The Centre for Social Justice have published a report in association with Oliver Wyman on how to reform the benefits and tax credits system, with the aim of reducing the number of families where no one is in work. The proposals are wide-ranging, and cover both how benefits and tax credits should vary as people move into work and increase their earnings, and the overall structure of the benefits system. I provided advice on how to model the impact of the reforms, but was not involved in producing the report's policy recommendations; some of the Centre for Social Justice's recommendations are, though, similar in spirit to those I and colleagues made last year in a study commissioned by the Mirrlees Review of the British tax system.

The most important recommendation of the Centre for Social Justice is that benefits should be withdrawn more slowly as people move into work, in order to encourage more people to work, particularly in low earnings or part-time jobs. The main beneficiaries would be people in work, or who want to work, but are not currently entitled to the working tax credit: these are adults under 25, or those without children who work part-time, or those with children working in so-called mini-jobs.

There would also be a stronger incentive to work for those receiving Housing Benefit. One drawback to the reform is that high marginal tax rates would apply over a longer range of earnings. This is an inescapable trade-off: if benefits are to withdrawn more slowly when someone moves into work, then they have to be withdrawn over a longer range of earnings. Another implication is that second earners in couples will have less incentive to work: this is because the reform continues the UK's high reliance on benefits assessed against joint family income. To save money, the report recommends withdrawing the family element of the child tax credit, and all of disability living allowance, once all other benefits have been withdrawn, and this would lead to some better-off families losing out.

The report also recommends merging all existing benefits into just two, and combining these with the existing tax credits. (The levels of benefit for those out of work would remain unchanged - calculated as they are today based on household need.) This would reduce the work disincentives and administrative problems that can occur when benefits and tax credits overlap, and should increase transparency, reduce administration costs and fraud, and cut the burdens imposed on benefit recipients. It also suggests that employers could be involved in withdrawing benefits from families, as an alternative to individuals repeatedly giving the government details of their earnings. Proposals to simplify and merge benefits and tax credits always look appealing in principle, and were part of my own recommendations to the Mirrlees review, but can often lead to some people losing out: sometimes, complexity in the benefit system exists because the government is trying to achieve complicated things.

The many things achieved by this reform package come at a price. The report itself presents a set of proposals with different costs and results. For the preferred option, there would be an immediate cost of 3.7 billion a year, which the report argues will fall to 2.7 billion a year, as more people move into work, and will fall further if savings can be made on administration costs and fraud in the benefits system, and even on spending on crime and health.

These savings may occur, but presumably not in the short-run, and in any case should not be relied upon. It is clear, then, that this reform is not intended as a way to solve the current crisis in the public finances; instead, it is an attempt to design a benefit system that will lead to higher employment.