In this speech to Politeia, David Willetts reflects on the problems of the tax credit system and makes the case for targetting benefits, rather than means-testing.

Introduction

“One of the many great qualities possessed by Sheila Lawlor, the Director of Politeia, is to approach today’s problems with a historical understanding. This is particularly valuable – and also unusual – when it comes to social policy. Too much social policy analysis suffers from being completely unhistorical. It doesn’t have a sense of the way in which great figures such as Lloyd George and Churchill, Neville Chamberlain and Beveridge, Boyd Carpenter and Crossman, or Keith Joseph and Barbara Castle, wrestled with policy dilemmas that are often similar, if not identical to the ones that we face today. Gordon Brown, for all his supposed roots in the tribal traditions of the Labour Party, seems strangely ignorant of long-standing arguments within his own party on providing help to the family via the man’s wallet or the woman’s purse, or the failure of the attempts by Harold Wilson’s government to integrate taxes and benefits.

Means-testing is a very good example of the importance of learning from history. Even if he won’t accept the warnings from Conservatives about the effects of spreading means-testing to so many people, it is odd that the Chancellor does not see the force of the evidence provided by great figures within the Labour Party’s own tradition. Take the following episode. Ernest Bevin as head of the Transport and General Workers Union, tried in the 1930s to organise industry-wide funded pensions for his members. He negotiated one with the employers in the tin plate industry in South Wales. But the proposal was defeated by the rank-and-file members of his own union in the industry. According to Alan Bullock’s biography, this is what Ernest Bevin offered as his explanation of their opposition to funded pensions when he reported to his Executive Council in 1937:

‘I think it is a tragedy for South Wales, but it appears that a large number of the men take the view that if they become party to a superannuation they are merely saving the Unemployment Assistance Board expenditure. When a large community develops a relief complex of this character it is not good for democracy.’

His men thought that the only effect of their saving would be to cut the Government’s expenditure on means-tested benefits so they did not see why they should bother. It is an argument that has resounded through the decades and anyone with a historical sense understands its force. The problem with means-tested benefits is that they penalise behaviour that we all want to encourage. They penalise savers and those tin plate workers in South Wales could not see any point in saving if it just meant that they lost means-tested assistance. And means-tested benefits also penalise people if they work harder and boost their income. There’s always going to be some role for means-testing. But it’s a disaster that under Gordon Brown almost half of all households will be on means tests.If one mistake is to be ignorant of such historical evidence, there is another mistake committed by those that do have a knowledge of the history. That mistake is to write the history of social policy in a way which Sir Herbert Butterfield famously described as the Whig interpretation of history – to offer a simple story of historical progress moving onwards and upwards. That sort of political history is out of fashion now but when it comes to the history of the welfare state too many accounts still have concepts of ‘foundations,’ origins,’ and ‘development’ as if a bigger state and more public funding must mean better. Very few of these historians focus on what we have lost as, for example, voluntary and charitable activity have been squeezed out by an expanding state.I am not one of those melancholics who thinks everything has got worse. For most people life in Britain now is far better than 50 or 100 years ago. But it is the case that many of the dilemmas in social policy are inescapable. We can learn much from following through the cycle of initiative, decay, and further reform which is the path of much social security policy in 20th Century Britain.Nowhere is this pattern clearer than in means-tested benefits. Just about every serious social reformer has wanted people to escape pauperism – that meant dependence on the Poor Law which became National Assistance which became Supplementary Benefit which became Income Support. There are many different views on the Left and on the Right of how this can be done: universal benefits available as of right; expecting more of family and relations; encouraging people to build up personal savings of their own. But all share a vision of reducing dependency on means-tests. So through the decades there have been a series of ambitious reforms, sometimes costing large amounts of money, aimed at floating people off means-tested assistance. Lloyd George’s pension for the over-70s, Neville Chamberlain’s contributory pension, Beveridge’s social insurance, Boyd Carpenter’s contracting-out, Callaghan’s Child Benefit and Thatcher’s boost to funded pension savings, all shared this crucial objective. But each was followed by a slow process of erosion as non-means-tested benefits or funded savings were reduced in by inflation or deflation. Slowly means-tested benefits creep back in. As a realist I know there will always be some means-testing in the benefits system. But as an optimist who believes that we can reform welfare, I am on the side of those battling to design a system with less means-testing, not more. That seems to me to be the great tradition of welfare reform in this country both on the Left and on the Right.

