The proposals came in the government's welfare bill published on Thursday and were hailed by David Cameron as "tough, radical ... but fair".
His remarks came as ministers published a raft of figures alongside the bill, for the first time showing the full impact of the introduction of universal credit and other welfare cutbacks announced by ministers. The figures show 1.7m households will lose out from the universal credit reforms.
Nearly 75% of these will suffer reductions of less than £25 per week, but 100,000 households will lose more than £75 a week. The biggest losers, the Department of Work and Pensions (DWP) said, are likely to be single people without children, those working more than 30 hours, those not in receipt of housing benefit, and households with savings of more than £16,000.
Ministers have insisted there will be no losers, but this only holds true at the point of transition onto the new scheme due to a special fund set up to temporarily compensate those whose benefits are due to be cut. A total of 100,000 claimants – those in the poorest 40% – are expected to gain by at least £4,000 a year. A further 1m households will see an increase in income of at least £25 a week. Improved entitlements and take-up should mean 300,000 children are taken out of poverty.
The new universal credit, largely constructed by the work and pensions secretary Iain Duncan Smith while in opposition, is a single benefit for working-age adults. It unifies the current myriad system of means-tested out-of-work benefits, tax credits and support for housing. All three parties have backed the principle of the reforms, but the shadow work and pensions secretary Liam Byrne expressed misgivings about the lack of funding and the difficulty of introducing the change at a time of high unemployment.
Cameron claimed that perverse incentives and complexities within the existing system had "insidiously drained hope away from swathes of our society", and actively encouraged people to behave in ways which were irresponsible. The universal credit will be introduced at a net annual cost of £2.6bn from October 2013 with all claimants on the scheme by 2017.
The DWP assessment, published alongside the bill, also suggests the government intends to save £2bn from cutting back on fraud and administrative error.
In cases of suspected fraud, ministers will introduce a new minimum penalty of £350, or 50% of the amount overpaid, whichever is greater, up to a maximum of £2,000.
To encourage personal responsibility a new civil penalty of £50 will be payable for anyone negligent in maintaining their benefit claim. Cautions will no longer be part of the DWP sanctions policy.
But the system will see increased take-up costing an extra £2bn annually and another £2.7bn because of higher extra entitlements. These figures exclude other savings to the welfare budget. The details also suggest ministers have still to resolve some key issues including how credit is to be paid and whether to include child tax credit and council tax benefit. It has been decided to exclude carers allowance.
Plans to cut housing benefit by 10% for those unemployed for more than a year have been dropped. The DWP also estimates that a cap on housing benefit for workless households will see 50,000 households have their benefits reduced, losing on average around £93 per week and leading to evictions.
Before the introduction of universal credit, the sanctions regime will be tightened.
In a disturbing assessment, the Association of Learning Providers (ALP), the body that represents work providers, also warned that the plans to pay work providers by results "is fraught with risks which may impact significantly on the number of unemployed people who can benefit from it".
The ALP warns the funding for the scheme is too tight, alongside very high performance expectation that equate to the highest levels ever achieved under the Labour government's New Deal, a work programme delivered at a time of much lower unemployment.
Graham Hoyle, the ALP chief executive, warned the whole programme's operation is in danger.
The Social Market Foundation, a thinktank, criticsed the attack on savers estimating that there are around 400,000 families with children who have savings above £16,000 currently receive tax credits.
New claimants will be denied payments if their savings exceed the £16,000 limit.
Ian Mulheirn, Director of the SMF said the rules will "send all the wrong signals" to families on benefits about the need to save and be prudent.
Cameron said the decision to dump the proposal for a 10% housing benefit cut after 12 months showed that the government was listening.
He said: "This was a proposal made before the statement and development of the universal credit."
However other cuts in housing benefit support remain. Cameron described the reforms as "tough, radical... but fair".
Cameron said: "I know this country and therefore refuse to believe that there are 5 million people who are inherently lazy and have no interest in bettering themselves and their families. "Making low-income working families thousands of pounds worse off through welfare cuts over the next two years to claim that they will be slightly better off in 2013 is an absurd argument that will ring hollow as families suffer the toughest income squeeze for nearly a century."
Source: The Guardian