David Cameron has published a reform package that he said would deliver "the most ambitious, fundamental and radical changes to the welfare system" since it was created. The welfare reform bill will replace the complex array of benefits with a single universal credit, create a work programme to help the long-term unemployed into jobs and introduce incentives and sanctions to ensure that work always pays, said the prime minister. However, the government has ditched controversial proposals announced in last year's emergency budget to cut housing benefit by 10% for anyone on jobseeker's allowance for more than 12 months.
Cameron said the changes would slash £5.5bn from the welfare bill in real terms over the next four years by limiting housing benefit, reforming tax credits and taking child benefit away from higher-rate taxpayers. He insisted that the bill was "not an exercise in accounting – it's about changing our culture". Speaking in east London alongside the architect of the reforms, the work and pensions secretary, Iain Duncan Smith, Cameron said: "Never again will work be the wrong financial choice. Never again will we waste opportunity.
"We're finally going to make work pay – especially for the poorest people in society. And we're going to provide much greater support for unemployed people to find work – and stay in work. We're not just recasting the reach, scope and effectiveness of the old system – making it fairer and a genuine ladder of opportunity for everyone. We're also doing something no government has done before – and that is get to grips with the cost of welfare."
But the reform package has come under attack from unions, who accused the coalition of punishing the unemployed and impoverished for their own misfortunes. "Long-term unemployment has doubled not because of a sudden increase in work-shy scroungers, but as an inevitable result of economic policies based on cuts that destroy growth," said the TUC general secretary, Brendan Barber. "Making low-income working families thousands of pounds worse off through welfare cuts over the next two years to claim that they will be slightly better off in 2013 is an absurd argument that will ring hollow as families suffer the toughest income squeeze for nearly a century."
Housing benefit cuts: how much will the council pay out in your area? Find out here.
Cameron described the package of welfare reforms as "tough, radical... but fair". He said that while encouraging people – including those with disabilities – to seek employment, the new system would also guarantee support for those who are genuinely unable to work. "Those who can, should; but, of course, those who can't, we always help," he said. "I passionately believe that the welfare system should be there to support the needy and most vulnerable in our society and provide security and dignity for those in old age. That's why the system was born, that's what it's always done – and with me, that's the way it will always stay. But that doesn't mean the welfare system shouldn't change. It has to change – because it just isn't working."
Cameron said the £90bn annual welfare bill accounted for one in every £7 spent by the government and was not sustainable in the current economic circumstances. And he said perverse incentives and complexities within the existing system had "insidiously drained hope away from swaths of our society" and actively encouraged people to behave in ways which were irresponsible. Cameron said the bill would "put responsibility back into the welfare system" by simplifying benefits and making work pay, creating tougher sanctions and limits on benefits and building a more responsive welfare-to-work scheme.
The universal credit will ensure those coming off welfare or increasing hours can keep 35p of benefits for every extra £1 they take home, benefiting an estimated 1.5 million low-earners. Housing benefit will be restricted to cover only the cheapest 30% of homes in an area and there will be limits on the amount that can be claimed by families of a particular size. The authorities will seek prosecution for fraud whenever possible, with a tough minimum fine for those cheating the system. And unemployed people who refuse to take a reasonable offer of a job or voluntary work will lose benefits for three months on the first occasion, rising to three years if it happens three times.
Cameron said: "This is about the beginning of cultural change. A new culture of responsibility. We say: we will look after the most vulnerable and needy. We will make the system simple. We'll make work pay. We'll help those who want to work, find work. But in return we expect people to take their responsibilities seriously too. To look for work. To take work. To contribute where they can. It is a vision of a stronger society, a bigger society, a more responsible society, and today the building of that society starts in earnest."
Housing benefit cuts: how much will the council pay out in your area? Find out here.
UPDATE 1.01 - 22:15 - 17.02.11
A single "universal credit" will replace a panoply of welfare payments, while benefits to any one family will be capped at about £26,000. It is undoubtedly tough love. Lone parents with children aged five and older will be forced to seek work, losing benefits if they do not. Under universal credit, 2.7m households will receive higher payments and about 1.7m households will receive lower benefits.
Of the latter, more than 400,000 households will lose more than £25 a week – but the government says they will be compensated so "there are no losers". This, say some, creates a benefit trap, as few will want to take a job when they could see £1,300 a year in state aid disappear as a result.
Donald Hirsch, in a paper for the equality charity the Resolution Foundation, says single-earner couples will be far better off than poor double-income households. He calculates that the partner of a low-paid worker working 16 hours on the minimum wage would be £25 a week worse off under universal credit.
Given that such couples would need help with childcare, it is surprising that the government admits it has still not finalised the policy on "childcare payments and the method by which universal credit will be paid".
The government is pushing ahead with attempts to drastically shrink the bill to the taxpayer. The first step is the cap on welfare payments. The government proposes that "total household welfare payments (of working age households)" be limited to £500 a week for couples and lone parent households, and to £350 a week for single person households. This will save the taxpayer £225m in 2013, the first year it is introduced. It will also see 50,000 households lose £93 a week – and the impact assessment accepts there will be a rise in homelessness: "Some households are likely to present as homeless, and may as a result need to move into more expensive temporary accommodation, at a cost to the local authority."
Although the government has decided not to proceed with one measure – to cut the housing benefit of anyone on jobseeker's allowance by 10% – housing support is being pared back, with ministers saying that the £20bn annual cost to the taxpayer is too high.
About 1.4m households will lose out because benefits are being pegged to consumer prices (CPI) rather than the retail price index. This is in effect breaks the link between the housing costs people pay and the amount of housing support they receive. Shelter, the housing charity, says that as rents rise much faster than CPI, benefits will not be able to keep up with housing costs.
There is also a plan to cut an average of £13 from the housing benefit paid to 680,000 families living in social homes that could be considered "too big". Such families – often those with young children, people with disabilities or elderly people – will, if they cannot make up the shortfall, be compelled to move. Under the new rules, a separate bedroom is required only for each married or cohabiting couple, or any person aged over 21. Therefore, a couple with two adolescent sons would be penalised if they lived in a three-bedroom house.
Most of the families living in homes described as too large are in the north east and it is not clear where will they go. In addition, there is a national shortage of 240,000 one-bedroom properties. The National Housing Federation, which represents housing associations, says that although "ministers have long promised to protect the vulnerable … these plans could force thousands of people to move out of homes they have lived in for many years".
One of the most contentious proposals is the 20% cut to the disability living allowance (DLA), which at present pays a maximum of £70 a week in care costs and £50 in mobility bills. The government says the increase in claimants has become unsustainable. There are now 3.16 million people receiving DLA and forecast expenditure on the benefit for 2010-11 is £12.1bn. In eight years the number claiming DLA has risen from 2.4 million, an increase of 30%.
Although the main proposal remains on the table, the government says it will review plans to make £140m of savings by taking away state support for transport costs for disabled people living in state-funded care homes.
Universal Credit: Losers who loses?
Around 1.5m households keep more of the money they earn from working an extra hour. But more than 2m households will see their "marginal deduction rate" rise – and therefore have less incentive to work.
425,000 households will lose more than £25 a week, £1,300 a year.
100,000 will lose more than £75 a week, almost £4,000 a year.
330,000 second earners will lose more for each pound they earn under the proposals. More than half of those losing out under the scheme will be people working more than 30 hours a week; those receiving tax credits; and anyone not claiming housing benefit or council tax relief.
END OF UPDATE 1.01