Gordon Brown’s position in this historical pattern is very odd indeed. The incoming Labour Government was committed to welfare reform. Because of our prudent management of the public finances they could spend some money on this without immediately jeopardising the economy. They had a great opportunity to simplify the system and join that list of great welfare reformers. Although we left Britain with a better benefits system and much more private saving than we inherited, the system we left behind still had too many means-tests – in particular the overlapping benefits for Income Support, Housing Benefit and Council Tax Benefit. A bold reformer in 1997 would have tried to buy out at least one of those means-tests and create a simpler system. What has Gordon Brown done instead? He has spent billions of pounds creating new means-tests and spreading the existing ones further up the income scale. Instead of spending money to buy simplicity he has spent money to buy complexity. That is why he is not a real welfare reformer. It is the reason why I think history will judge his record harshly. He will leave behind him a system of more baroque intricacy than the one he inherited. That is not a reform. In fact it is the opposite. He has created a set of problems which a future reformer will have to tackle.Nowhere is this historical failure clearer than with his programme of tax credits. They are a case study of everything that is wrong with means-testing.

Let me be clear first of all on an important point of principle so that people can see where there is genuine agreement with Gordon Brown’s objectives.

I accept the case for some system of state assistance for people in low-paid work. Indeed, it was Keith Joseph who first introduced such a system when he created the Family Income Supplement (FIS) during his time as Secretary of State for Health and Social Security in the Heath Government. FIS was introduced in 1971. It was radically reformed and extended under Margaret Thatcher when it became Family Credit in 1988 – indeed if I may say so, as an adviser to her, I played some role in persuading her of the case for such a benefit.

There is a particular case for such a system in Britain because our flexible labour market means that we have a greater range of earnings than the more heavily regulated labour markets on the Continent, where low-paid jobs have been regulated out of existence so that people are unemployed instead. If that is the alternative, it is better that people should be in work even if it is low-paid and we can then top their incomes up to ensure they are not living in poverty.

Gordon Brown is right to want to make families better off in work. Indeed I also accept that this is an area where assistance cannot be wholly universal because of the costs involved. There has to be income-related or means-tested help as well. What you can do is aim for a mixture of support so that some is indeed universal. The classic case for the old Family Allowance was to help families in work. So there are other ways of helping people with family responsibilities who are in low-paid jobs, but we can’t just rely on those universal benefits – there is a strong case for a means-tested top-up.

Some purists don’t like this. Polly Toynbee has recently made a very interesting intervention from the Left arguing that instead we should use the minimum wage and the labour market rather than spreading tax credits so far up the income scale. But I am clear that whatever is done to help families through universal family benefits or through the minimum wage, in practice you are still going to need as well some assistance through means-tested benefits for low-paid families. So on this I am not in disagreement with Gordon Brown, though the way he’s financed his measure with ever more stealth taxes has of course hit some of the very people he claims to want to help. But what I want to focus no now is the mess he has made as he has tried to implement this principle of help for low-paid workers.

So Gordon Brown came to office in 1997 with a commitment to do more about child poverty and to making work pay, with money to spend because of the healthy public finances that he inherited, and with an eminently practical mechanism for doing so already in place – Family Credit. All he needed to do was to reach a new judgement about the amount of money he wanted to put into Family Credit so as to do even more to help families in low-paid jobs. But instead he devised a whole new type of benefit, the Working Families Tax Credit, which is paid by the Inland Revenue, instead of the Benefits Agency; which is administered by employers, instead of civil servants; and which goes to families on above-average incomes, as well as those on low incomes.

The story of Gordon Brown and tax credits over the six years of his Chancellorship is a case study of the extraordinary inability of the Chancellor and his Treasury advisers to do the blindingly obvious. Instead, the system has been endlessly changed and made excessively complicated. As a result, take-up has fallen, fraud has spread and people have been left baffled by something which really ought to be pretty straightforward. It has been like watching a professional footballer with an open goal who darts round the ball, dribbles it up and down but refuses to do the obvious thing of kicking it at the goal.

The question as to why Gordon Brown proved incapable of doing the obvious thing and putting more money into Family Credit is probably at least as much a matter for psychologists as for political commentators. To have used the instruments that he inherited from the previous government would have been to admit that help for people in low-paid work was already in place. Changing the arrangements enabled him instead to pretend there was no existing help for low-paid families.

