Welfare bill ditches housing benefit cut

By Alex Barker, Political Correspondent

Published: February 17 2011 02:11 | Last updated: February 17 2011 12:25

Proposals to cut housing benefit for those unemployed for more than a year have been dropped

Iain Duncan Smith, work and pensions secretary, has bowed to Liberal Democrat pressure and ditched controversial proposals to dock housing benefit for those unemployed for more than a year.

The move comes on the heels of prime minister David Cameron’s decision to scrap plans to sell-off state-owned woodlands, marking the second major U-turn by the coalition in the space of a day.

Plans to impose a 10 per cent cut in the housing benefit of those on jobseekers allowance for more than a year – which raised just £100m a year – caused deep concern among some senior Lib Dems.

Although it was designed as a tough incentive to move people into work, Simon Hughes, deputy Liberal Democrat leader, and some ministers feared the penalty would appear callous, particularly in a difficult jobs market.

Mr Duncan Smith announced the measure would be scrapped as the government published its welfare reform bill, which seeks to roll separate benefits – such as jobseeker’s allowance, housing benefit and tax credits – into a single “universal credit”. It marks the biggest shake-up of the welfare system since the Second World War.

Mr Duncan Smith said the penalty on housing benefit had been ditched because all those affected would be undertaking back-to-work programmes.

He told BBC Radio 4’s Today programme: “You won’t see this in the bill for one very good reason – all of those people were going to move onto the Work Programme anyway, so they would be having intensive help to get them back to work.’’

Mr Duncan Smith played down the idea was blocked by Nick Clegg and other Lib Dems and insisted he needed no convincing of the need to drop the proposal.

Liam Byrne, shadow welfare secretary, welcomed the about-turn over housing benefit. “If the Conservative-led Government is serious about getting people back into work they need a Plan B for the economy and a bigger welfare to work programme. At the moment they have neither,” he said.

Unveiling the welfare reform bill on Thursday, Mr Cameron argued that the dramatic reforms – which will require a big administrative upheaval and create millions of winners and losers – were essential for repairing the system.

“The benefit system has created a benefit culture,” he said. “It doesn’t just allow people to act irresponsibly, but often actively encourages them to do so….we’ve created the bizarre situation where time and again the rational thing for people to do is, quite clearly, the wrong thing to do.”

Mr Cameron called for an end to a “sicknote culture” in Britain and launched a review – led by David Frost of the British Chambers of Commerce and Dame Carol Black, the government’s health and work tsar – aimed at stemming the flow of people from work to sickness benefit.

Early intervention to help people stay in work or return quickly after suffering health problems has been a priority for successive governments attempting to contain and cut the £12bn ($19bn) sickness benefit bill. However, initiatives such as Dame Carol’s “fit notes” – which allow a doctor to define what an unwell worker is still able to do – have struggled to gain traction among employers.

Mr Cameron said: “We have to get to grips with the sicknote culture that means a short spell of sickness absence can far too easily become a gradual slide to a life of long-term benefit dependency.”

While broad details of the reforms have been given, many design issues remain unresolved, including controversial decisions on how to provide childcare support, whether to include carers allowance, and how to include council tax benefit, which is administered by local authorities.

Ministers are to say that around 2.7m households will be better off as a result of the reforms, with extra support targeted at those in the bottom of the income scale. However the Institute for Fiscal Studies has found that the changes will also create around 1.4m losers.

Single adults who rely on benefits and very low-paid primary earners in a couple will have stronger incentives to work, even a few hours a week. But the changes will weaken work incentives for potential second earners, and reduce incentives for middle earners to earn more.

Alison Garnham, chief executive of the Child Poverty Action Group, said: “The jury is still out on the universal credit. Ministers are right to aim for much better back to work support and a benefits system that makes it pay to work. But scant detail and funding shortfalls forced by the Treasury leave it in major doubt.”