Welfare to work: the gamble that has to pay off

The row about the cut in benefits for lone parents is serious. It goes right to the heart of the Government's priorities. Until now, welfare to work has been something everyone could support: it has been all up-side with no pain for anyone. It has been all extra money to help people back to work with no cuts or sacrifices.

But the crunch has come over lone parents. Should the Government spend pounds 400m restoring the cut the Tories made for all new claimants, or should the money be spent instead on a New Deal programme to get lone parents back to work, plus a huge expansion in after-school clubs to make that possible?

Both, say Labour's backbench rebels - most of whom think the Government was wrong to opt for extreme pain in the first two years in power, with more spending only in later years. On one issue or another, this was bound to come to a head.

However, this was not a very hard choice for the Chancellor, for he is plainly not averse to sending out American-style signals that a life on welfare is no longer an option. It is becoming increasingly clear that he and Harriet Harman intend to get almost every able-bodied person now living on social security into a job of some kind. They wouldn't have chosen to pick on lone parents benefits, but if it was a choice between that and more childcare, it was an easy decision. As it is, it looks as if the New Deal is such a success there's a danger that its evaluation system will be wrecked: in the control areas where there is no New Deal, lone parents have heard of it and are demanding help in getting jobs, upsetting the statistical calculations of its effects.

The Chancellor is gambling everything on welfare to work. This is just the first hard choice in his mission to save self-perpetuating workless ghettos - the Government's most important and admirable endeavour. Critics dislike its moral overtones, uneasy with the idea that any work is morally improving: who are we in good jobs to tell others that sweeping floors is good for them? But Brown's people riposte with the ever stronger conviction that this is just middle-class squeamishness: almost all those without work do choose to take a job once the obstacles are removed.

I happen to think they are wrong about cutting lone parent benefits, but not because all benefit cuts are wrong. Having seen something of the US welfare-to-work system in Wisconsin, some cuts can be the right thing to do. But the Government is wrong this time, because it may perversely drive against getting lone parents into jobs. Lone parent benefit is paid to single parents in work, encouraging them to get a job; cutting that is no incentive.

I still think childcare is far more important. But the Chancellor's obsession with changing Family Credit into a tax credit is a mistake and a huge distraction from the main task of welfare reform. There is only so much political time and energy for change, so why squander it on something that will make no difference to work incentives?

Family Credit, the benefit that tops up low pay to make sure it's always worth working, is so efficient it won a Charter Mark recently. Cynics say that the only reason Brown wants to remove Family Credit from social security and pay it instead into pay packets through the tax system is a vulgar ruse to lower the total social security bill: several billions would be hidden away in the nether regions of the Inland Revenue. Family Credit would just be rebadged: recipients of the new tax credit will fill out the same forms and be paid the same sums, but it will arrive via their employers instead of in a giro.

A dozen serious technical problems arise, though this week Brown's first aid team has been scurrying about putting sticking-plasters over the problems to show that it can be done. And it probably can, though small employers won't like it and will need to be bribed. But no, it will not need wholesale joint taxation of couples, and no, workers will not need to reveal intimate family details to their bosses.

Strongest objections will come from 300,000 mothers, the partners of low-paid fathers, who collect Family Credit in a social security giro: they'll lose it when it's paid into the breadwinner's pay packet instead. Though as it is, when men move off Family Credit, on average after a year, the women lose it anyway. The best quid pro quo, to show the difference between a reward for work paid to the breadwinner, and benefits for workless families, would be to ensure that in all families on social security the mother collected most of the family money and the father only collected his own small personal allowance. Now that would be a work incentive for men and a transfer of money back to women in response to Diane Coyle's survey in today's Independent. Also, if the Government did double child benefit for all and tax it back from the rich, which might involve a measure of joint taxation for couples, that too would redress the balance.

Despite the rhetoric, Brown's tax credit will do nothing to ease the awkward tapers out of benefit and into work. Tapers can currently be fixed at any level. So why all the fuss? Sheer conviction. Brown believes it will have profound psychological effects on the unemployed. It's hard to find anyone who agrees.

But the most extraordinary statistic revealed in the fuss about the tax credit last week is this: Brown expects an astonishing tripling of the numbers of parents moving off social security and into low-paid work - a tripling of the Family Credit bill to pounds 6bn. That means he expects just about every able-bodied parent now on social security will get a job. If Labour achieved that, their triumph would be so remarkable that everything else would be an irrelevant quibble.

After all, current welfare-to-work plans only involve some 120,000 young people who are mainly not parents, so will not claim Family Credit. So he must be planning for virtually every lone parent to work, plus many of those now listed as sick but who may be simply dispirited. He must be planning for most wives of unemployed men to go out to work. Can it be done? Perhaps only if the Chancellor has indeed brought about the miraculous end of economic history, no more stop-go. But only last week the Governor of the Bank of England said he expected an employment downturn next year. Either the Chancellor or the Governor is wrong.

The Government pins its hopes on micro, personal policies - calling in every non-worker to show them how a job plus Family Credit will make them on average pounds 50 a week better off. Almost any scheme that calls in the unemployed and helps them overcome personal obstacles yields rich results - and the new after-school clubs will help hugely. The question is, if the economy falters, can this micro-management buck the macro-economic trend? Now that (pace the article adjacent) would be a miracle indeed.