Tax credits from 2003

Let me take you through, very briefly, the story so far leading up to the next set of changes due in April.First of all, in October 1999, Family Credit for low-paid families was replaced by the Working Families Tax Credit (or WFTC) and the Childcare Tax Credit. From April 2000, these in-work credits have been paid through the payroll by the Inland Revenue to the main earner.Also in April 2000, the Married Couple’s Allowance was abolished. A year later, in April 2001, it was replaced by the Children’s Tax Credit, which provides a reduction in income tax liability to the main earner through Pay As You Earn (PAYE).The following year, in April 2002, a Baby Tax Credit was introduced. This works in a similar way to the Children’s Tax Credit, but is worth more and is only available in the year of a child’s birth. The next instalment is due in April.Around 90 per cent of all families with children, and many of those without, will be brought into the new tax credit system that starts in April. I will attempt to offer a sympathetic account of the new system before considering some of the problems that it will cause.

Here is my cut-out-and-keep guide to the system as it will be from 2003/04. I am going to make it sound as simple as possible – honest.

•  Families with children will be entitled to a new Child Tax Credit. This will replace the child element of the Working Families Tax Credit (WFTC), the Children’s Tax Credit and the Baby Tax Credit for parents who are in work. For other families, it will replace the Family Premium that is paid with Income Support and Jobseeker’s Allowance;

• there will be a new type of payment to cover the living costs of out-of-work adults, which will be known by the existing names Income Support or Jobseeker’s Allowance;

• there will also be a new payment for low-paid adults. They will receive a new Working Tax Credit instead of the adult element of the Working Families Tax Credit and the Childcare Tax Credit. This Working Tax Credit will also serve as a replacement to the New Deal 50plus Employment Credit, which is a short-term wage subsidy for older workers.

There’s a benefit for children, a benefit for out of work adults, and a benefit for working adults. The new system is superficially simple. But underneath it is as complicated as the one it is replacing. What Gordon Brown is doing is the equivalent of throwing a sheet over a mess in the living room without making any attempt to tidy up the mess first. There are a lot of strange lumps and protuberances underneath. Below the new names, the old structure will remain in place. That is why the Child Tax Credit and the Working Tax Credit have so many different parts to them.The Child Tax Credit alone has five different parts:

• a family element;· a baby addition;· a child element;· a disabled child element;· an enhanced disabled child element.

It also has two different withdrawal rates – for low-paid families, the Child Tax Credit is withdrawn by £1 for every £3.70 of gross income. For those on higher incomes, it is withdrawn by £1 for every £15 of additional income.It’s no wonder that the 12-page tax credit application form comes with 47 pages of instructions.The Working Tax Credit is particularly odd. It is even more complicated than the Child Tax Credit and has seven different parts:

• a basic element;· an element for couples and lone parents;· a 30 hour element;· a disabled worker element;· enhanced disabled adult element;· an older worker’s (over 50) element;

• and a childcare element (which depends on the number of children and the type of childcare).

It is not just that the system retains all the old complexities. It adds new complexities as well. Families on the receiving end will find the new ‘seamless’ system actually feels like two systems, rather than one. An out-of-work family that is currently receiving Jobseeker’s Allowance to cover the living costs of both children and adults will in future receive one payment from the Benefits Agency to cover the costs of the adults and another from the Inland Revenue to cover the costs of the children. Similarly, a low-paid family in work that currently receives the WFTC will in future receive both the Child Tax Credit and the Working Tax Credit. Seamless it ain’t.One feature of the change is a new payment method. The Chancellor used to insist that tax credits should be paid by employers alongside wages:

‘As a tax credit payable through the wage packet from April 2000, it will demonstrate more clearly the rewards of work over welfare.’ (HM Treasury, Red Book 1999, p.58)

‘The working families tax credit is what it is because it is paid through the pay packet. That is exactly what it was designed to do and we have made it possible for many people to return to work.’ (Gordon Brown, Hansard, 13 December 2000, col. 682)

‘Paying WFTC and DPTC through the wage packet has been a key element in delivering on the promise to make work pay.’ (HM Treasury/Inland Revenue, The Child and Working Tax Credits, April 2002, p.37)

Now he has done a complete u-turn and will be paying the new Child Tax Credit directly to the mother. Until 2000, the money always did go direct to the mother; it was Gordon Brown himself who insisted it should go to men via their pay packets. Indeed, the introduction of the WFTC remains the only reform since Child Benefit was introduced in 1977 that has taken money from the mother and given it instead to the father. Now, having transferred money from purse to wallet, Gordon Brown is going back to purse again.

