Purnell's plan is a welcome step in the right direction but will Gordon Brown sabotage it?

By Edward Heathcoat-amory
Updated: 11:45 EST, 10 December 2008

So, after eleven years of Labour Government, have they finally begun to think the unthinkable - is this a new dawn for Britain's welfare state?

Today, James Purnell, the young, clever and Blairite Work and Pensions Secretary, launches his plan to get Britain's nearly 8 million economically inactive working age adults back into the jobs market.

Work and Pensions Secretary James Purnell wants unemployed parents to look for jobs once their youngest child reaches seven

There is only one certainty. After eleven years of Labour ducking the issue of welfare reform, change is now long past overdue.

We still have 2.6 million Britons on incapacity benefit, when only around a million of them are actually incapable of work. We still have a welfare system that makes it far too easy to idle your life away on a sink estate, leading to the kind of culture that produced the Baby P disaster and the Shannon Matthews scandal. We still penalise couples that choose to live together by on average over £7,000  a year before housing costs.

But perhaps even worse than all these disasters is that we have squandered what may yet prove to be the last best chance of fundamentally reforming our welfare state, as the world economy boomed and tax revenues rose.

Around the globe, countries have taken advantage of this to cut their welfare bills massively, as there were plenty of jobs to go round, and the government had the cash to pay the high up-front costs of getting the long term unemployed back into the jobs market.

In Britain, by contrast, we continued with the handouts. As a result, we achieved the astonishing result of welfare spending rising as unemployment fell.

The number of Britons receiving a handout from the taxpayer has risen by over half a million under Gordon Brown to nearly seven million, despite the healthy economy. Our welfare bill is now £80 billion a year and rising rapidly.

Putting all this right in a recession is going to be a lot harder. There will be fewer jobs to go round and less chance of someone who hasn't been working for many years getting one of them.

Mr Purnell's proposals, if carried through, are a step in the right direction. Instead of the pathetic current reform of incapacity benefit, that applies only to new 'customers', all current recipients of incapacity benefit are to undergo another test -  over the next five years -  to see whether they are still eligible.

This could be a wonderful chance to put most of them back into the jobs market, but it would require real government willpower to make the test tough enough, and it's hard to see this happening while Gordon Brown, who has persistently opposed effective benefit reforms, is Prime Minister.

It's a similar story with lone parents. Yes, a determined effort to get them back into the jobs market is welcome, but consider the Institute for Fiscal Studies analysis of last month's Pre-Budget report.

Some of the biggest winners were unemployed lone parents, who will be £2,492 better off. So while Mr Purnell may say he's cracking down, the Chancellor and the Prime Minister are moving in the other direction by massively increasing handouts to these groups. It hardly amounts to joined up thinking.

The same goes for their plans for jobseekers allowance. Obviously, it will be welcome if some of the scroungers currently milking the system are effectively forced back into  the jobs market. Making them accept suitable jobs or lose their money would be a major step in the right direction, as would proper retraining programmes for the long term unemployed.

But this will again require political willpower. It also has to be administered by the hopeless system of Jobcentres, which told one former journalist looking for work recently that he should apply for a role as a Polish translator. There was only one problem. He didn't speak any Polish.

But it is a start. And even better, the involvement of the private sector in getting those who have been unemployed for more than a year back into work is a very positive step.

This worked in America, where private companies were given incentives to get such people jobs, and have proved adept at doing so.

But that success, of course, has taken place against the background of steady economic growth. Ministers may find the private sector less keen to take on such a challenge in the current gloomy climate.

The real reason for the success of the system in the United States will not be replicated in Britain. In the 1980s, the American state of Wisconsin pioneered a welfare reform which contracted the entire management of the system out to the private sector. Even more significantly benefit recipients had to work for the state to get cash.

If they didn't get a job, eventually the state cut them off completely.

So successful was this programme that Bill Clinton rolled it out across the entire United States, and since then the number of Americans in receipt of welfare has fallen by an amazing 57 per cent.

While there is of course neither the national appetite nor the political will for anything so radical here, it is unlikely that there will be real falls in the number of benefit recipients unless we cut benefit rates.

Only if there is a far larger financial incentive to find work,  only when life on benefits is so tough that the inhabitants of our worst estates are forced off their sofas and into a job because by doing so they will be significantly better off, will anything really change in Britain.

At the moment, our welfare state is so pervasive, our handouts so generous, that over 3.2 million Britons have marginal tax rates of over 90 per cent. For every pound they make, the state takes 90 pence.

That is the reality for poorer people in Britain today. For over three million of them, thanks to the way our tax and benefit system works, they might as well live off the taxpayer, since the state will take back nearly all the extra money they make by going out to work.

Mr Purnell is making a start today, and it's better than the nothing which we've had for the past decade.

But unless he goes far, far further than this tentative beginning, today's welfare reforms are going to be another disappointing damp squib.