Leading article: Effective reform should be the goal, not saving money

An attempt to push the unemployed into work under these circumstances will be difficult

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The Coalition Government's decision to make welfare reform one of its priorities is to be welcomed. In too many cases, the existing benefits system ends up demoralising recipients and trapping them in a life of dependency, rather than helping them back into work.

Both Labour and the Conservatives are to blame for this perversion of the original purpose of the welfare state. In the 1980s, Margaret Thatcher encouraged hundreds of thousands of unemployed people to register for incapacity benefits so she could claim that her government had reduced joblessness. And Labour failed to tackle the problem of long-term welfare dependency during the long years of economic growth when the circumstances for such an effort were much more propitious than they are now.

The thrust of the Coalition's reforms, published in a White Paper by Iain Duncan Smith's Department for Work and Pensions yesterday, is right. It is sensible to make work pay better by ending the present swift withdrawal of various benefits when someone takes a job, as Mr Duncan Smith's "universal credit" aims to do. There is also a case for requiring the long-term unemployed to take part in some form of unpaid community work as a quid pro quo for their benefits (although the carrot is likely to be much more effective in this case than the stick).

Yet there are two significant dangers with the manner in which the Coalition is going about its work. This is a time of abnormally high unemployment and the economic outlook is hugely uncertain. The Coalition's recklessly hasty spending cuts are going to result in an extra 500,000 public sector jobs disappearing over the next five years. Under these circumstances, attempting to push the unemployed into work will be difficult. And if the economy does not grow as rapidly as the Coalition expects, it will be harder still.

It is true that Mr Duncan Smith's reforms will not take effect immediately. The universal credit will be introduced only for new claimants from 2013 and for others after 2015. In theory, that should create time for the economy to recover. Yet the Chancellor of the Exchequer has demanded significant savings from the welfare budget within the course of this parliament, in order to meet his target of eliminating the entire structural deficit in just five years.

If this welfare shake-up ends up being driven by a Treasury more interested in savings than reform, the result will be the punishment of welfare recipients rather than a sustainable shift. We are already seeing this in the ill-thought-out Government plans to cap housing benefit.

The other danger is that the Government seems interested in addressing only one pincer of the work and welfare trap. The existing benefits system creates disincentives to work. But so does low pay for unskilled jobs in the private sector. The Coalition seems oblivious to the reality that the minimum wage means a life of poverty.

When ministers speak about welfare they often point out the disincentives to work in the system. Yet they never seem to mention that a large chunk of welfare payments go to those already in work in the form of income support and tax credits. The most effective way to cut that part of the welfare bill would be to make work pay. Ministers should be legislating to raise the minimum wage. And the Government needs to be prepared to stand up to the intense pressure of the business sector that such a move would provoke.

Mr Duncan Smith won an important Whitehall battle with the Treasury when he secured upfront funding for the universal credit. But the war for effective welfare reform is by no means over.

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