Two cheers for Duncan Smith

The first rule of welfare reform is to rate your proposals on the Beveridge-o-meter. Every politician does it. And there are no prizes for modesty. New proposals must be heralded as “the biggest shake-up of the welfare system since Beveridge.” The 1942 Beveridge report, which provided the blueprint for the postwar welfare state, is the unit of measure for reform. It’s a cliché, but it’s the only currency that counts.

The latest pretender to the Beveridge crown is work and pensions secretary Iain Duncan Smith. He has got off to a good start, with George Osborne describing his proposals at the Tory conference as “the biggest reform of the welfare system since that great liberal William Beveridge.”

There is much that is right about what Duncan Smith is trying to do. He is tackling two of the welfare system’s biggest problems: uncertain incentives and horrid complexity. At present, many people do not see a sufficient financial gain from moving off benefits, though this is as much about low pay as the inadequacies of welfare. Also, the bureaucratic and byzantine nature of the benefits system probably does as much to keep people trapped in its web as high marginal tax rates. It’s not just that an inhumane system treats people as units to be administered—its opacity is chronically disempowering.

The basic structure of Duncan Smith’s solution is strong too: replacing the current panoply of benefits and tax credits—all with different rules and rates—with a universal credit. This would unify the current “income replacement” benefits (jobseeker’s allowance, income support and the new incapacity benefit) with additional elements to reflect the costs of children, disability and housing, into a single benefit payment. The rate of this benefit would be reduced as a person’s earned income rises. If your eyes are already glazing over, I have just demonstrated the political appeal of the Beveridge-o-meter.

But this is the easy bit. The critique of our benefits system is well rehearsed, and Duncan Smith’s answer is neither new, nor distinctively Conservative. Tax credits were introduced by Labour to improve incentives to work by boosting the incomes of the low-paid. Successive Labour white papers aspired to simplify benefits and, when he was secretary of state, James Purnell pushed hard for a commission, modelled on the Adair Turner pensions commission, to consider fundamental reform. His ideas were similar to what is now proposed. But the commission never happened, partly due to opposition from the treasury, which Duncan Smith has also encountered, and also because Gordon Brown lost the appetite for reform. It was seen as too great a risk given the coming election, and the winners and losers it would create.

So can Duncan Smith do better? Three factors count in his favour. First, he arrived at the department with a clear plan and has put all his political capital into achieving it. He is running the department, rather than being run by it. Second, he has allies in cabinet, including both Cameron and Clegg—essential for triumphing in Whitehall turf war. Finally, setting out an attractive endgame and attempting wholesale reform should help in winning support for the difficult steps on the way.

This gives him a fighting chance—and advantages over many predecessors. But he and the wider government are putting two huge barriers in the way of success. One is austerity, the other is a partial understanding of what actually works in welfare.

The government’s fiscal stance poses the biggest risk. Child benefit withdrawal for higher-rate taxpayers, coming on the back of £11bn of welfare cuts announced in the budget—including cuts to housing benefit, scaled back tax credits and tightened support for the disabled—will turn welfare into a central political battleground even before radical reforms are considered.

And the damage of cuts will, in fact, be greater than the sum of their parts. Given the dominance of deficit reduction to the Tories’ governing purpose, it will be hard to avoid the accusation that welfare reform is about asking the poor to pay for the sins of the rich. The prospect of a better system—one that treats people with respect and rewards them for work—could rapidly become hazy and distant. Not only will people question what the pain is for, Duncan Smith could end up being the fall guy: defending benefit cuts while the chancellor pockets the savings and pushes reform into the long grass.

The other hurdle facing the Tories is intellectual rather than financial. By arguing that the ills of the benefits system are the overwhelming cause of poverty and dependence, they narrow their policy agenda and ask too much of their reforms. Their argument is based on a caricature of Labour’s record on welfare reform: in short, that it did almost nothing, thereby allowing the benefits bill to explode. This is not correct. Successive measures, including the New Deals and increased work requirements for benefit, meant there were 1m fewer people on out-of-work benefits before the recession hit. And despite the rise in unemployment that followed, benefit expenditure is projected to be 13.42 per cent of GDP this year, up only slightly from 13.14 per cent in 1997.

Reducing complexity and improving work incentives will help, but it is crass to argue that these alone will boost employment and cut joblessness. Lack of affordable childcare, genuine health conditions and housing constraints are all major issues. As is demand for labour and the nature of the low-wage labour market, which government economic policy is either ignoring or inflaming. Deficit reduction will hit jobs—and the Tories have no policies to address low pay, employment insecurity and poor quality jobs at the bottom end of Britain’s economy. There is space here for Labour to articulate not just an alternative plan for jobs and growth, but an agenda to make the economy work better for working people.

As with the big society, Labour should support Duncan Smith’s objectives—but point to the conflict between his plans and the austerity agenda, plus the Tories’ hostility to the state. Labour can also argue that it would deliver a better benefits system through reform, not cuts. Nothing demonstrates the contrast between the parties more sharply than the Tories’ decision to scrap Labour’s job guarantee for young people. This was based on the idea that when the market fails to provide work for those facing long-term unemployment, the state must step in; in return, people can’t choose not to work when a job is offered. This is welfare that works: more supportive and more demanding. It is how we protect people, help them into work—and maintain public support.