Beware: Welfare reform carries great risks

A “seamless system” designed to  “ensure work pays”, “minimising complexity for claimants”.

Sound familiar? They could be buzz-words from Iain Duncan Smith’s latest Universal Credit announcement. But in fact these are the last Government’s plans from just over a decade ago, when it embarked on a similar – if slightly less ambitious – benefit reform project.

UC is a year away. But if recent reports are to believed, many people in Whitehall and beyond are extremely nervous about what lies ahead for this well-intentioned reform. A brief look at recent history shows that they have good reason to be. Back in 2003 the Labour Government boldly set out to simplify the benefit system and make work pay. But what they got was a man with his hand glued to a benefits office desk, a PR disaster and families in billions of pounds of debt to the taxman.

How did it go so wrong? One of the big ideas behind tax credits was to use tax data to make benefit payments more responsive to recipients’ changing incomes. It was an ambitious plan but the supposedly cutting-edge IT initially wasn’t up to the job, denying thousands of families their tax credits cash. The situation got so serious that one desperate claimant, Mr Mike Maddison, glued his hand to a desk in a benefit office and refused to leave until he got his money.

This was acutely embarrassing for the government. But what proved even more politically damaging was lurid headlines about HMRC demanding repayment of over-paid tax credits from families who weren’t even aware they’d been given too much. Overpayments have been a running sore ever since, totalling £1.5bn last year alone, much of which the Government will never recover.

UC will try to resolve the overpayments disaster by requiring more information from families and employers. The former must keep the Department for Work and Pensions up-to-date with changes in family circumstances by logging onto a web-based system each month. The latter will have to report real-time earnings data about their employees. The new system will only banish the spectre of overpayments if families and firms are able to do what the Government expects of them. That’s a tall order. And if the IT wizardry falls short, we’ll see more Mr Maddisons.

Not only does ever greater reliance on IT seem like a big risk in itself. But the consequences for families of a failing system would be much bigger under UC. While Mr Maddison didn’t get his tax credits, at least he still got his housing benefit and Jobseeker’s Allowance. As UC brings together the six main benefits to try to simplify the system, any payment problems could mean that claimants get nothing at all. Even if the system works as planned, there are other risks. Recent SMF research, drawing on in-depth interviews with low-income families, has highlighted that the switch to monthly payments could undermine financial resilience. The result may be more families getting into debt.

Attempting such an ambitious overhaul of the entire benefit system in just three years is a folly that closely mirrors Labour’s ill-fated effort. If history continues to repeat itself, the reforms will impose growing political costs on the Government by 2014. For this reason, if for no other, Mr Duncan Smith would do well to heed the calls from Whitehall and from history that the watchword in benefit reform is evolution, not revolution.

A version of this post first appeared in Society Guardian on 3 October 2012


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