Benefits on the brain

If you can't get a job, you need help.

In his first speech as Secretary of State for Work and Pensions, James Purnell said, "I've had welfare policy on the brain for a long time." I am sorry for him. As I reported last year (12 March), prolonged study of the benefits system gives you a headache. Having welfare policy on the brain may account for the failure of Peter Hain, Purnell's predecessor, to notice that rich men were giving him large sums. A green paper acknowledged in 2006 that the rules of the benefit system "make sense in isolation, but together they make for a confusing and incoherent picture".

The same could be said of the tax system, which is why many middle-class folk engage accountants. Tax and benefits are complex for similar reasons. Both try to achieve multiple objectives, which sometimes conflict: to provide incentives for economic activity, for example, while taking account of social justice and personal circumstances. Both are vulnerable to cheating. Income tax fraud costs an estimated £10bn a year. The day before Purnell got his new job, the National Audit Office reported that benefit fraud cost less than a tenth of that - £800,000, down from £2bn in 2001. Sometimes all those on Incapacity Benefit are accused, not exactly of fraud, but of being freeloaders. They cost £12.5bn. The BBC's business editor, Robert Peston, reaches roughly the same figure in his new book, Who Runs Britain?, when he estimates the taxes that the 1,000 wealthiest people perfectly legally avoid.

Yet whether the poor deserve their benefits is a more politically toxic issue than whether the rich deserve their tax breaks. Welfare reform (bringing a halt to the growing "dependency culture") and an end to child poverty were two of new Labour's trademark policies when it came to power. To a significant extent they conflict, which explains why progress is modest on both. If ministers set benefit levels much lower than wages - and apply sanctions to the work-shy - they risk some children dropping into severe poverty.

Labour has been willing to impose hardship on the childless. As Ruth Lister, the doyenne of social policy experts, reports, the couple rate of income support, as a proportion of average earnings, has fallen by a fifth since 1997. Benefit rates for under-11s, however, have more than doubled (Thinkpiece Number 6, www.compassonline.org.uk).

Getting the right balance between relieving poverty and creating incentives is the challenge that faces any minister responsible for welfare policy. The equations are never straightforward. Poverty depresses health and morale; far from galvanising someone to find work, withdrawal of benefit could make them less capable, physically and mentally, of doing a job.

Today's childless woman is tomorrow's mother and, as Lister points out, "a poverty income during pregnancy makes it harder for women to eat well and this can impact on the future health of their babies". Moreover, it is widely believed in working-class areas that some unmarried girls deliberately have babies to get a decent independent income and a council home. It is probably true. Should we therefore remove the penalty for remaining childless or the premium on becoming a mother?

Those who scream for welfare reform and grumble about fecklessness on council estates should be made to confront such questions. Welfare looks like an issue that Labour has funked but, in truth, giving benefit claimants "personal advisers" while the threat of sanctions lurks in the background is probably as good as it gets. That is roughly what will happen with Incapacity Benefit, soon to be rebranded Employment and Support Allowance. It starts (or should start) with optimistic and unthreatening assumptions. As Purnell put it, instead of thinking of people as incapable, they will be treated as potentially "capable with the right support".

Purnell could achieve a ministerial first by dedicating himself to the successful implementation of this policy and eschewing spurious "initiatives". But if he wants a place in the history books, he could try to be the minister who simplifies the benefits system once and for all. For example, why offer Incapacity Benefit at a special rate - which rises the longer you've been "on the sick" - at all? If you can't get a job, you need help. That's all there is to it. You surely aren't more or less deserving just because a doctor has diagnosed an illness or disability. A fully fit man claiming benefit in the north-east may be less of a skiver than a disabled one in the south-east. Costs attached to disability should be paid separately, according to means, beside allowances for children and caring responsibilities. Job status should be irrelevant.

The Institute for Public Policy Research has proposed a single working-age benefit along these lines (It's All About You: Citizen-Centred Welfare, edited by Jim Bennett and Graeme Cooke). I urge Purnell to study it. If nothing else, it will be easier on the brains of his successors.