Universal Credit: the honesty we owe and the changes we need

Published on Tax and Welfare

All is not well in the land of Universal Credit (UC). Cabinet ministers are angsting in private about the challenges of rolling out this government’s single biggest domestic policy reform. Two ex-Prime Ministers are worrying in public that the benefit risks becoming a new poll tax. And Labour has (rhetorically at least) promised to scrap it. The political heat reflects, and at times increases, real public concerns about delayed payments or increased food bank use.

So it’s clear that the status quo is neither desirable nor sustainable. While poll tax analogies are overdone, a benefit that will provide core state support to seven million families requires public support to have any hope of success. UC does not have that support today.

But the status quo being unsustainable tells us nothing on its own about where we go from here. To answer that question it’s worth understanding exactly what’s driving concerns. Crucially, this involves recognising that a lot of what gets thrown around in debates about UC is not directly related to the benefit itself. On this front some honesty from both UC’s supporters and opponents is badly needed if we’re to get to where we need to be – providing fit-for-purpose support to the poorest third of Britain’s families.

Just as detractors are wrong to claim that UC is responsible for increases in poverty to-date (although it may be in future), supporters should stop pretending UC has driven Britain’s record employment boom that began in 2013-14 when a grand total of 2,000 people were on it. Instead, they should focus on the real improvements the system can bring if it precipitates higher take-up, not least by easing the transition into (and out of) work. The Office for Budget Responsibility estimates that increased take-up could mean 700,000 families benefiting by an additional £2.9 billion a year. With this goal in mind, it’s clear that UC’s reputational challenges are of grade-one importance – you can’t drive up take-up with a system that people are anxious about.

To that end, it’s essential that problems with how UC operates in practice are addressed, particularly with the imminent ‘managed migration’ of existing benefit claimants. A stubbornly high fifth of new claims are still not being paid on time and in full, with little progress over the past 18 months. This highlights the need for clear and externally-set delivery standards before any further roll-out, something the Work and Pensions Committee Chair has also called for only today. An essential red line should be that the financial risk involved with people switching benefits must be borne by the government, not the individuals forced to move. Predictable future problems, such as with claiming childcare support, should also be addressed before rather than after they end up as negative headlines. Lastly, the design flaws in the system that lead to weak financial incentives for second earners and single parents to work, or to work more, need to be addressed. UC must be more female-friendly.

But critics of the scheme also need to be clearer about what is and isn’t UC, and therefore what they are actually proposing doing something about. Clear thinking on this will also tell you why it is inconceivable that any potential Labour Government elected in 2022 would actually scrap Universal Credit and return to the predecessor benefits.  Let’s focus on two issues – the cuts, and the challenges of change.

Beginning with the latter, here’s some honesty. Any attempt at major benefit change is a nightmare. Nothing makes hearts sink in government as much as the phrase ‘major IT project’. More important than bureaucratic change is the fact that benefit reforms inevitably involve changes for many of our most vulnerable citizens – it should never be engaged in lightly when it affects the pounds and pence that their living standards rely on. Yes, you can do better or worse at moving to a new system, but no shift on the scale of UC could ever have been delivered without significant difficulties – remember the early days of tax credits? While it’s fair to hold the government to account for policy implementation, anyone who supported UC in theory always knew it would involve difficulties in practice.

The fact that major benefit reform always involves trauma is why, while Labour’s calls for scrapping UC may be business as opposition politics normal today, come 2022 no incoming Labour administration would really scrap UC. By 2022, over 6 million families should be on the benefit – no-one is going to put them through the pain of another huge shift. If you think moving people from six benefits onto one is hard, imagine trying to force people on one benefit to apply again for six. It doesn’t bear thinking about. Reform, improve, rebrand – yes –but scrap in 2022? It’s not going to happen.

Then we come to the cuts. And the ‘S’ in cuts is crucial. Because we are currently in the middle of a simply huge reduction in the generosity of our working-age welfare system that goes far beyond UC.

Back in 2015, George Osborne announced £12 billion of welfare cuts. Of these, only a quarter are unique to UC, relating to the £3 billion reduction in the work allowances that allow people to earn more before their benefits are reduced.

The remaining cuts – including the freeze to all working-age benefits and reductions in support for families – are in train with or without UC. If what people are really opposed to is these cuts they should say so (we do), and be clear that their damage will not be prevented simply by scrapping UC.

This call for honesty doesn’t mean pretending that using UC as a vehicle for a less generous welfare state is a good idea – tax credits taught us that major welfare reform, even when you are putting money into the system, is difficult. Reforming while cutting is reckless, and doing so on the back of a catastrophic decade for low-to-middle income families’ living standards is plain wrong. The £3 billion work allowance cuts have tipped the balance to mean that there are far more losers (3.2 million families) than winners (2.2 million families) from the switch to UC, with single parents the most likely to lose out and facing the largest cash losses.

Where does all that leave us? In a messier world than the proponents or opponents of Universal Credit would have you believe. If you want to scrap UC, be clear that doing so will not solve all the problems in our social security system – from homelessness, to overly harsh sanctions, to huge cuts – and that if done in a few years will involve a painful reform process of its own. If you want to save UC, it’s time to recognise that its reputation is being trashed by cuts that working families can ill afford, and a system that fails to flex to the reality of people’s lives.

Once something has entered the public consciousness, politics often becomes a game of full-on attack versus all-out defence. It can be difficult for detailed plans such as those we believe UC now needs – covering everything from boosting work allowances to reducing reporting requirements related to self-employment and childcare costs – to cut through the noise. But when it comes to major welfare reform that is having a real effect on many of the country’s most vulnerable families, the right answer should trump the best soundbite every time.