Cameron raises fears benefits cap will make North poorer

In a landmark speech, David Cameron yesterday floated a raft of possible changes to the welfare system as he attacked the “culture of entitlement” which he said sees some people living long-term on welfare with higher incomes than their neighbours who work.

Number 10 confirmed one idea being discussed is the introduction of local or regional benefits, with jobseekers and people with disabilities receiving payments linked to local wage levels.

Such a system would slash Yorkshire’s welfare bill, but raise concerns about the hundreds of millions of pounds that would inevitably be lost from the local economy.

A Downing Street spokesman said: “We are looking at whether public sector pay should be more responsive to local pay rates and that is something we should look at for benefits too.

“Clearly, wage rates vary around the country, and what someone receives in benefits compared to what they could potentially get by going into a job has an impact on the incentives they face.

“That is the logic for looking at this question.”

Mr Cameron was due to set out the idea in his speech yesterday, but the words were removed at the last minute.

Nonetheless, Employment Minister Chris Grayling said it was correct for the Government to be considering the new policy – pointing out it was Labour who had first suggested a regionally-set benefit cap earlier this year.

“It was the Labour Party that began the argument about regionalisation of benefits,” he said. “It is entirely sensible the Prime Minister should take up that challenge and we should have a proper national debate about whether this is the right approach.”

The plan for regional benefits echoes the Treasury’s controversial proposal to introduce local rates of pay into the public sector for the first time.

That scheme has been widely criticised by MPs in lower-wage areas, amid fears it would drain money away from poorer areas and into the wealthier South East.

Hull North MP Diana Johnson, Labour’s Shadow Home Office Minister, said regional benefits would have a similar impact.

“We have a national social security system to which tax-payers contribute from all over the country – not a localised scheme,” she said. “As with the Coalition drive for lower pay in the North for the same jobs, a regional benefits policy would also take money, and therefore more jobs, out of our local economy.

“There seems to be a recurring theme from this Government of hostility and a lack of understanding for people, especially the least well-off, in the North.”

The Welsh Government said it would also resist any move for regional benefits.

A spokesman said: “Wales will be hit disproportionately by the welfare reforms already proposed by the UK Government. Any attempt to introduce regional benefits will just make matters worse.”

Mr Cameron outlined a series of other radical ideas in his speech yesterday, making clear they have not been agreed with Coalition partners and so do not yet represent Government policy.

Suggestions floated by the Prime Minister included breaking the link between payments and inflation, withdrawing housing benefit from under-25s, removing the right for high-earners to keep their council homes, a reduction in the £20,000-a-year cap on housing support and limits on benefits for families with three or more children.

New requirements could be introduced for claimants to learn to read and write, to draw up a CV and to take action to improve their health to get benefits.

Mr Cameron said that the system for working-age benefits had created “a mess of perverse incentives, mind-numbing complexity and real unfairness”.

“We have in some ways created a welfare gap in this country between those living long-term in the welfare system and those outside it,” he said.

“Those within it grow up with a series of expectations – you can have a home of your own, the state will support you whatever decisions you make, you will always be able to take out no matter what you put in.

“This has sent out some incredibly damaging signals. That it pays not to work. That you are owed something for nothing.

“It gave us millions of working-age people sitting at home on benefits even before the recession hit. It created a culture of entitlement. And it has led to huge resentment amongst those who pay into the system, because they feel that what they’re having to work hard for, others are getting without having to put in the effort.”