Don’t ditch Universal Credit, fix it
Were it not for Brexit, the furore over the roll-out of Universal Credit would surely be dominating the headlines on a daily basis. The planned changes will eventually determine the benefits received by around 7 million households, including many of the most vulnerable in society, and affect more than £60 billion a year in public spending.
In summary, Universal Credit (UC) is the single payment to people of working age that is intended to replace six existing means-tested benefits and tax credits, namely: Child Tax Credit, Housing Benefit, Income Support, Jobseeker’s Allowance, the Employment and Support Allowance, and Working Tax Credit. It aims “to simplify and streamline the benefits system, improve work incentives, tackle poverty among low income families, and reduce the scope for error and fraud”.
However, the implementation of UC has been plagued with problems and controversies, whether by accident (including mistakes in reassessment for the new benefit) or design (including inbuilt delays before the first payment is made, even though eligible households typically have few, if any, savings). It’s no coincidence that local foodbanks run by the Trussell Trust have reported a surge in demand whenever UC has been rolled out in their area.
Indeed, the roll-out schedule has already been pushed back several times. This has prompted some to suggest that UC should be scrapped altogether, or at least that there should be an extended pause for a fundamental rethink. Even many of those sympathetic to the principles of UC, such as Jonathan Portes, have argued it needs a lot more time and better planning. The House of Commons’ Public Accounts Committee was flagging up major problems with UC as early as 2013.
There are two further points made by critics of the reform, including Gordon Brown (the architect, of course, of the legacy system). The first is that replacing six benefits with just one payment may simply be too ambitious. The legacy system, with a wider range of benefits, might actually have the merit of greater flexibility, especially whenever family circumstances change.
The second argument focuses on the distributional impact of the switch to UC, which potentially creates a large number of losers, as well as a large number of winners. As Paul Johnson of the IFS has explained, many single parents, two-earner couples with children, low-earning self-employed, and those not in work but with savings, will be worse off under the new system. In contrast, many one-earner couples with children, and low earners in rented accommodation, will be better off.
In my view, however, it is surely right to rationalise the current maze of means-tested benefits, some administered by the Department for Work and Pensions (DWP) and some by HMRC, which have different eligibility criteria and are withdrawn at different rates as other incomes increase. This is a huge administrative challenge, but the problems now being revealed with UC at least demonstrate the advantages of piloting major changes before rolling them out to all.
The reform also provides the opportunity to reduce the risk that the withdrawal of benefits makes it unattractive to take a job. Andy Cook of the Center for Social Justice has argued (perhaps heroically) that UC has already made a significant contribution to the fall in unemployment and the rise in employment over the last few years.
I’d add that, even though real wages for employees are still around 2% lower than their 2008 peak, the increase in the number of people actually in work has contributed to broad-based increases in real disposable incomes (a much better guide to ‘living standards’). Most measures of income inequality (including the Gini coefficient and the Palma ratio) have also remained on a gradual downward trend.
Of course, it may be going too far to attribute much, if any, of this to UC, given the broader economic recovery over this period, and the fact that UC has still only been partially rolled out with a great many implementation problems. The DWP’s own long-term business case for UC is also more modest. Nonetheless, there is a broad consensus that having a job is generally the best route out of poverty, and reduces the dependency of individuals and families on the state.
Finally, the distributional arguments should not be decisive, either. Any major welfare reform, viewed in isolation, is likely to create losers as well as winners. In some cases, this may be a good thing, especially if it allows benefits to be redirected to those that need them more. In others, transitional payments can help smooth the adjustment. It might also be that the system needs to be made more generous at the lower end to strengthen the safety net for the most vulnerable, or that the taper rate at which benefits are withdrawn needs to be reduced further.
The details here are best left to specialists who know far more about this area than I do. But it seems to me that all these things can be done without ditching UC altogether, even if this means that reforms do take longer to deliver.