Payback threat to benefits families

A fresh crackdown to save 1bn currently lost from the benefits system because of fraud and error means the Government will no longer write off money wrongly paid out due to "official errors".

The plan will mean families – who must currently repay if they are to blame for the error – will be forced to repay even if they are not to blame. A fresh package of penalties will also leave them facing a 50 fine if they fail to inform the authorities of changes in their circumstances.

The measures are among a tough set of sanctions in the plan to replace 30 out-of-work benefits with a single Universal Credit – making sure people are better off in work – which sparked concern from campaigners and charities last night.

Jobseekers who fail to look for work or reject job offers will be stripped of their benefits for up to three years. Instead of being able to apply to a hardship fund, those who struggle to makes ends meet will then be offered a loan which must be repaid.

Single parents who claim will also be forced to attend meetings at job centres when their child is as young as one year old and will be stripped of up to 40 per cent of their handouts for repeated failures.

Work and Pensions Secretary Iain Duncan Smith unveiled the package yesterday which he said was a "fair deal" for both the jobless and the taxpayer, and claimed no one would be worse off.

The streamlined system aims to end the perversities of the current system which means some people are better off on benefits. A work programme will also be introduced to help people return to the workforce, some long-term jobless being required to do unpaid community work.

Mr Duncan Smith said it was "a sin" that 70 per cent of the extra jobs created over the last 14 years had been taken by immigrants because British people were not "capable or able" to do them. He said it showed that creating jobs was not the only solution to dealing with the five million people on out of work benefits – 1.4 million of them claiming for nine out of the last 10 years.

Up to 850,000 people, including 350,000 children, could be lifted out of poverty as a direct result of the changes, Mr Duncan Smith suggested.

Labour gave its backing to the reform effort but warned that swingeing cuts to other parts of the welfare state would mean people actually ended up worse off.

Leading anti-poverty charities accused ministers of creating a "climate of fear".

Oxfam's director of UK poverty Kate Wareing said: "Changes to the benefits system proposed today will expose people to the risk of destitution. Removing benefits and leaving people with no income will result in extreme hardship for them and their families."

The head of UK policy at Save the Children, Sally Copley, said: "It is hard to see how Britain's poorest children are going to be helped using sanctions creating a climate of fear."

Biggest system shake-up since Second World War

The Universal Credit is being billed as the biggest shake-up to the welfare system since the Second World War.

Most out-of-work benefits will be replaced by a single payment designed to ensure people are always better off in work than on benefits.

Like tax credits, it will still be available to those who work but will taper off at a level to incentivise work.

The credit is due to be introduced gradually from 2013 but the final claimants may not be transferred over to it until 2017.

The Government says it will cost 2.1bn over the next four years to introduce, although there will be further costs in the future.