Iain Duncan Smith, the UK's welfare minister, proposes reform measures today that could – just possibly – create the sort of welfare system we want. He has spent a decade in opposition studying the problems of unemployment, incapacity, and disadvantage, and has developed some no- nonsense solutions that might be politically difficult, but which could be effective.

He is helped, of course, by the plan, spearheaded by coalition
partners the Liberal Democrats, to raise the tax threshold markedly, so as to take the poorest people, on £10,000 or less, out of tax entirely. As he says, at the moment, it is not worth people leaving benefits to take a job for less than £15,000 because the combination of the tax they pay and the benefits they lose means they face an effective marginal tax rate of 70%, 80% – even 90%. Even the richest bankers only pay 50%.

That is why we have 5 million people of working age on benefits, and why, in a country with rising longevity and health standards, 2.5m people – and rising – remain on incapacity benefit. Can they all, really, be completely unable to work? Or can we help some of them back to work?

Past efforts to move people from welfare to work – like outgoing Prime Minister Gordon Brown's "New Deal" – have not succeeded, even with stricter and stricter rules, for two reasons. First, the incentives have been stacked against people moving from benefits into low-paid work. Ask the low-paid staff of any cafe or pub in Britain how long they work, and they will say sixteen hours – because if they work more than that they start losing benefits. So employers have to take on twice as many people to fill the shifts, with twice as much headache- inducing paperwork.

Second, the state welfare system treats people on benefits as case numbers on a spreadsheet, rather than individuals. Many people on incapacity benefit, for example, could do some work at home, if it could be organised for them. Yes, they might have good and bad days, but it needs the personal touch of a private or voluntary agency who understands this. That is why IDS is keen to involve more such groups in the actual delivery of unemployment and incapacity benefits.

His other initiatives – making sure people are assessed immediately so that their health problems get fixed rather than getting worse – loans for unemployed people to set up new businesses or work clubs to help themselves or others, a sliding scale of sanctions to prompt people back to work, and simplifying the system by slimming down the number of benefits (from 51 to, ideally, just one long-term and one short- term benefit) – are all useful measures. But getting the incentives right, and making sure those who do remain on benefit are dealt with as people and not as case numbers, are what will really make the difference.