"We are strapped for money"

On Sunday 30 May Andrew Marr interviewed Work and Pensions Secretary Iain Duncan Smith MP.

Please note 'The Andrew Marr Show' must be credited if any part of this transcript is used.

Iain Duncan Smith, Work and Pensions Secretary

ANDREW MARR:

And so now to the man who has arguably the hardest job in the cabinet - reforming our huge welfare system which costs so much, but leaves so many British people poor and idle. Iain Duncan Smith was Tory Leader, but since then this committed Christian has thrown himself into what he regards as "a moral crusade to change welfare". The trouble is he needs billions of pounds upfront just at the time when the government's first priority is to cut. Good morning, Mr Duncan Smith.

IAIN DUNCAN SMITH:

Good morning, Andy.

ANDREW MARR:

And on that word 'cut', I suppose we should start with David Laws, who was the man charged with making so many of the cuts, has gone so quickly. Just 18 days in office there. First of all a reflection on him himself?

IAIN DUNCAN SMITH:

Well I didn't know him that well before the coalition began, but I must say since working with him over the last three weeks or so, my respect for him has grown enormously. I mean I like him personally - he's a thoroughly decent person - and also very effective. We had interesting discussions over the 6 billion budget cut.

ANDREW MARR:

I bet you did.

IAIN DUNCAN SMITH:

But we had good negotiations. He's very straight and very fair. And I think for him it's a personal tragedy - there's no question - and I am deeply sorry that he's had to go, really deeply sorry because I looked forwarding to working with him.

ANDREW MARR:

(over) You think he did have to go, do you?

IAIN DUNCAN SMITH:

I think on balance he's right. You know if you've got the toughest job in government - trying to find the savings - you can't be beset by personal problems. And of course, as you know obviously being in the media how the media work, they will be on this the whole time every time he opens his mouth. So, yeah, I think probably on balance it was the right decision to take. I hope he can clear this all up and that …

ANDREW MARR:

Do you think he could come back?

IAIN DUNCAN SMITH:

Yes, I do. I mean personally I have no questions at all that he has the talent to be back. And, as I say, I really grew to like him a lot. So it's a tragedy for him personally and all the other personal stuff too around him, I feel deeply sorry. I've been in the spotlight myself, as you know …

ANDREW MARR:

You know what it's like.

IAIN DUNCAN SMITH:

… and I know what it's like for him, so I wish him the very best and hope the media leaves him alone a bit now.

ANDREW MARR:

Let's turn to the big issue in front of you obviously, which is …

IAIN DUNCAN SMITH:

Yuh.

ANDREW MARR:

… the state of the welfare system: huge numbers of people - not just one generation, but two or three generations in parts of the country living on welfare. But if you want to reform it, you need to spend some money upfront to get people back into work, and the problem is whatever it costs - 3.7, 2.7 million … billion pounds a year have been talked about - that money's not there.

IAIN DUNCAN SMITH:

Well yes and no. I mean I think the key thing is first of all to understand what the problem is and then figure out how you're going to resolve it. And we've done a lot of work when I was at the Centre for Social Justice over the last few years, so we don't arrive …

ANDREW MARR:

(over) Talk us through it. What's the big picture?

IAIN DUNCAN SMITH:

Well, first of all, one of the big issues here is that the present benefit system has become an entrapment for two reasons first of all. When people want to go back to work now, because the government - previous government and all governments - are rightly trying to get their benefits back as soon as they go to work, the problem has been that the rate with which they're taken back, we've calculated they come into what we could an effective tax rate, so some of them will be paying 70, 80 or even in some cases 95% in the pound back to the Exchequer. Now nobody who is working full-time, who isn't on benefits would go to work for that. I certainly wouldn't and I guess you wouldn't either. I mean here we are arguing about someone paying 50% on their upper earnings. If these people paid 50%, they would be smiling. So the key thing is we have to understand the relationship. And up until now, the Treasury and everybody else has balked at the idea there's a relationship between you know how much money you earn in the first few years and whether you take work or not. We think now we can prove that it does have a relationship, and so getting that level down and therefore making work pay is the number one first beginning to this.

ANDREW MARR:

Can I ask a little bit more about that? First of all whether you think still that you could create a single sort of universal benefit for everybody and get rid of some of the complexities of the system? And, second, if you're going to taper it so that people are encouraged to work, aren't you going to have to pay people benefits as it were further up the income scale and what's that going to do to the sums?

