of public money.

The danger for the Government is that its zeal in taking benefits away from the poor is not matched by its enthusiasm for ensuring that the rich bear their fair share of the burden. Why not simply cut through all the nonsense about excessive pay and bonuses by raising the 50p-in-the-pound rate of tax on incomes over £150,000 a year to 60p in the pound?

A deeper problem with Mr Duncan Smith's reforms, however, is that they are driven by wanting to cut public spending at a time of weak or non-existent economic growth. It is also worth recalling that the Government's plan to cut public spending so far and so fast means that employment will be lower than it would otherwise have been, making it even harder for the unemployed to find work.

So while we support many of the fine principles set out by Mr Duncan Smith, we fear that the design of his reforms will cause needless hardship, while the spending cuts of which they are part will hurt the economy and mean that there will be fewer jobs into which people can be helped.

We have no quarrel with tilting incentives further in favour of work, but it is an authoritarian fantasy that a life on benefits is an attractive option. The obstacles to fuller employment are more complex and, in the short to medium term, overcoming them costs public money rather than saving it.

The Labour government started to contract out to the private sector the task of getting the unemployed into work, paying it by results. This seemed a plausible idea. Non-state players are more easily able to experiment and innovate in the difficult business of preparing the hard-to-help for the world of work.

Unfortunately, the contracts seem to have allowed some private providers to cream off large profits. The Public Accounts Committee last week criticised the £8.6m dividend paid to Emma Harrison by her "social purpose" company A4e, which used to be called Action for Employment. Her company's record on getting people into work seems unimpressive, yet Ms Harrison was appointed the Prime Minister's adviser on "problem families", and her generous pay derives entirely from public contracts.

She stands as a symbol of how hard it is for governments to get people off welfare and into work, and how hard it is for this government in particular to do it in such a way as to convince us that we are "all in it together".