Policy Briefing: Universal Credit – is it worth it?
Jane Millar (University of Bath)
In November 2010 the government published Universal Credit: welfare that works, which set out proposals for a radical shake-up of benefits and tax credits for people of working age. The heart of the proposal was to replace six existing means-tested benefits and tax credits (Jobseeker’s Allowance, Housing Benefit, Working Tax Credit, Child Tax Credit, Employment and Support Allowance and Income Support) with a single system and one monthly payment.
Universal Credit was opened for new claims by single people in the north-west of England in April 2013. By November 2014 around 36,000 people had made a claim for Universal Credit and almost 18,000 people were in receipt. This is less than half of one per cent of the number of people currently receiving the benefits and tax credits that will be replaced. To be fair the roll-out is intended to take place over time.
But this is still less than five per cent of the current target of 500,000 recipients by April 2016. (The target numbers in the roll out timetable have been drastically revised down over time, as discussed in the House of Commons Work and Pensions Committee report on Universal Credit, published April 2014.)
In the process of developing the required IT software for this new system, the Department of Work and Pensions (DWP) has spent about £300 million so far on working with external providers. But this will not deliver the IT required and indeed about £40 million has already been written-off as failed software. The Department plans to spend about another £105 million internally to develop the digital service. If the digital delivery system cannot be made to work – and there is apparently no contingency plan – the National Audit Office estimates that a year’s delay would increase administrative costs by £133 million.
So what is it all about? What is the prize that the Government is aiming for, that makes this long, expensive and complicated transition so worthwhile? For the architects of the scheme the ambitions are high. Ian Duncan-Smith wants to ‘bring welfare into the 21st Century. We want a system which isn’t seen as a doorway to hopelessness and despair but instead as a doorway to real aspiration and achievement’ (speech, 11 November 2010). Lord David Freud, in an interview in the Journal of Poverty and Social Justice, wants nothing less than a ‘nice, comprehensible, simple, straightforward, personal benefit system’[1].
More specifically, the main aim for Universal Credit is to ‘improve work incentives and make the system genuinely simpler’ (Cm 7957, page 12). The key features include:
A single system covering people both in and out of work, with no need to claim different benefits in and out of work.
Claims made on the basis of households rather than individuals.
Online claim with a single application form.
Monthly payments.
Automatic adjustment of payments when earnings change, in real time, with no need for claimants to report these.
Online reporting of significant changes in circumstances, with automatic re-assessment to adjust payments.
This is indeed ambitious and much of the commentary on Universal Credit has suggested that, although the idea (clear incentives and simplicity) is good in principle, the implementation is a nightmare. Universal credit does not, by any stretch, include all social security benefits for people of working age (it does not include contributory benefits or council tax support, for example). Nevertheless Universal Credit, if it ever gets there, is projected to affect almost eight million households by 2019. So there is a lot to get wrong.
One benefit may be administratively simpler than six. But Universal Credit is not going to be simple for many of the people who will claim it. Even if the system can provide real-time information on changes in earnings, it will still be necessary for recipients to notify other changes that might affect entitlement. This is likely to be substantial and the Universal Credit system will have to manage a large volume of changes in circumstances.
This was one of the factors that hit the tax credit system hard. With hindsight, Baroness Hollis, former DWP Under-Secretary of State, recognised this in a speech in the House of Lords in 2006: ‘It is fair to say that when we introduced the Tax Credits Bill we did not predict that 50 per cent of lone parents would undergo more than a dozen changes in circumstance a year’. Past experience as well as research shows that people do not always notify changes in circumstances immediately these happen, for a range of reasons, including lack of knowledge of the rules. Some changes are themselves short-lived or unstable. Reporting online will require access to online systems and some experience in using these, which is not easy or possible for everyone.
Getting the right payment to the right people at the right time – at one time the stated goal of DWP – is going to be a real challenge. In addition, Universal Credit will be paid monthly, which will be very problematic for many people in terms of budgeting. People on low incomes often manage their money over shorter time periods. There will be no flexibility of different payments being received on different days of the week or month, as there is now. Universal Credit is one basket, with all the eggs in it, which makes people vulnerable if anything goes wrong. If there is only one system, and that system lets you down, then hardship will inevitably result, unless families and others are able to help pick up the pieces. And, as Fran Bennett has pointed out, the fact that there is only one payment per household may also cause some difficulties in families, putting control of the money into just one person’s hands. Thus, despite the claims to simplicity, the DWP has recognised the need to produce guidance on ways to help those who are going to need extra support in order to claim Universal Credit and to manage monthly payments.
Perhaps even more problematically, there is concern as to whether Universal Credit will really increase work incentives. The Resolution Foundation estimate that while the financial incentives to enter work will improve, there will still be many people with high marginal tax rates, and the financial incentives for many second earners to work will be significantly reduced. The system will financially help people who work part time better than the current system but it will not much help people who want to increase their hours. Conditionality will be extended to people in work, so those part-time workers will be required to explain why they are not increasing their hours and/or pay. But for employers there is a financial incentive to provide part-time jobs with very short hours. Lone parents – who have very high rates of in-work poverty – will almost all fall within the range of Universal Credit. The Children’s Society reports that the DWP estimates that about 700,000 lone parents will gain, but that even more – 900,000 – will be worse off. This is astonishing for a benefit being sold as a ‘doorway to real aspiration’, and probably underestimates the numbers who will lose, especially if some lone parents also reduce their hours of work.
And is it really a good idea in principle? Tom Clark in his book, Hard Times, argues that this ‘vast administrative overhaul to merge various payments into a single universal credit … has been oversold as the solution to every perversity in social security … [it] offers modest theoretical advances, and potentially big practical problems. It is a sideshow, and a messy one at that. The real story is the cuts’. This context, of ongoing cuts to the social security system, is indeed a challenge to the point of Universal Credit. Under the initial proposals there would have been increases in income for many, although not all, recipients. But since then various cuts have been announced, including a freeze in the level of benefits for working-age people. The chances that Universal Credit will be paid at levels that are high enough to keep working families out of poverty look diminishingly small.
There is also a wider issue about the fundamental purpose of social security support for people of working age. As Nick Pearce, writing in the Guardian, put it: ‘the reform amalgamates existing payments without asking what they are for, who they go to, and on what basis’. Those six benefits did indeed have different aims and different target groups, including unemployment compensation, wage replacement for long-term ill-health and disability, support for children, housing costs, etc. Not everything is about work incentives. Our social security system is, or should be, a system of social protection and solidarity. We need more radical debate about the societal value and purpose of social security, not radical change to focus on just one over-riding purpose.