I am releasing today the first figures on the impact of the new payment method. Around 200,000 working fathers will see a fall in their take-home pay of up to a quarter. A man with a gross income of £200 a week and two children who currently receives £90 a week of tax credits will in future receive a Working Tax Credit payment of just £30 instead, leaving him £60 a week – more than £3,000 a year – worse off. This is a massive fall in the take-home pay of hundreds of thousands of workers.

If there was any shred of truth to Gordon Brown’s original argument for paying money via the payroll, he should be very worried about the effect on incentives to work and, if he is not worried, then he has rejected one of the central planks of his original reforms. And if it is the right thing to do, then the timing is dreadful as the change will occur at the same time as the increase in National Insurance Contributions, the effective abolition of the Upper Earnings Limit and the freeze in personal allowances for people of working-age. Hundreds of thousands of workers will see their take-home pay fall in April compared with in March.

There are other big groups of losers as well. The existing Children’s Tax Credit, like the Married Couple’s Allowance that it replaced, reduces the income tax liability of the main earner. The new Child Tax Credit, however, is based on household, rather than individual, income. Couples, whether married or not, will effectively be taxed on their joint incomes in clear breach of the principle of independent taxation. 1.4 million families are expected to lose out as a result and almost a million of them are likely to have no entitlement to the Child Tax Credit whatsoever.

Complexity, take-up, child poverty and fraud

I now want to look at some of the problems with existing tax credits, as these look set to become much worse under the new system. In particular, the complexity of the current system has led to low take-up amongst eligible families and widespread fraud.

Over the past few years, the pace of change has been so relentless that new measures have not had time to enter the public consciousness before being abolished. Take the Baby Tax Credit, for example, which was introduced in April 2002 and will be abolished in April 2003. It must be the shortest living tax allowance in memory. And, as a result it holds another record as well – for the lowest take-up rate. Official figures that I obtained through a parliamentary question show that only 85,000 out of a total of 500,000 eligible families have applied for the measure. That is a take-up rate of just 17 per cent and over 400,000 families are losing out by up to £1,000 a year.

And I can reveal today the first official information on take-up for Gordon Brown’s flagship Working Families Tax Credit. The figures are buried on an obscure part of the Inland Revenue website and have not been publicised before.

In the WFTC’s first full year, only 64 per cent of eligible families claimed the credit. That is a lower take-up rate than for the Family Credit which it replaced.

Take-up amongst couples is even lower. Only 51 per cent of eligible couples are getting the WFTC. This may be because the advertising is focused so heavily on lone parents.

This means that a quarter (24 per cent) of the money that should have been paid out is not being claimed. That makes up to £1.4 billion that Gordon Brown says is going to low income families but which they do not actually receive.

When the WFTC was introduced, Gordon Brown said it provided ‘enormous scope to increase take-up’. He could not have been further from the truth. The least popular benefits are the ones that Gordon Brown invents.

These low take-up rates help to explain why the Government are failing to meet their targets on child poverty. At the time of the last election, ministers claimed that over a million children had been lifted out of poverty since 1997. We have since discovered that only 500,000 children had actually been lifted above the Government’s own poverty line and that the Treasury’s modelling on which the predictions were based assumed 100 per cent benefit take-up.

No wonder usually loyal Government ministers have expressed their concern about the impact of tax credits. In December 2002, for example, Patricia Hewitt, Secretary of State for Trade and Industry and in charge of the Women and Equality Unit, said that the tax credit system had ‘not had the transforming impact we thought it would have and should have.’ And in July 2002 Hilary Armstrong, Labour’s Chief Whip, was reported to have told the Scotsman newspaper ‘that Gordon Brown’s flagship system of tax credits is not appreciated or understood by the low paid.’

The complexity of Gordon Brown’s tax credits also encourages fraud. There a number of reasons for this.

First, the tremendous technical complexity of the various tax credits encourages errors, which in turn often lead to fraud. According to the Public Accounts Committee ‘there are errors in identifying the employers’ schemes when authorising individuals’ Tax Credits; there are errors by employers in completing their returns; and errors in keying data into departmental systems.’

Secondly, Gordon Brown’s preferred payment methods allow fraud to slip in. The Childcare Tax Credit is paid by the Inland Revenue to the employer, who in turn pays it to the claimant, who is then meant to pass it on to the childcare provider. Fraud can creep in at any of these stages.

