Welfare system needs a radical rethink

Frank Field, as Minister of Welfare Reform in a previous Labour Government, was charged to “think the unthinkable”. He did, but his ideas did not go down well with Tony Blair, the Prime Minister at the time, and Field was forced to leave the government in 1998.

However, the UK’s welfare system is not working and only a radical re-think will bring about the changes it so badly needs.

Hastily, ill-conceived policies such as the bedroom tax are just tinkering at the edges which will probably save relatively little.

Over the years not just the welfare system but the State itself, has become too large, too complex, too bureaucratic and more critically, too expensive to run. To give a simplistic example - a person earns the minimum wage of £13,500 a year for a 40 hour week, we then pay someone to assess and collect tax from them, then we pay someone else to assess what welfare benefits they are entitled to and then someone else to give them it as well as local council staff to assess them for council tax and other benefits.

Why are we taxing a living wage at all when in fact this tax is in effect just meeting the costs of so much administration? More fundamentally, why are we setting up systems which seem to encourage people not to work?

There are countless examples of people who would be worse off if they came off benefits, or have tax credits removed if they work more than 16 hours a week.

We seem to insist on a 16 hour threshold when many employers are keen to employ staff for more than 16 hours a week, staff are equally keen to do the extra hours but it means a real terms reduction in the income.

For all the apparent practical faults in the system, Ian Duncan Smith is at least trying to reward work and put a limit on the rewards for not working but that is not enough.

It’s time to consider innovative and radical solutions for the failing welfare state. If we continue to do what we’ve always done, nothing is ever going to change.

I had fervently hoped that the recession would force business and government to look at things differently, but I’m extremely saddened to see that despite difficult times, we are back to ‘business as usual’.

People are still being paid extraordinarily high salaries for heading up dysfunctional organisations - the salaries at some of the banks and top FTSE companies are absurd while the service to customers - especially in business is not improving.

Some of these salaries are even being underwritten by the public purse! So the idea that it is only welfare that is causing problems is flawed but it still must be addressed and hopefully by viewing it from a different perspective – i.e. reducing the size of the state machine that gobbles up all our taxes – whatever end of the earning ladders we are at.

Not only are bankers taxing the poor, but the State now has to tax the poor to pay for the extortionate costs of running such a cumbersome and inefficient welfare system; indeed a colossal public sector - even after recent and impending cuts.

A few weeks ago we celebrated the 40th anniversary of the mobile phone. For those of us who recall using early models the size of a small photocopier which we had to cart around on a trolley, the current models represent huge technological developments over the last 40 years. If only society, the Government and the UK’s 65 year old welfare state, could have made similar advancements.

We live in a highly taxed economy but we’ve never really looked at where the money goes and to what effect.

Much as I support the armed forces, do we really need to spend £34 billion a year, more than the whole annual cost of running Scotland, on defending what is in effect a small country in world terms? It’s time for a radical political re-think and some honesty to admit things have gone badly wrong.

The solutions are not complicated. Slim down the system and make it less bureaucratic, tax people on a varying scale relative to what they earn and clamp down on those who avoid it, without discouraging entrepreneurial activity - the life blood of our future.

We really need to do things differently if we want to bring about real, significant and lasting change. Our megalithic state will now allow us to prosper into the 21st Century!

*David Watt is executive director of the Institute of Directors in Scotland.