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Oakley MatthewMatthew Oakley is Head of Economics and Social Policy at Policy Exchange.  Follow Matthew on Twitter.

The debate around the government’s welfare reforms is set to rage all week.
Whatever the arguments for and against, one undisputable fact that is not used
enough is that we are currently paying close to £100 billion a year to working
age benefit claimants. Such a large number is hard to quantify. It is roughly
equivalent to half of the total public sector pay bill in the UK or the entire
New Zealand economy.

That
is a staggering amount of money. Just a 5% reduction would pay for a four
runway airport at Heathrow in two years or a number of other major capital
investment projects such as new schools and hospitals. The sheer scale of
expenditure and potential trade-offs warrants a close examination to assess
whether it is providing the outcomes we want or whether it might be better
spent on other areas.

One
thing to make clear from the start is that our benefit system provides a vital
and often uncelebrated role in helping those unable to work and supporting
families in times of need. It is an institution that, as a country, we should
celebrate and be proud of. But 50 years of tinkering and political game playing
meant that by 2010 it had become sprawling and unsustainable, paying out tax
credits to families earning in excess of £50,000 and transferring tens of
thousands of pounds to some families without effective assessment of
circumstance or need. As countless surveys have shown this has contributed to a
downward spiral in public support for the welfare state. Three in four people
now think that we spend too much on welfare.


This
is why, despite frenzied opposition from the welfare lobby, church leaders and
the Labour party, the government is right to be taking on welfare reform. To
re-build trust and support for the welfare state it must be made clear that transfers
are going to those most in need and that help is being given to claimants to
find and sustain themselves in work. The phrase “a hand-up not a hand-out” is
an old one, but it remains as true today as it did when Blair said it in 1999.

However,
those opposing welfare reform seem to miss this point. Ultimately, families
want to see their earnings rise and to support themselves, not rely on the
welfare state to make ends meet. An unsustainable and sprawling benefit system
paid for with government debt will never help them do this. Welfare reform is
vitally needed to create a system that works.

This
is not an argument to end the welfare state and talk of the end of welfare is
ridiculously overblown. Families across the UK will continue to receive support
for costs of living, housing, children, childcare, school meals, prescriptions
and a range of other things. Instead, we must realise that for the welfare
state to be sustainable and supported, we must ensure that work pays and that
help is targeted at those with the greatest needs.

This
involves making difficult decisions. Some families, brought up under an
expanding welfare system will see their benefits cut and this will undoubtedly
be hard for them. But we should also view this in the broader perspective. Many
families have been struggling with pay freezes and reduced working hours for
the last five years and each has had to make compromises and sacrifices.
 The benefit system has to reflect the realities of the economic situation
we are in.

It
also needs to reflect the fact that the labour market is changing. Employment,
particularly at the bottom end of the labour market, has become more fluid and
less permanent with greater competition from across the globe. Reforms to
welfare in the last decades have attempted to paper over the cracks: subsiding
low wages and supporting low skills while at the same time increasing out of
work benefit payments so that work was not seen to pay.

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