Thirdly, the Inland Revenue has little experience of tackling benefit fraud. It is used to collecting money from people, which is a very different thing to paying money out.

Although a Government investigation into the level of fraud within the WFTC finished 18 months ago, ministers are still refusing to make the information public. The only published study of fraud in in-work benefits found ‘proven’ fraud or a ‘high suspicion’ of fraud in 25 per cent of cases. On that basis, I estimate that of the £6 billion a year spent on the WFTC, £1.5 billion is wasted on fraudulent claims.

If the Chancellor does not agree with this estimate, he should publish his own data instead of suppressing it. I have therefore written to Edward Leigh, the Chairman of the Public Accounts Committee, asking if he will request a copy of the Government’s internal report on WFTC fraud. This is information that ought to be in the public domain.

Lessons for the future

Gordon Brown’s tax credits are riddled with fraud, have shockingly low take-up rates and are very costly to administer. What lessons can we draw from all this for the future? The challenge the Chancellor’s policies pose is obvious. One of the big problems has been the sheer complexity and the frequency of change. But that in turn means that people are reluctant to see yet more change. In fact, the best argument which the Chancellor has put in favour of the latest elaborate structure is that it will be his last and that he is not going to change it again. He realises that people are desperate for a period of stability. We will need to look very carefully at how his new system is working to assess what changes might be feasible. I want to see a simpler system, but we will have to move very carefully so that we do not cause the same problems as Gordon Brown.

We mustn’t forget the poor people who are going to be on the receiving end of this system. Imagine that you are an unemployed family. Under the new system the man is supposed to be collecting an adult unemployment benefit from the Benefits Agency whilst at the same time his partner is supposed to be getting a child payment from the Inland Revenue. They will be dealing with two completely different Whitehall Departments. Then if the man goes into work and it is a low-paid job then he will be getting a top-up to his income via the payroll, also delivered by the Inland Revenue, but separate from the child payment which will still go to his wife. If they have children by a previous relationship they could well also be dealing with the Child Support Agency, another completely separate agency. I very much hope that this system can be made to work, but it won’t be easy. As one Blair adviser put it to me privately, ‘Gordon Brown might not believe in contestability when it come to delivering health or education, but he certainly does when it comes to the tax and benefit systems.’ The danger is that it will be very difficult to reconcile the different payments that people get from different Government agencies.

Vulnerable people will the victims of a confusion of responsibilities in Whitehall involving the Treasury, the Inland Revenue and the DWP. Let me now look at this from the point of view of each of the Departments in turn, starting with the Treasury. When it comes to tax credits, the Treasury has become a spending department. This is a Whitehall abomination and is the reason why policy in this area has been such a mess. It is what irritates other spending ministers who find themselves heavily scrutinised by the Treasury on their spending plans, but then find that Gordon Brown gives his own pet projects billions of pounds without any similar scrutiny and without inter-departmental scrutiny within Whitehall. Serious mistakes will be made because tax credits are not subject to the normal process of Whitehall negotiation. The Treasury rightly scrutinises every other department’s spending but nobody scrutinises the Treasury’s own performance when it comes to tax credits. It is a scandal and my first practical proposal, therefore, is a way of setting this right.

Gordon Brown loves setting targets for everyone else but he is strangely reluctant to set any for himself. Why doesn’t he produce some benchmarks against which we can judge the performance of his pet tax credits? The Chancellor should set himself specific targets on take-up, on fraud and on the speed and accuracy with which claims are processed. He should then be obliged to publish regular figures that would enable people to judge progress against these targets. It can’t be one rule for the Chancellor and one for everybody else.

The Treasury as a spending department is a disaster. The Inland Revenue doesn’t come out of this any better. It ought to be busy discharging its classic function of running the income tax system, capital taxes, company taxes. Instead, the best people find themselves diverted into becoming an alternative Benefits Agency. And let’s not forget the scale of what we are talking about. The systems they have had to set up to pay benefits to the families require, they say, eight, yes eight, times the computer capacity of the self-assessment system.

