The Times reports that Iain Duncan Smith has won his battle for a universal credit

By Paul Goodman

Matt Sinclair's recent report for the Taxpayer's Alliance is an excellent guide to the problems of welfare reform.  In it, he sets out an "iron triangle" of change - the claim that it's impossible at once to "directly raise the incomes of the poor, increase the employment of the poor and reduce welfare spending".  This problem has confronted Iain Duncan Smith and George Osborne in their attempts to find and fund the recasting of the benefit system.  There were reports during the summer of a stand-up row between the two men over the Welfare Secretary's plans.

According to the Times, they've now reached a settlement, which marks a "considerable victory" for Duncan Smith -

"Millions of welfare claimants will have their benefits scrapped and replaced with one “universal credit” under a ground-breaking deal secured by Iain Duncan Smith.

Housing benefit, income support, incapacity benefit and dozens of other payments are set to go after the Work and Pensions Secretary won a months-long dispute with George Osborne, the Chancellor, over whether the reforms were affordable.

The new system will carry a guarantee that anyone in work will be better off than someone on the dole. Claimants will be allowed to keep more of their benefits when they take a job or increase their hours."

The plan isn't finalised: "Details under discussion include how quickly the benefit would be withdrawn when a claimant finds work. Whitehall sources said that a withdrawal rate of between 60 and 65 per cent is now being debated." However, it looks at first glance as though the iron triangle's been proved - because it's hard to see how such reform's consistent with lower welfare spending, at least in the short term.  The Times points out that "Mr Duncan Smith will be allowed to claim up front “a large chunk” of the expected £9 billion of savings which he predicts can be made every year from lower administration costs and reduced fraud."  

However, a solution's been offered which holds out the prospect of squaring the triangle, so to speak - namely, scaling back "middle class benefits" - such as the winter fuel allowance, free bus passes for pensioners, and child benefit.  The Times reports that "the fate of child benefit is still being hammered out in the Treasury...means testing, taxation or scrapping it for older children are being discussed".  Osborne dismissed the first two options in the budget, arguing that means-testing would require a "massively complex new system to assess household incomes", and that taxing it would "would mean that working mothers received less than the non-working partner of a millionaire".

David Cameron has taken a close interest in welfare reform, and looks to have weighed in on behalf of his Welfare Secretary, who will now have some good news to announce next week in Birmingham.  I'm sceptical about whether the sums will add up - in other words, whether the adminstration and fraud savings will come, and whether restricting child benefit for older children (the most sensible way of reforming the payment), and raising the age at which free bus passes and the winter fuel allowance are claimable (since Cameron's campaign promises rule out scrapping either) will substantially offset the costs of reform.

But the creation of a single, simple universal credit would be an amazing achievement for Duncan Smith.  It would bring to fruition much of his work at the Centre for Social Justice.  He'd become the greatest reformer of the system since Beveridge.  More importantly, a welfare system with proper incentives would help make work pay for those trapped in the tangle of the benefit system.