The Government unveiled radical proposals to reform the UK's "antiquated" benefits system today, pledging the biggest overhaul in decades in a drive to simplify the structure and make work pay.

Work and Pensions Secretary Iain Duncan Smith gave a critical account of the complex welfare system, which he said had helped create ghettos of worklessness, often affecting generations of families.

The current arrangements amount to a "supertax" on some of the worst off in society, said the minister, adding that he feels a maths degree is needed to work out how to claim benefits. He set out a series of options aimed at ensuring that people would see the value of moving from benefit to work through simplifying the existing tax and benefits system.

Mr Duncan Smith said he wants to unify the disparate elements that form the benefits structure as well as rectifying the "illogical" position of benefits paying more than work.

Options included combining elements of the current income-related benefits and tax credit systems, bringing out-of-work and in-work support together in a single system, and supplementing monthly household earnings through credit payments reflecting circumstances such as children, housing and disability.

Mr Duncan Smith told a conference in east London that five million people are on out-of-work benefits, with a "staggering" 1.4 million on benefits for nine or more of the last 10 years, while the UK has one of the highest rates of workless households.
One in six children will grow up in a workless household, said the minister, adding that up to three generations of the same family are now growing up with no work in their lives.

"The benefits system has created pockets of worklessness, where idleness has become institutionalised. The welfare budget is spiralling out of control, up from £3 billion in 1996-97 to £87 billion in 2009-10, although the actual increase was £61 billion in the last 10 years.

"The key must be to break the cycle of dependency. We must make sure that work pays, even for the poorest."
Mr Duncan Smith said the benefits regime often provides little incentive to work, meaning that some people would be taxed on the first eight or nine hours of the first 10 hours they work, describing it as a "supertax."

There are 14 manuals dealing with benefit claims, and one adviser recently spent 45 minutes on a computer with a lone parent before discovering she would be better off working, he said. The system cost £3.5 billion to administer, while a further £5 billion was lost in fraud or errors, which are "staggering" amounts.

"We need nothing less than a complete rethink of the benefits system. A new regime to replace the current complicated system. We have a rare opportunity to reinvent our antiquated welfare system to reflect the nature of what people need."
Shadow work and pensions secretary Yvette Cooper described Mr Duncan Smith's announcement as "a sham to cover the fact that the Budget actually cut work incentives, cut jobs and cut help for people to return to work".

She added: "Labour's minimum wage and tax credits made many families thousands of pounds better off in work. We think it's good to go further, but the truth is that the Budget is heading in the opposite direction, cutting tax credits and increasing withdrawal rates.

"Major reform either costs billions or means taking money from those who need it most. Iain Duncan Smith needs to be honest and tell us which it is."