The Inland Revenue is a proud institution with a long history. Whatever we think of it, it does at least have enormous expertise in collecting taxes and assessing the financial position, particularly of rich individuals and of businesses. For the first time the Inland Revenue is now having to develop a very different function – handing out billions of pounds to poor people as giro cheques and direct payments. They are having to spend over £1 billion pounds creating systems to do it. It is a massive project involving millions more people coming into direct contact with the Inland Revenue. Hitherto the Inland Revenue has worked on the basis that for most people there is a simple PAYE and for about 20 per cent of taxpayers with higher incomes and more complex tax affairs they have to fill in a tax return. Now it is adding a whole new area of responsibility for people on a very low income and complicated personal affairs who in the past have been handled by the Benefits Agency. There is a real danger that this will distract the Inland Revenue from its core task of collecting revenues efficiently and running the tax system smoothly. So one place where the pressures from the new tax credits might show up is in further administrative failures at the Inland Revenue. The recent scandal surrounding the sale of some of its properties to a Bermuda-based company might have arisen in part because the senior people at the Inland Revenue were all worried about something different – Gordon Brown’s tax credits.

What about the poor old Department for Work and Pensions? I must confess to having a sneaking sympathy for them. If there is anywhere in Whitehall that understands the problems of poverty and has some grasp of how you design benefits to help poor people it should be the old Department of Social Security, now renamed the Department for Work and Pensions. But in the past few years it has lost National Insurance Contributions to the Treasury and is now going to lose family benefits including Child Benefit. But everyone knows that these new tax credits are really benefits, so that leads me to my second proposal. I believe that we should once more recognise that the tax credits are really benefits. The attempt to disguise some of them by counting them not as public expenditure but as negative taxation has not been the Treasury’s finest moment.

The belief that there is something called a tax credit which is different from a benefit has led us into the absurd position of the Inland Revenue having to send cheques to millions of people who don’t have any income tax liability. Judge Michael Harris, the President of the Office of the Appeals Service and Chief Social Security and Child Support Commissioner has said, ‘Whatever their title Tax Credits are benefits not tax.’ And Sir John Bourn, the head of the National Audit Office, has said ‘essentially [a] tax credit is a form of social security … Under the tax credit system, the impact on the lives of citizens is the same. They get more money than they otherwise would have had.’

All my instincts are that, in the longer-term, we should go back to treating tax credits as part of the benefits system, properly accounted for on that basis and with spending ministers rightly facing scrutiny by the Treasury for their performance in delivering these objectives. We will have to see how the changes work out in April 2003, and how the world of tax and benefits moves on in the next year or two, but that is the position which my Party has adopted in the past and which we may adopt again.

An alternative to means-testing

But beyond that we need a vision of a system with less means-testing that offers better help for poor people. What might be a better alternative direction in which to go? We can learn from Beveridge. His great insight was that if you define categories of benefit recipients carefully enough you can target help on poor people without means-testing. Far too many discussions of poverty and benefits in this country treat means-testing and targeting as synonymous when they are not. Means-testing is just one way of targeting benefits. There are others and one way which attracts me is to use age because it is a pretty good proxy for poverty. This is no accident. Poverty is concentrated at the extremities of the life-cycle. When their first child is born a couple may well go from being dinkies, double income no kids, to suddenly having just one income and three mouths to feed. One parent, quite often the mother, will cut back her work for a time when the child is young. Once the child is at school most parents are back at work. Let me illustrate these points though without committing my party to any specific proposal at this stage. If we had a higher rate of Child Benefit for under-5s it would be well targeted on family poverty without means-testing. Indeed it might help float some families off means-tested benefits.

The same argument applies at the other end of the life cycle. We know that older pensioners tend to be poorer. In fact the average pensioner couple aged over 75 has an income £80 a week lower than a pensioner couple aged under 75. When the Government proposed their Pension Credit therefore, I was pleased to be able to work with Steve Webb of the Liberal Democrats and Frank Field to put forward a constructive alternative. We said that the money should instead go into a higher rate of pensions for older pensioners. It would have been quite well-targeted on pensioner poverty without means-testing. I don’t claim it would have been a perfect match for poverty. But given the problems of take-up, means-testing is not a perfect match either and, unlike means-testing, the higher universal benefit for older pensioners would not have had perverse effects on behaviour in the future.

Now imagine that Gordon Brown had put his extra spending into an agenda like the one I have just outlined. He might be floating people off means-tested benefits, not spreading it and he would be doing so in a way that made sense to most people. It would be comprehensible and straightforward. It is Gordon Brown’s tragedy that he has missed this opportunity. That is what it will be the task of a future Conservative Government led by Iain Duncan Smith once more to set about reforming our welfare system.”