Delaying rollout of Universal Credit is a sensible step – but fundamental reforms are still needed

Published on Tax and Welfare

Today we learnt that the government is preparing a package of measures for Universal Credit (UC) ahead of the upcoming Budget – but what are they changing and what difference might it make?

The first thing to understand is that these changes aren’t about the fundamentals of either the generosity or operation of Universal Credit – they are instead about how exactly the difficult next stage of the new benefits roll-out actually happens. This next stage – the so-called ‘managed migration’ process that moves roughly 2 million families currently claiming old benefits like tax credits onto the new system – was due to get going in 2019 but required a parliamentary vote this Autumn to proceed. The difficulty of winning that vote in the near future, not least given wider Brexit politics, without some element of reform looked very difficult – which is where the new package of measures comes in.

We’re told that the DWP is proposing a number of tweaks:

  • A nine months delay before the managed migration begins in earnest, putting its full start back until 2020. This will aim to take the heat out of the issue and may allow the government to delay the difficult vote until after Brexit;
  • a two week ‘run-on’ of some existing benefits after someone being migrated across to the new system first makes a UC claim, to reduce the risk of people having gaps in support between the two systems;
  • a reduction in the maximum amount that can be claimed back from recipients each month to pay off any advances they take when first claiming UC (these advances are how families cope with the fact that they only receive their first UC payment five weeks after making a claim)
  • A longer period (12 months) before self-employed claimants moved over become subject to the minimum income floor (a monthly cap on entitlement for people with low self-employed earnings in a given month).

Much of this chimes with recommendations we’ve made in recent months, and marks a sensible approach. Pausing a little before actively moving families across to UC will provide time to better ensure that the IT system is fit for purpose and that more people are being paid on time and in full when they first claim. That means both preparing for the new cases coming through the managed migration process and better getting to grips with the problems already besetting some of those families flowing onto the system through natural change.

Running on a fortnight’s worth of payment for current out-of-work claimants – the long-term sick and disabled, parents with young children and the longer-term unemployed – will provide important short-term support to cover the transitionary period. These families, particularly the around 750,000 ESA claimants who will be moved across to UC, are among the most vulnerable in the system. For many the run-on will be worth at least £146 and adds to the existing Housing Benefit run-on that will cover rent over the same period.

Importantly it also reduces the need for families to take out an advance that is then clawed back from future payments (though potentially at a slower rate under the leaked proposals). However the fact that the run-ons will not apply to child tax credits means the likes of single parents, who are already set to be the biggest losers from the move to UC, will not see the majority of their benefit income protected in this way.

More fundamentally, the run-on proposal is a signal that government is rightly prepared to shoulder some of the financial risk associated with the migration, rather than letting all of that risk rest with the claimants themselves.

So reform is welcome. But the measures as reported fall well short of the root and branch review of the system that is required to tackle the underlying flaws in its design that are causing so many issues in the first place. The leaked proposal to give a 12-month grace period to self-employed families moving onto the system in respect to the minimum income floor (MIF), rather than the previously mooted six-months, is a prime example of this.

The proposal is useful in as far as it goes, but the issue here is not really how long a person has to prepare for the MIF to be applied but rather the design of the MIF itself. Significant monthly variation in the incomes of many self-employed people leaves them exposed to the risk of losing out on UC entitlement relative to employees who earn precisely the same amount over the course of a year. Better then for the Government to investigate the possibility of applying the MIF on annual basis and allowing self-employed people to report their earnings less frequently (as currently happens under tax credits). Without a more fundamental reconsideration of the policy we can expect similar problems to arise with how families have to claim support with childcare costs.

Remember too that these changes are about the process by which a minority of cases will move onto UC through the managed migration process; those cases, if they have a change of circumstances, and all others will still be affected by the £3 billion of work allowance cuts that were set out by George Osborne in 2015. There will be a mix of winners and losers from UC’s roll-out – but the cuts mean more households (3.2 million) are set to lose out relative to the existing system than do better. Lone parents are particularly badly affected.

So while the changes that have been leaked are welcome, and make political sense, the upcoming Budget provides an opportunity to show that an ‘end to austerity’ is truly on the horizon for lower income families. Partly that’s about making sure the way the UC system works fits with people’s day-to-day lives. But it also means re-investing in UC so that it provides at least the same level of support for working families as the existing tax credit system. A focus on second earners and single parents would help to both mitigate some of the greatest financial losses in the scheme and secure the boost to the financial incentives UC was designed to create but no longer delivers.

Anything less is likely to only delay the same political battle for another day, while leaving millions of families worse off than they would have been in the current system.