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Monday, 11 June, 2001, 11:20 GMT 12:20 UK
Welfare reform: The tasks ahead

Tony Blair has said that completing welfare reform is one of the key tasks for his second term of government. BBC News Online's Steve Schifferes looks at the difficult choices the government could face.

As he arrived at Number 10 Downing Street after his historic second-term victory, the Prime Minister made it clear that he was determined to press on with the reform of the welfare system.

We are increasingly looking at tightening up conditionality, so that people get their rights, but there is a tighter regime to make sure people can and actually do help themselves

Alistair Darling, Minister for Work and Pensions
"We need to separate very clearly those who cannot work, who need security and protection, and those who can work but at present don't, who we must try to help off a life on benefit and into productive work," Mr Blair said.

The drive to extend welfare reform has been reinforced by the restructuring of government departments, with the Department of Social Security combined with the former Employment Department in a new Ministry for Work and Pensions.

The idea is that all people under retirement age who claim benefit will face an interview about their job prospects first - at one agency that combines Job Centres with benefit offices.

And Alistair Darling, the minister in charge of the new department, has said that his aim is to toughen up the conditions for that group.

"We are increasingly looking at tightening up conditionality, so that people get their rights, but there is a tighter regime to make sure people can and actually do help themselves," he said.

But in doing so, the government will have to tackle some of the more difficult issues that it dodged during its first term of office.

Disabled and lone parent targets

Mr Darling is expected to toughen up conditions for the 1m lone parents and the 2.3m disabled people who currently rely on state benefits.

He says that it is not good for the country and for the individual" that one person in four over the age of 60 is on incapacity benefit.

Mr Darling said that some people on disability benefit could work, at least part-time.

Part of that process will be the extension of the New Deal, which helps young people unemployed for more than six months but imposes tough training and employment conditions, to other groups on benefit.

But for now Mr Darling has ruled out suggestions that lone parents with children of school age will be required to take part-time jobs - backed up by new employment rights that give parents the right to flexible or part-time working.

Making work pay

The government plans carrots as well as sticks to encourage people to move from welfare to work.

There will be more changes in the tax system, designed to make work pay. The working families tax credit, which boosts the income of low income heads of household in work, will be extended to other people in the workforce.

This employment tax credit - which will be introduced in 2003 - could cost the government up to 1bn, according to the Institute for Fiscal Studies.

And the Chancellor's plan to combine the child tax credit with child payments made to people on benefit - which would also increase incentives to work - could be even more costly, if no one is to be made worse off, according to the IFS.

But the biggest challenge in tackling the disincentives to work is to change the one unreformed part of the benefit system - housing benefit.

Housing benefit reform

Housing benefit is the payment made to millions of households to help with the cost of their rent payments.

The system is complex, expensive and subject to fraud, with the administration by local councils sometimes descending into chaos.

But more important from the point of view of the government, housing benefit as it is currently structured is a major disincentive to people moving from benefits to work.

However, any reform of the system to improve "tapers" - so that people lose less housing benefit as their income goes up - is likely to be expensive.

So the government might opt for a simplification, giving people on benefit a fixed sum to help with their housing costs (with some regional variations).

Such a move, however, would create many losers, particularly among council tenants, traditionally the bedrock of Labour's support.

Targeting the poor

But the government also faces a broader choice on welfare reform, relating both its ambitions and means.

  • Should it target narrowly defined groups of the socially excluded, like teenage mothers or rough sleepers, or should it target broad groups like families with children?
  • Are targeted means-tests ineffective in delivering benefits and stigmatising for the poor?
  • And how far can it attack poverty through increasing means-tested benefits, like the pensioners' minimum income guarantee, without encouraging real redistribution through the tax and benefit system?
David Piachuad of the London School of Economics - a government advisor on poverty - believes that there are limited gains to be made from encouraging more women with children into the workforce.

He argues that a big increase in benefits will still be necessary if the government is to meet its target of halving the rate of the child poverty by the end of the decade.

But with the government reducing the link between national insurance payments and benefits received, gaining public support for any more radical measures of redistribution could be difficult.

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Poverty under Labour
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