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It is imperative that the House of Lords do not stand in the way of reforming a welfare system unfit for purpose, says Margot James MP.
The welfare system has been in desperate need of reform for many years. We have a welfare state which now caters for 5.7 million 'clients', including 1.4 million people who have been on out-of work benefits for the past decade, and one of the highest rates of workless households in Europe - 20,000 of such households in my Borough of Dudley.
Tony Blair set reforming welfare as a top priority when he took office in 1997, tasking Frank Field with spearheading a radical rethink on the welfare state. But it was soon obvious that any substantial reforms were going to be abandoned in favour of endless tinkering, mostly with tax credits, while a scandalous lack of change to the system was masked by the long period of economic growth and low unemployment.
It is beyond belief that during this period of relative prosperity the benefits bill nearly doubled - from £56 billion in 1997 to £110 billion last year. In the meantime three quarters of the jobs created during that time went to foreign nationals, a fact which is nothing short of a travesty.
Clearly the system we inherited was not fit for purpose, and frankly it has done a disservice to the very people it was designed to help; pathologically incentivising dependence and stifling ambition and personal responsibility. The problem is that despite an apparent political consensus on what is wrong with welfare, no one has actually done anything about it.
Last week the Lords voted down parts of the Welfare Reform Bill, and instead put through a series of amendments at an estimated cost of an extra £1.6 billion. Today they are due to consider more of the bill, including the government's new benefits cap which would limit the amount a family can receive in benefits to £26,000 a year. It is imperative they do not stand in the way of this reform.
The current welfare system leaves too many people better off out of work and on benefits, without sufficient encouragement towards the world of work. So the benefits cap is designed to ensure that whilst money continues to go to families who need it, they will no longer receive more than the average earnings of families who go out to work to support themselves.
The need to get spending under control across government is undeniable, with the welfare system now costing every working family £3,000 a year. But the introduction of a benefits cap is not just about saving money. There is something more fundamental at stake here, and that is fairness.
The average earnings of someone in the Dudley Borough, where my constituency is situated, are £23,700 a year. This would be liable to taxes of 20 per cent reducing their net income to under £20,000. Whilst someone working in full time employment on the minimum wage would bring home just £11,265.28 a year. And at more than double this amount, to them, the £26,000 net cap must seem more than fair.
Alongside this, under the current system there are almost 200 families with at least ten children where the parents do not work and are eligible for £61,183 a year in untaxed state support. And let's not forget that a working family would have to earn a massive £93,000 to be left with this amount of money after tax.
Some critics of the benefits cap point out that it will affect those families in receipt of a large housing benefit award, which allows them to rent homes in the private sector. To a certain extent this is true. The cap will mean some families are no longer subsidised to live in the private sector on rents that are way beyond the reach of working families. But is this unfair?
With the largest housing benefit award having reached over £100,000 a year the Government has already acted to reduce the maximum amount payable. The changes will also mean that a maximum of up to £400 a week will be available for a four bedroom property, but people on housing benefit will only be able to claim rent in line with the bottom third of the local private rented marker instead of the bottom half. Understandably some people who receive housing benefit are concerned by this change, but to draw a comparison the average rental price of a four bedroom property in Dudley is £190 a week.
If a family is in receipt of other benefits, the cap may well mean that the housing benefit they are eligible to receive is reduced. But what will this mean in practice? It will mean that families supported by benefits will have to budget according to their income which will now be no more than the average income of working families, and choose a property and location in line with that income.
Working families across the country, including in my constituency, work tirelessly to support their families, often on incomes considerably lower than £26,000 net. The truth is they have to make decisions based on their income and in reality few people are able to choose the street they would most like to live in. I do not think it is unfair to expect families who are not working to have to do the same.
The basic principle of the welfare state is to help those with the most need. However we must make sure the system is fair. This of course means helping those who cannot support themselves. But it also means acknowledging that there is a point beyond which the state should not, and cannot, continue to provide financial support. The Lords must not put off this reform any longer. The cap fits and now is the time to wear it.
Dods Parliamentary Communications Ltd