Think-tank urges social security overhaul amid dire inequality predictions

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Help provided by the Government to families in need will be worse in 2020 than it was in 2010 and will slip even further unless action is taken to overhaul the UK's social security system, a think-tank warns today.

A new report by the Fabian Society suggests a "crisis of living standards" can be averted but only if the existing system of support is redesigned.

The report, backed by Shelter and Legal & General, calls for root and branch reform to take place in the 2020s.

It suggests social security for children and people of working age should be made more like the UK's pension system with the introduction of opt-out, match-funded savings accounts for all.

Andrew Harrop, general secretary of the Fabian Society said: "For six years of the Cameron government, 'austerity' dominated all discussion of benefit policies.

"But social security for non-pensioners will be worse in 2020 than it was in 2010 and will carry on getting worse in the decade that follows, unless action is taken.

"It is time to turn a page and start to consider the long-term future of social security, as part of a strategic agenda for raising British living standards."

The report suggests that by 2020 disposable incomes for households without work will have dropped by 10-20% compared to 2010, while upper-middle class income households will receive more from the state than low income households once tax allowances are taken into account.

It also warns that living standards for low income households will be barely higher in 2030 than they are now with current policies likely to result in an increase in child poverty and housing becoming unaffordable for low income private tenants in many areas.

There is also the potential for a situation to arise where pensioner couples will receive three times more from the state than out-of-work non-pensioner couples.

The report rejects the idea of a single solution, like the Government's universal credit initiative, instead outlining a tiered system that blends together universal, contributory and means-tested measures alongside private support.

On the issue of universal measures, it suggests there should be an "individual credit" for adults and a "child credit" for children - effectively a form of basic income.

Meanwhile, it advocates a contributory system where national insurance and employment-based benefits match the generosity of the state pension.

It also calls for a new system of post-19 education funding and for the creation of opt-out, match-funded savings accounts for all, based on auto-enrolled workplace pensions.

Debbie Abrahams, shadow work and pensions secretary, said: "The report rightly highlights that unless Government policy changes income inequality will increase in the 2020s, making child poverty even worse."

A Department for Work and Pensions spokesman said: "Our welfare reforms are supporting people from all backgrounds as we create a Britain that works for all.

"We have revolutionised and simplified the welfare system with Universal Credit - which is already transforming lives by supporting people to move into work faster.

"We have record employment with wages rising faster than inflation.

"By increasing the National Living Wage, taking millions of people out of paying any income tax and through our welfare reforms, we are ensuring it always pays to be in work."