IAIN DUNCAN SMITH:

Well no, I mean the way to look at it's like this. First of all the complexity is critical because we have you know anything up to thirty or fifty different benefits all being withdrawn at different rates. You'd need to be some sort of university mathematician to figure out, as you went back to work, actually how much money you'd retain. So getting that complexity down is important, but there are different ways of doing it. You know we did talk about creating one benefit in which all these things were categories into that benefit, but the key thing is not to get too caught up with that. It's to know that at a certain point when someone goes back to work that all of their benefits would be withdrawn at one fixed rate. In other words not thirty or forty different rates, but one rate which is clear and obvious to them; they can understand that.

ANDREW MARR:

So it will be a lot simpler?

IAIN DUNCAN SMITH:

Well we want to make that simpler. That's got to be the prize. And it's doable. I'm convinced of that. It's doable. The second aspect, on the money …

ANDREW MARR:

On the money.

IAIN DUNCAN SMITH:

… is that, yes, there is an issue here about how you taper these things, but of course what's much more important about this is to understand first of all how this relationship between the benefit that they earn and what they get taken away is all about. And the key here is to try and focus the money which you save in on the lower income groups. So, yes, this taper is an issue, but I don't think it's as expensive as people think because what we're doing at the moment is we're wasting huge sums of money through overpayments, through natural fraud and through the complexity and interplay between tax, benefits and the tax credit system.

ANDREW MARR:

And yet you are trying to do this at a time when the overwhelming economic logic of the coalition government you're part of is to cut and reduce the amount of money the government is spending. I've gone through all of this a bit …

IAIN DUNCAN SMITH:

Yuh.

ANDREW MARR:

… and looked at the numbers, and I just don't see how you're going to be able to do it unless you're quite tough on other parts of the benefit system. Can I put it to you that it is inevitable under your aegis, your regime, that things like child benefit for the better off are going to have to go?

IAIN DUNCAN SMITH:

Well we have no plans to do that, and that's an absolute fact of life. But what I …

ANDREW MARR:

Shouldn't you have plans to do it?

IAIN DUNCAN SMITH:

Well we will look at everything, we'll look at everything in the light of what we have to do. But I'm not going to make predictions, Andy - pleasurable as it would be - on this programme about where we will go on this. We don't have plans for that. But what I will say to you is of course on the one hand we have back to work programmes that we're going to be accelerating at the moment. We will do a lot of work with people. We'll bring in the private and the voluntary sector and target them on results. So we'll do all of that, and we believe that will put lots of people back into the area where they can take work. Having said that, of course, we will expect once we do that, that they need to make themselves available for work and that they must take that work when it's there - and David Cameron said this.

ANDREW MARR:

Is there going to be a stick alongside the carrot?

IAIN DUNCAN SMITH:

Well there is a stick in the sense that there is a sanction. There's always been a sanction with jobseeker's allowance, for example.

ANDREW MARR:

It hasn't worked.

IAIN DUNCAN SMITH:

Well it hasn't been used. And the reason is it's a deal. The deal is we'll do everything to get you back to work. Now you do your bit. And if you won't do that and if there are some recalcitrant people who won't do that, then I think taxpayers, the people listening to this programme, watching this programme, will recognise that then you say to people well if you're not going to play ball, I'm afraid you're going to have to see some of your benefit withdrawn. So we will impose that, but as part of the deal. It's we'll cooperate if you cooperate. And I think there'll be many people that will find that useful, but some who will find it less useful. So that'll be the key.

ANDREW MARR:

What about pensions because the coalition government, it's part of your remit as well, are going to increase the minimum pension age …

IAIN DUNCAN SMITH:

Yuh.

ANDREW MARR:

… but only by a year and not for quite a long time. Don't you have to look again at those numbers? Shouldn't people be working for longer than beyond the age of 66 given how healthy people are very often these days, and don't you need to make the savings on that earlier?

IAIN DUNCAN SMITH:

Well you're certainly right that half the whole of the benefit budget that I walk into is to do with pensions and pensions-related benefits, so anything you do on that will have a huge and disproportionate effect.

ANDREW MARR:

(over) 58% of your budget, I think.

