11 November 2010 Last updated at 02:36 ET

Benefits system overhaul to 'make work pay'

Ministers are to set out how they plan to overhaul the benefits system to provide greater incentives for work and sanctions for those unwilling to do so.

Central to the plan, being announced by Work and Pensions Secretary Iain Duncan Smith, is a single universal credit which replaces work-related benefits.

Claimants moving into work will keep more of their income than now, but face losing benefits if they refuse a job.

Labour said it would back making work pay but warned about a lack of jobs.

Publishing a white paper on welfare reform in Parliament, Mr Duncan Smith is expected to say the current system is hugely complex and costly to administer, vulnerable to fraud, and deters people from finding a job and extending their hours.

'Wrong message'

Mr Duncan Smith, who campaigned for root-and-branch welfare reform while in opposition, has said millions of people have become "trapped" on benefits and long-term unemployment has become entrenched in communities where generation of families have not worked for years.

He will propose consolidating the existing 30 or more work-related benefits - including jobseeker's allowance, housing benefit, child tax credit, working tax credit, income support and employment support allowance - into a single universal payment.

This is likely to come into force for new claimants by 2013, with a target of migrating all recipients onto it in the first few years of the next Parliament after 2015.

Allied to this, ministers want to make sure people keep more of their benefits for longer when in work and that state support is withdrawn in a less abrupt and more transparent way.

In addition, some groups will be able to retain more of their income than they do now before benefits start to be reduced to make work more financially worthwhile.

Officials believe that up to two million people will be better off as a result of the changes, which will cost an estimated £2bn to implement over the next four years.

David Cameron, who is in South Korea for the G20 summit, has said the reforms would create a simpler, fairer benefits system and do away with "indefensible anomalies" currently discouraging work.

"You cannot have a situation where if someone gets out of bed and goes and does a hard day's work they end up worse off," he said.

"That's not fair and it sends entirely the wrong message - both to those on benefits and to the hard working majority who are being asked to support them."

"It simply has to pay to work."

Deputy Prime Minister Nick Clegg, the Lib Dem Leader, has backed the plans, saying the coalition's welfare changes will "reduce worklessness" in more than 300,000 families.

But ministers, who say they are drawing up the largest programme of work support ever devised, have warned there will be tougher penalties for those people fit to work but unwilling to do so.

A sliding scale of sanctions will see those refusing work on three occasions having their benefits taken away for three years.

Labour has said it will co-operate with the government where it is rewarding work but stressed there must be jobs for people to take up.

"If the government gets this right we will support them because, of course, we accept the underlying principle of simplifying the benefits system and providing real incentives to work," Shadow Work and Pensions Secretary Douglas Alexander said.

"But the government will not get more people off benefits and into work without there being work available. We back real obligations for people receiving out of work benefits but these should be matched by guarantees of real work."

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