Jobs warning as Minister reveals sweeping overhaul of benefits

Work and Pensions Secretary Iain Duncan Smith yesterday pledged the most sweeping changes in decades, giving a critical account of the complex welfare system, which he said had helped create ghettos of worklessness, often affecting generations of families.

The current arrangements amount to a "supertax" on some of the worst off in society, said Mr Duncan Smith, adding that he felt a maths degree was needed to work out how to claim benefits.

Business groups and charities generally welcomed the announcement but unions warned the plans could be derailed by the "enormous" job losses being sparked by the clampdown on public spending.

Mr Duncan Smith said he wanted to unify the disparate elements that form the benefits structure as well as rectifying the "illogical" position of benefits paying more than work.

Options include combining elements of the current income-related benefits and tax credit systems, bringing out-of-work and in-work support together in a single system, and supplementing monthly household earnings through credit payments reflecting circumstances such as children, housing and disability.

Mr Duncan Smith said five million people were on out-of-work benefits, a "staggering" 1.4 million being on benefits for nine or more of the last 10 years, while Britain has one of Europe's highest rates of workless households.

He added: "The benefits system has created pockets of worklessness, where idleness has become institutionalised. The welfare budget is spiralling out of control, up from 63bn in 1996-97 to 87bn in 2009-10, although the actual increase was 61bn in the last 10 years.

"The key must be to break the cycle of dependency. We must make sure that work pays, even for the poorest."

Mr Duncan Smith said the benefits regime often provides little incentive to work, meaning some people would be taxed on the first eight or nine hours of the first 10 hours they work, describing it as a "supertax".

There were 14 manuals dealing with benefit claims, and one adviser recently spent 45 minutes on a computer with a lone parent before discovering she would be better off working than on benefits, he said.

The system costs 3.5bn to administer, while a further 5bn is lost in fraud or errors.

TUC general secretary Brendan Barber said: "While the aim behind this certainly has merit, Ministers have a big problem. Either you make those who are out of work poorer – yet we already have jobless benefit levels way below those when Mrs Thatcher was in power– or you can boost income in work either through more generous benefits or a higher minimum wage.

"The first should be morally unacceptable, while the Treasury will not allow the second. Iain Duncan Smith is trapped in the Catch 22 of welfare reform."

The senior policy adviser at the Institute of Directors, Corin Taylor, said: "The current welfare system is letting down both claimants and employers, and the radical reform proposals in this report are very welcome."