IAIN DUNCAN SMITH:

It's staggering, yeah absolutely. But however the point is we are committed to raising the state pension age and we're reviewing that, and we will review the level and the speed with which that is done. That is part of the review. Steve Webb and I have agreed about that. But it's important for the public to understand something. The trouble is we're all living about 50% longer than we were at the end of the Second World War, and had we set the pension retirement age and had the same relationship with longevity, actually the retirement age back in the 1950s would have been 50 years old, not 65. So in other words, there's been a huge increase.

ANDREW MARR:

It should go up.

IAIN DUNCAN SMITH:

We have to get it up. Most people recognise that.

ANDREW MARR:

(over) And you're going to have to take some pretty radical decisions on this, aren't you?

IAIN DUNCAN SMITH:

We are.

ANDREW MARR:

I mean the numbers are not going to work unless you do.

IAIN DUNCAN SMITH:

Well I think most pensioners, most people who arrive at 65 - or 60 in the case of women - they actually want to go on working. 1.4 million pensioners actually work at the moment and more want to. So we're going to do something else too. We're going to get rid of the statutory retirement age. Some companies are allowed to say you have to retire. We're going to stop that because that's unfair. And we are going to make the basic state pension actually worth more through linking it to earnings or prices or 2.5%, whichever - it's a triple lock. But we are going to therefore change the arena of pensions and we're going to look to encourage saving in a way this government … I mean after all, look when I walk through the door, the one thing that is stark and staring at us is that the last government have almost completely destroyed the cult of saving and we've got to change that …

ANDREW MARR:

Ah!

IAIN DUNCAN SMITH:

… because that is critical.

ANDREW MARR:

Absolutely. And critically on that, what about this proposed capital gains tax rise to 40 or possibly even 50%? How can you sit there and say you want …

IAIN DUNCAN SMITH:

(over) You segued brilliantly into that. (laughs)

ANDREW MARR:

… you want people to save and you want people to save for the future …

IAIN DUNCAN SMITH:

Yuh.

ANDREW MARR:

… when you're going to tax a lot of people who have saved up a little nest egg of shares or whatever it is and then you're going to whack them for 40% or 50% tax?

IAIN DUNCAN SMITH:

Well, first of all, none of the levels have been decided. The Chancellor has been clear that he's listening to everything and he will make final decisions. He's also talked about major exemptions for all sorts of different groups because we don't want this to harm you know entrepreneurs, we don't want to harm families that are heading towards retirement who have actually saved and who need and have planned for that. All those sort of areas, the Chancellor has said that he will look at. But you know there is another issue. (Marr tries to interject) Well hang on a second. But, Andrew, we've talked about taking, raising the threshold up to £10,000, which will have a major beneficial effect to families all over Britain. So doing that, which is quite radical, has also got to be paid for. And with those exemptions … You know we have to be honest, there is no way of doing this without changes in the tax system and capital gains at 18% has led to a lot of tax avoidance because it's different from the levels at which people pay their income. So there is an issue here and I think my colleagues will understand that they need to listen carefully to what the Chancellor is saying before getting over-fussed about it.

ANDREW MARR:

Because there's been a lot of concern on the Conservative benches …

IAIN DUNCAN SMITH:

Absolutely, yeah.

ANDREW MARR:

… and so on. What has your advice been to the Chancellor on this?

IAIN DUNCAN SMITH:

Well obviously to listen to them. And you know George and I know each other very well and you know he's a Conservative to his boots. He doesn't like the idea of raising tax. Nobody does. But we are strapped for money at the moment. We know this country is almost bankrupt and so he has to make some tough decisions. But he is listening and we are recognising that we do not wish to stop you know the entrepreneurial side of things. So it's for non-business, non-business capital gains.

ANDREW MARR:

(over) David Davis and John Redwood have a pretty good point on this, don't they?

IAIN DUNCAN SMITH:

Well of course they do. Everyone has a good point on taxation when you're debating whether it should rise or not. The reality is the easiest thing in the world for us would be to slash all the taxes, but we still have to find short-term money. So …

ANDREW MARR:

(over) Do you have a …

IAIN DUNCAN SMITH:

So these are big decisions to be made. And, as I say, you know George has discussed it with me and others and he's definitely looking for ways in which we can take the sting out of some of this.

ANDREW MARR:

Very interesting. Iain Duncan Smith, for now thank you very much indeed.

IAIN DUNCAN SMITH:

Pleasure.

INTERVIEW ENDS

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