What he actually said was:
"Given that some of those people with a learning disability clearly, by definition, can't be as productive in their work as somebody who hasn't got a disability of that nature, then it was inevitable that given that the employer was going to have to pay them both the same, they were going to take on the person who was going to be more productive, less of a risk, and that was doing those people a huge disservice."
From: Channel 4 News
As the EHRC quickly pointed out, this would "by definition" mean that Richard Branson is less productive than someone without dyslexia. Or Kiera Knightley, or Henry "The Fonz" Winkler, or Ben Elton, or Eddie Izzard, or Steve Jobs… Of course, dyslexia isn't the only learning difficulty out there; what about dyspraxic Daniel "Harry Potter" Radcliffe? Was he less productive than the rest of the cast in those films? I have a specific learning difficulty, I have auditory processing disorder (yes, really, in addition to my mobility impairment and my chronic health problems. I really am spectacularly unlucky). Does that mean that when I was well enough to work that I was "by definition" less productive than my peers? Did I get halfway through a stand up set and then just give up and leave the stage? No. Did I write half an article and submit that? Of course not. In my rent-paying day job did I get less photocopying done than non-disabled person would? I wish, I could've done with less monotony. And as for the risk of employing learning disabled people, it's an oft quoted fact that there is evidence to suggest that learning disabled employees take less time off work their non-disabled counterparts (like here).
This morning's discussion was about the minimum wage rather than welfare reform, but you can quite obviously see what inspired Davies's chain of thought. It's been painted in the minds of every person in the country that all disabled people are both capable of working and not working currently. You hear of visibly disabled people who don't claim any benefits being called "scrounger" in the street, and Davies was obviously making a similar assumption here; that we must all be benefit scroungers who are capable of some form of work and need to be gotten off of benefits whatever the cost, ignoring the fact that 48% of disabled people are already in work.
Of course, making disabled people work for pence will hardly be an effective tactic for getting people off benefits. Housing benefit, income support, and working tax credits are all available to people on low incomes. The less disabled people earn, the more benefits they need to receive. So if this government really wants disabled people off benefits and into jobs then making us work for a pittance is a ridiculous idea as it means our income will still be coming from the DWP rather than from our employers.
This has been the news story du jour, so there's been hundreds of blog posts and articles about it. The best two I have read are by Richard Exell and Latentexistence.