As much as the tabloids like to rant about benefits, there is a very real and important role for welfare in the coming years. Following a recession, the markets belong to the customers, and that includes the job market’s customers – employers. They can hire better people, on lower salaries, with fewer perks than in boom time. This means that the producers in the Market – the unemployed – are even more disadvantaged than before.

This is why the Coalition’s emergency budget has done two things wrong. First, they reduced everyone’s salary by 2.5% by increasing VAT. This makes it even harder for people on the breadline to balance their books, and reduces overall demand and economic activity. Secondly, they are going to reduce the deficit via massive welfare cuts the wrong way.

As IDS is apparently discovering, you can do two things to reduce the overall welfare bill in the medium term. You can toughen up the rules to make unemployment unbearably painful, and thereby causing Thatcher-style civil unrest and increase the incentives for crime (especially for those with children to feed). This is the wrong way.

The right way is to spend more money now; reduce the marginal tax on extra earnings by withdrawing benefits more slowly. This will allow people to keep more of their new income, increasing their spending power, and will also give them more power to accept the tough conditions in the economy at the moment. This, combined with well designed Welfare to Work support for the medium and long term unemployed (as Labour was trying to implement), is how you kill the recession in it’s tracks: VAT and income tax returns will increase, the welfare bill will go down by itself as people join the workforce or earn more, and you achieve what you set out to do; reduce dependency on state funds, the bill for it, and increase the well-being and health of a massive chunk of the population*.

An alternative way might be tougher benefit rules with another tax break, like reducing VAT instead of raising it, but that is less targeted at the unemployed and low earners than slower benefit withdrawal, and so would be more expensive overall.

In short, I hope we don’t end up going about this the wrong way, for the sake of the unemployed and low earners who rely on partial government support to feed their children, for the sake of the economy that will ultimately solve all these problems, and for the sake of the coalitions unity, which will not survive the sort of pain that would be in store if this goes wrong (especially for the Lib Dem MPs who share my sense of leftness.)

* yes, shocking as it is, the long term unemployed often move off JSA and on to incapacity benefit as a result of the drop in health that results from being unemployed for a year or more.