David Freud

Strange as it seems, if David Cameron succeeds in eliminating benefit fraud, it will probably end up costing the Treasury money. It is one more potential pitfall with the Iain Duncan Smith benefit reforms.

A proper crackdown on benefit cheats is only possible by dramatically simplifying the welfare system — and that will probably lead to an increase in the take-up of benefits.

Here’s the rub. Error and fraud in the welfare system costs about £5bn. It’s a big number. But it is nothing compared to the £16bn worth of benefits and tax credits that are unclaimed each year.

The sad truth is that the complexity of the benefits system actually saves the Treasury money, at least in the short term. Government studies show that convoluted rules and impenetrable forms put people off claiming a benefit, even though they are entitled to it. Up to a quarter of people eligible for housing benefit, for instance, don’t submit an application. 

No one can question the decency of Iain Duncan Smith’s vision for overhauling the welfare state. His message of “making work pay” is winning plenty of disciples. It is a revolution to simplify a fiendishly complex system and make the benefits of employment clear. To some, it is the only way of ending the welfare dependency blighting British cities.

But conservatives should be on guard. Grand schemes are intoxicating. The allure of sweeping change can overpower. The IDS reforms require real, unavoidable sacrifices, even if George Osborne pays billions of pounds upfront. This is not a case of hidebound Treasury bureaucrats blocking change to keep the poor tethered to the state. If the overhaul goes ahead, the risks and trade-offs are considerable.

Here are some of the hurdles that I’ve identified from speaking to people in Whitehall and Ian Mulheirn, an expert on this area at the Social Market Foundation. They prompt two questions. Is it worth it? And is there a simpler way?

Winners and losers Without additional funding, the IDS plan involves raising the tax rate on millions of workers. To “make work pay” for the few he will need to make work pay less for the many.