Five big calls on Universal Credit for the new Work and Pensions Secretary

Published on Tax and Welfare

A new year brings with it a new Work and Pensions Secretary, with Esther McVey the fourth incumbent since Iain Duncan Smith stepped down in January 2016. For a department in the midst of rolling-out Universal Credit (UC), a radical reform of social security, change at the top brings both opportunity and risk.

UC delivery is seemingly on track with completion due at some point in 2022. But as the number and profile of UC recipients grows and evolves, further complications are likely to arise that require a fresh approach to the reforms.

So far, IDS’s successors have failed to take advantage of the political space for reform from their appointment and grasp the opportunity to revitalise the scheme. That must change. We identify five big calls that the new Secretary of State will need to make. Get them right, and a successful work-inducing, poverty-reducing welfare reform is still in sight. Get them wrong and UC could go even further off course.

The first task is deciding whether to press go on the further expansion of UC in February. The temporary pause in the roll out has provided the department with time to assess the success of implementation so far. A few more weeks remain to decide whether the reforms announced in the Autumn Statement will iron out the problems enough to carry on next month.

The next imminent decision is determining who will get Free School Meals under Universal Credit (the DfE consultation closes tomorrow). So far all families are entitled – because very few working families with children are in the system. Rather than massively expand or severely curtail Free School Meals the government proposes a compromise. It will broadly maintain the status quo with an earnings threshold similar to the tax credit cut off point. But doing so creates an effective £11 a week loss of income when crossing the threshold, and it takes £30 of earnings to claw it back given the UC taper. In reality relatively few will find themselves faced with this cliff-edge. However, a core tenet of UC – that it will always pay to work more – has been sacrificed.

Third on the agenda is keeping an eye on the growing number of working families and with children moving onto UC. We heard a lot about the six-week wait in the run up to the Autumn Budget. This year we’re likely to hear more about the complicated process of claiming support with childcare costs and the unfair treatment of self-employed workers.

Self-employed workers are in line for one of the biggest benefit shake-ups: having to report their income on a monthly (rather than annual) basis and be subject to the punitive Minimum Income Floor (MIF). It’s right to prevent under-reporting of income and target support at struggling businesses, as the MIF aims to do. However, as currently structured it penalises those with variable earnings and treats the self-employed far more harshly than employees with the same annual income, saving £1.2bn in the process. The government should make UC more friendly towards White Van (or Black Cab) Man.

Fourth, less immediate but no less acute, is the need for the DWP to set out in legislation precisely how Transitional Protection – which upholds the government’s assurance that families actively moved onto UC will face no cash losses – will work. The precise circumstances that trigger a loss of protection – for example having a child, moving job or moving house – will be keenly scrutinised. This has the potential for a huge parliamentary row, especially without a majority. It’s a decision that has been put off so far, but it must be in place by summer 2019 when the ‘managed migration’ of existing tax credit cases begins.

Fifth, most importantly, and overshadowing the entire program is the disconnect between the original aims of UC and what it is now likely to achieve. The £3bn a year of cuts to support for working families is a big (bad) deal for living standards. But it’s more than that. The design of UC requires greater funding for it to function effectively and improve financial incentives to work. Two crucial issues to address are the impact on second earners, who may choose not to work at all, or single parents, who may find themselves trapped at low earnings. In short, a reformed UC must be more female-friendly.

These are huge calls for UC and the prospects of millions of low and middle income families. At a minimum a proactive approach is needed, tackling problems before they arise and easing the pain of implementation. But it will require bold, fast moving and far-reaching reform, crucially with investment from the Treasury, to really make UC the success it once promised to be.