Friday, 28 May 2010

The Welfare Revolution

Michael Meacher presents the old defeatist view of welfare reform, whilst Camilla Cavendish yet another symptom of social disfunction all around us. Meanwhile, Iain Duncan Smith sets out his stall. We'll have to wait a little longer for the solutions.

Complex and inter-dependent social forces are at work here. Iain Duncan Smith's Centre for Social Justice describes the five pathways to poverty, but in truth there are more - mental health for example - which will require multi-layered solutions across several government departments. Did anyone mention prison reform? Why aren't all prisons adult education institutes? And why aren't all prisoners serving more than three years coming out able to read, write and be professionally qualified for work? You get the idea.

With the initial focus on ending welfare dependency and the lack of incentive for work inherently built-in to the welfare system, the coalition needs to look positively at raising the tax threshold not just to £10,000 - as the LibDems are demanding - but to the minimum wage - around £11,400.

A permanent link between these two would provide the greatest incentive for enterprise generally and getting back into work in particular. It would also enable dismantling of the overly-complex and widely abused Tax Credits system, as well as providing a fairer and more balanced tax system which benefits all taxpayers.

Paying for it - around £22bn I understand - will mean substantially increasing the level of redistribution within the tax system. Ending the cap on NI contributions for instance, could raise £8bn, CGT increases to income tax bands around £2bn, the scrapping of tax credits a further £4bn, with the balance paid for by lowering the 40% tax threshold for higher rate payers.

I realise the howls of protest from the Tory right will be both substantial and sustained. But they should understand the real goal in this package. Properly incentivising people off welfare and back into employment not only gives them a real stake in society (and with it at least partly mending some of the broken bits) but enables them to contribute - through the tax system - towards Labour's debts and future public spending.

It might also reduce those welfare payments by around £22bn. Now there's a thought.