The UK welfare system is not helping enough people into work and has significantly rising costs, and no one should think the government is backing away from reforming it, the work and pensions secretary has said.
Pat McFadden made the comments as the government published its new child poverty strategy on Friday.
He said the aim of the strategy was to improve young lives for the long term and that those lifted out of hardship are likely to have improved prospects for employment in the future.
“This is about more than the distribution of money. It’s an investment in the future of the children who are affected by poverty,” he said.
McFadden added that further changes to the welfare system to encourage work were important for improving children’s lives, arguing that getting people into jobs will make families better off and save money on the benefits bill.
The flagship policy in the strategy is the government’s pledge to end the two-child limit on universal credit, at a cost of £3bn to the Treasury. The move is expected to lift 450,000 children out of poverty by 2031.
Other measures in the package include helping parents choose cheaper baby formula, getting families out of temporary accommodation faster, establishing breakfast clubs and extending free school lunches.
Labour MPs are delighted with the move to scrap the two-child limit, and won a victory in July when they forced ministers to abandon plans to cut disability benefits.
However, McFadden said it would be a “mistake” for anyone to think the government was not aiming for further changes to the welfare system.
“I think because of what happened in July, there’s been a conclusion that no reform is happening. That’s a mistake. Reform is happening. But I think we will need more in the future, too,” he told the Guardian as he toured a Little Village baby bank in north London that has supported more than 11,000 families with the cost of living.
In a sign he will pursue further significant changes, McFadden said: “I don’t think the right thing to do with the welfare system is just to circle the wagons around a system that is not delivering as well as it should and has such significantly rising costs.
“We should see this system as not just about the distribution of benefits but ask ourselves: does it do everything it can to help people into work? I don’t think it does right now, and so there is a case for further reform to the system and there’s also reform happening [now].”
The chancellor, Rachel Reeves, has also said the benefits bill cannot “remain untouched”. Two reviews are under way: the Timms review looking at the disability benefits system, and another headed by Alan Milburn, examining youth inactivity.
Asked whether he was planning to cut people’s payments or reduce eligibility for benefits, McFadden said: “I can’t say yet and I don’t want to start ruling things in or ruling things out.
“What it will involve is us asking the question: how do we deal with rising inactivity among the young and what can we offer to enhance people’s opportunity and the chance to get into work right across different government departments?”
He said it was wrong to look at taking out costs from the welfare system without considering how changes would help people back into work – improving their finances and prospects as well as generating tax revenue for the Treasury.
“If a young person gets on to benefits and stays on them, they will lose out about a million pounds in earnings over the course of their life and it will cost the state about a million pounds too,” he said.
“Rather than approaching this the way that it has [been] done in the past, where people say: ‘I’m going to take a figure of X billion, and then retrofit a policy on to that,’ think about that million pounds.
“Every person we can get into work and not have them on benefits for years is earning and paying tax. That does save money on the benefits bill and I think that’s a good thing if that’s the way that we save money on the benefits.”
McFadden also firmly rejected the Conservative’s claim that last month’s budget would help those on benefits more than those in work. He said the two-child limit brought in by the Conservative government in 2017 was “never really about saving money on the benefits bill”.
“It has always been seen in part as a political dividing line with children used as the weapon of choice,” he added. “I think setting this up as some sort of division between the working and the non-working is just factually wrong.”
