With a year to go, there’s a lot at stake for the government’s radical universal credit plan.
The new scheme will sweep away the main existing benefits, replacing them with one integrated system which, it’s claimed, will be simpler and make working more financially worthwhile. Laudable aims. But will it work?
Many questions still hang over the new scheme, and inevitably some of the changes will be controversial. The difficulties of making families claim their entitlement online and the risks of paying benefits monthly to low-incomes families who often budget weekly, have been the focus of lots of debate recently. But the central aims of the policy – simplification and better work incentives – remain on course, right? Tuesday’s report from Inclusion and the Joseph Rowntree Foundation highlights some concerns.
The government’s labour market gurus think an extra 300,000 people will find jobs as a result. Universal credit will make it pay to work just a few hours per week, whereas the current system encourages people to work for 16 hours each week or not at all. But the new system will make work pay more for some families but less for others. The flip side of encouraging out-of-work parents to work a handful of hours each week is that working parents may also find it pays to work fewer hours and claim more universal credit. As the JRF report highlights, incentives to work for 16 hours per week, or full-time, will be reduced for some.
To prevent that from happening, the Department for Work and Pensions (DWP) plans to introduce so-called “in-work conditionality” which will threaten some claimants with reductions in their universal credit payments if they don’t extend their hours once in work. While the old system offered a financial carrot to increase your hours of work, the new one will replace it with a financial stick if you don’t. In a labour market where around 1.4 million people are currently involuntarily under-employed, that’s likely to entail some rough justice.
But the cold hard numbers are only part of the story when it comes to encouraging people back work. Part of work and pensions secretary Iain Duncan Smith’s case was that the byzantine complexity of the benefits system was also at fault, preventing claimants from understanding how much better-off they could be in work.
Here the DWP team behind universal credit are surely right in their diagnosis that you need a computer to understand how much you might get. But correctly identifying the problem isn’t the same as finding a solution. And as the universal credit plans take shape, it seems that complexity in the new scheme is mounting.
For example, there will be a fiendishly complicated system of family specific “earnings disregards” – that’s the amount you can earn before they start to take your benefits away. I don’t recommend you try it at home, but if you really want to work out your own “disregard” you may need to brush up on your arithmetic first.
The simplification agenda has also been undermined by policy changes beyond DWP’s control. Council tax benefit, for example, will be administered locally from April 2013 and most councils will have no choice but to cut it. As the JRF report notes, the consequence will be “a plethora of different local arrangements”. So much for a simple system: not only will you need a computer to work out your benefit entitlement, you’ll need a map too.
Whenever the benefit system is reformed there are likely to be objections. The trouble for universal credit is that some of its most trumpeted advantages are not quite what they seemed. In every area of detail the policy is bogged-down in the inevitable trade-offs of welfare policy: simplicity versus cost; carrots versus sticks; incentives to increase working hours or incentives to work at all? This was a policy designed before economic stagnation set in. But with the public finances under intense pressure, and no money to play with, those difficult trade-offs aren’t getting any easier.