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Universal Credit: Here to Stay?

Updated: Sep 4, 2021

“TRAPPED AT THE HEART of this nexus is the benefit claimant, caught in a mire of bureaucracy and complexity and given little reason or encouragement to advance in work.” This is how The Centre for Economic Justice, the think-tank chaired by Conservative MP Iain Duncan Smith, described the allegedly clunky British welfare system. Their proposal to overcome such perverseness and inefficiency, Universal Credit, was eventually included in the Welfare Reform Act of 2012, passed by the Coalition Government; since then, its implementation has been slow and riddled with errors. The fact that the above statement can be applied just as well to the new system is bitterly ironic.

Universal Credit is meant to incorporate six different working-age benefits into a single wage-like monthly payment. Such an approach should reduce administrative costs and increase efficiency. Moreover, the claimant would also have greater incentives to work; in fact, refusing employment paid off in some circumstances under the legacy system, thus trapping many people in redundancy and misery. The architects of UC tried to reverse the situation by making the reduction of the monthly amount gradual and in line with income: for every pound earnt, the benefit payment is reduced by 63p. The scheme might then resemble a negative income tax, a concept made famous by the free marketeer Milton Friedman such that people earning below a specific threshold would be paid by the government and not vice versa.

A Wobbly Introduction

Reality shattered this rosy picture, as signalled by the eighth delay in the rollout of Universal Credit; its full implementation is set out for December 2023, now six years late. As of June 2018, only 800,000 people have switched to Universal Credit, out of an expected cohort of 8.5 million. Furthermore, many cuts altered the program structure, making it far less generous for the majority of claimants in reality. Even the Work and Pensions Secretary, Esther McVey, has admitted that “some will be worse off”. Her statement is nothing short of a euphemism: a report by The Resolution Foundation shows that while 2.2 million families will experience a £2,132 annual increase in their income, 3.2 million families are expected to lose an average of £2,496 a year, with 600,000 of them losing their benefit entitlement altogether.

Although the rollout so far has been concentrated to the least complex cases, such as single adults with no children, the estimated cost for its implementation has inflated more than six-fold, from £2 billion to £13.6 billion in 2017. However, this increase did not prevent mismanagements and errors. Once a (strictly) online application is made, claimants should receive their first payment in 5 weeks. However, 40% of applicants had to wait 11 weeks since their first claim, while one in ten had to wait up to 130 days. Obviously, these large delays have awful consequences, for instance causing arrears for over a third of claimants, while pushing around 20% of total applicants into debt. Correlation does not always imply causation but, knowing that food bank usage has risen four times faster in areas where UC has been fully implemented, this does ring some bells.

Unfortunately, the shaky rollout of Universal Credit is not the only element to blame for its perverseness. For instance, payments are given to a single adult in the household, thus concentrating welfare access in a single member of the family; as this is typically a man, women are at risk of having their financial independence substantially reduced.

Consequently, such an arrangement yields a fertile soil for domestic abuse, while making it harder to get a divorce. This is because a change in circumstances (e.g. a divorce) would require claimants to submit a new request, thus leaving them penniless for at least five weeks, an outcome most women on benefits prefer to avoid. A report shows that 52% of women living with an abuser feel this way. In addition to that, a 2015 £5bn a year cut announced by the former Chancellor George Osborne limited the child credit per family to two: now, a family with four children receives the same amount as one with two.

A Little Less Cloudy

This grim scenario is no reason for worrying at all: the Chancellor, Phillip Hammond, recently announced that the “era of austerity is finally coming to an end” and that the 2018 Budget would reflect this. Sarcasm aside, he was not lying. Now, households making the transition to UC will enjoy greater financial protection (though a change in circumstances will still trigger the loss of such protection, possibly causing a return of the problems cited above). Moreover, the amount claimants can earn before any deduction is made to their monthly payment, i.e. “work allowance”, will be increased by £1,000 beginning from April 2019; given the 63% taper rate, this translates to an extra £630 2.4 million households will get to keep each year. In all, the former measure will cost £1bn over five years, while the latter £1.7bn annually. The careful reader will have surely noticed that the increased spending is not nearly enough to reverse Osborne’s 2015 cuts.

Even governmental agencies have concluded that Universal Credit is not “value for money” in comparison to the previous system. However, it has also been recognised that no viable alternatives are possible, despite its numerous shortcomings and calls from the Shadow Chancellor to get rid of it altogether. Therefore, the only logical conclusion is to try to make Universal Credit a little less dysfunctional than it already is, especially considering that the material wellbeing of a little more than one in ten citizens depends on it (or the fact that it accounts for 7% of all state spending). The government’s intention to address some of its critical issues in this year’s budget is warmly welcomed, but a lot more needs to be done in terms of spending and efficiency. For instance, the two-child credit limit and the one-adult-per-household-takes-all policies could be scrapped, while the taper rate could be lowered selectively, thus reducing the number of those who are still better off refusing extra work. This is the case for some new parents, since looking after their child becomes costlier as they spend more time away from home to work.

On the one hand, Universal Credit has the potential to be the most successful welfare reform in decades; on the other, it could be one of the worst bets a government has ever taken. Given the Conservatives’ previous attitudes towards risky political gambles, one is safer in resorting to blind optimism.

Alberto Minghetti


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