Government unveils the most radical welfare shake-up for 60 years as David Cameron pledges to "make work pay"

By Jonathan Isaby

Today the Government is publishing the long-awaited Welfare Reform Bill, which Work and Pensions Secretary Iain Duncan Smith will take through Parliament.

At an event at Toynbee Hall in East London, he and David Cameron have just made a joint appearance in which the Prime Minister hailed the Bill as bringing "the most ambitious, fundamental and radical changes to the welfare system since it began."

Stating that the Government's unequivocal aim is to "make work pay", he said that "never again will work be the wrong financial choice".

The Prime Minister also emphasised that the proposals aim to put right a system that has "created a benefit culture":

"It doesn’t just allow people to act irresponsibly, but often actively encourages them to do so. Sometimes they deliberately follow the signals that are sent out. Other times, they hazily follow them, trapped in a fog of dependency. But either way, whether it’s the sheer complexity and the perverse incentives of the benefits system: whether it’s the failure to penalise those who choose to live off the hard work of others or whether it’s the failure to offer the right support for people who are desperate to go back into work, 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."

And, he continued, these new proposals seek to change that benefit culture:

"Nine months ago, on the steps of Downing Street, I said I wanted to help to try and build a more responsible society in Britain, where we don't ask what am I just owed, but what more what can I give, where those who can, should; but, of course, those who can’t, we always help.

"And my point today is that this idea of mutual responsibility is the vital ingredient of a strong, successful, compassionate welfare system. We need responsibility on the part of those who contribute to the system – government and taxpayers. And responsibility on the part of those who receive from the system."

The key elements of the Bill include:

Universal Credit The centrepiece of the Bill, this will see the existing "patchwork" of benefits and credits replaced with the Universal Credit, making it easier for people to see that they will be "consistently and transparently better off for each hour they work and every pound they earn". The Prime Minister explained:

"Today after the first £5 you earn, you lose a pound of benefits for every extra pound you take home. But with the universal credit, you would keep 35p of benefit for every extra pound you take home. And because this rate of benefit withdrawal is the same whatever you earn - it’s easy to calculate just how much better off you will be."

Benefits cap A cap, linked to average weekly earnings, will be brought in which will limit the amount of benefits a household can receive, on the basis that it is not reasonable for households on out of work benefits to receive a greater income from the state than the average working household receives in wages.

Tackling benefit fraud Tougher one-strike, two-strike and three-strike rules will be introduced. The Prime Minister explained:

"If you’re unemployed and refuse to take either a reasonable job or to do some work in your community in return for your unemployment benefit, you will lose your benefits for three months. Do it again, you’ll lose it for 6 months. Refuse a third time and you’ll lose your unemployment benefits for three years."

Scope of housing benefit The Government will restrict Housing Benefit rents so they will only cover the cheapest 30% of properties in a local area and limit Housing Benefit in the social rented sector to reflect the size of a family.

Personal Independence Payment This will replace the existing Disability Living Allowance and be supported by "a new assessment which makes greater use of evidence, enabling us to more accurately and consistently assess individuals to determine who will benefit most from additional support".

Limiting Employment Support Allowance The legislation will time-limit contributory Employment Support Allowance to 12 months for those who are able to prepare for work, but with those with low or no other sources of income continuing to qualify for income-related Employment Support Allowance once their contributory ESA had ended.

Some sections of the media this morning have made much of the decision to drop proposals to cut housing benefit by 10% for those unemployed for more than a year. Cameron implicitly acknowledged this in his speech, saying: "Some elements of this Bill have been amended and rationalised. That’s what happens when policy is open to real debate, and governments listen."

> Download a pdf of the Bill by clicking here

> Iain Duncan Smith also wrote about the plans in this morning's Daily Telegraph