Iain Duncan-Smith wants to simplify benefits and ensure work always pays. I think this is an admirable aim. But given that benefits are paid to people in a massive variety of specific circumstances, no system is ever going to be perfectly streamlined for everyone, all of the time.  IDS must be careful not to set himself up for a fall.

There is also a question over using benefits to make work pay. Some evidence suggests that benefits that support work tend to get people into part-time or low-paid work and keep them there – pushing the threshold of ‘earnings disregard’ a bit further along so that entering full-time work is disincentivised. Another side-effect of this approach is a disincentive for employers to raise wages, letting the state pick up the slack.

There are alternatives to using the benefits system to make work pay. The Government could simply raise the minimum wage and offset the cost of this by lowering taxes on businesses. That puts money directly into the hands of workers and links increased earnings solely to labour rather than the dependency of benefits. This seems to be the best way to raise the ‘work ethic of the poor’.

By raising wages rather than benefits many of the inefficiencies of the welfare bureaucracies could be eliminated, making this way of doing things considerably cheaper than IDS’s Universal Credit plan. Given the lag between rises in wages and savings on paying taxes, a discretionary fund would need to be set up to stave off insolvencies brought about by cash-flow problems in small companies.

Increasing the minimum wage would of course put up the bill for public services. But it seems wrong that the state should employ people on a wage as low as the present minimum wage anyway. And savings could be made by reducing only slightly the wages of higher earners and bloated middle-management.

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