Prime minister announces welfare reforms to end perverse incentives
Prime minister David Cameron has pledged to end the “ridiculous merry-go-round” of taxing people in low paid jobs and then giving them the money back in benefits.
Setting out plans to reform the UK’s “damaging culture of welfare dependency”, Cameron said the government would create a system that “encourages well paid work”.
However, the reforms will also include welfare budget cuts of £12 billion.
Referring to previous government policies he said that redistributing money through the tax and benefit system had been “papering over the cracks” by keeping families just above the poverty line.
“There is what I would call a merry-go-round. People working on the minimum wage having that money taxed by the government and then the government giving them that money back – and more – in welfare. It deals with the symptoms of the problem: topping up low pay rather than extending the drivers of opportunity – helping to create well paid jobs in the first place.
“We need to move from a low wage, high tax, high welfare society to a higher wage, lower tax, lower welfare society. Indeed, across the spectrum, as a country we have been too busy picking up the pieces of failure that has gone before. Dealing with anti-social behaviour rather than strengthening families. Managing youth unemployment rather than boldly reforming education.”
Under the reforms, the government "will remove perverse incentives in the system, further rolling out universal credit and lowering the benefit cap”, Cameron said at an event in Runcorn.
Political commentators have suggested the cuts are most likely to affect tax credits and housing benefit but full details are still to be revealed.
Acknowledging that his plans would face strong opposition, the prime minister said effecting such change would not be easy because it would mean “taking on vested interests like teaching unions or poorly performing local education authorities”.
It will also mean discussing things some people feel uncomfortable about, like families, behaviour, and the link between effort and reward, he added.
“Put another way, it’s easier just to sign off another benefit cheque than it is to get people ready for work or discuss the importance of stable family life.”
Cameron said the government had already started by restoring some of the value of the minimum wage, which will increase to £6.70 per hour from October 2015 and according to current projections, will rise again to £8 by 2020.
“It is why we have increased the amount you can earn without paying tax, saving a typical taxpayer £825 a year, and it’s why we will take one million out of tax by increasing the tax free threshold to £12,500,” he said.
“Add the 30 hours of free childcare we will introduce for working families, and rewards from work, will be even stronger.
However, acting leader of the Labour Party Harriet Harman warned that reducing tax credits would "hit hard at families where they're going out to work but they're low paid so they need tax credits to top up their income".