Universal Credit: Who will speak for the 99.7%?

Iain Duncan-Smith confirmed yesterday that Universal Credit will start its ‘roll-out’ nationwide – across all Job Centres that is, rather than all benefit claimants.

There is quite a bit of rolling-out still to do. As of January 2015, there were 26,940 claimants on Universal Credit. This constitutes only 0.3% of the 8 million households that should end up on Universal Credit. So, what must we have in mind when thinking about the remaining 99.7%?


1. While the experiences of the 0.3% of claimants currently in the scheme are likely to understate the challenges that will be faced by the remaining 99.7% of claimants, some of the inherent flaws are already surfacing. It is time to re-assess the scope of the reform.


So far the claimants enrolled onto Universal Credit have been the simplest to process: such as single JSA claimants without dependent children. However, even amongst this group, there have been some worrying effects. These stem as much from the policy design as from the widely-reported computer problems.

In particular, these derive not from the simplification of the benefits system or work incentives (where the emerging evidence implies some marginal advantages), but from the Government’s desire to also alter when and how benefit payments are paid. As the SMF and others warned, such changes are likely to be extremely inefficient, costly socially and hugely difficult to manage. In the first place, the proportion of Universal Credit claimants in rental arrears is much higher at 12% compared to 7% amongst the control group (who are on the old benefit system). This is a consequence of paying housing benefit to tenants not landlords. This is underscored by a DWP evaluation of the Direct Payment Demonstration Projects published in summer 2014, which noted the widespread prevalence of rental arrears and concluded that the problem ‘is not easily solved’.

Second, as pointed out today to the BBC by Daniel Pacey – one of the earliest Universal Credit claimants – some of the reforms simply go against the grain of many people’s lives. For instance, under Universal Credit, the Government is insisting that people are paid their benefits monthly rather than weekly or fortnightly. The stated logic is that monthly benefit payments will prepare people for the world of work. But, as previous SMF has shown, this is a false logic: only half of all employees earning under £10,000 per year are paid monthly; four in ten of those in the lowest two income quintiles are paid weekly. And, most on low incomes budget weekly or fortnightly.

Given the difficulties that the Government is facing simply getting the IT system to process assessments and payments, now is the time to re-think these policies.


2.There are a host of unresolved policy dilemmas that have not been confronted so far but that cannot be deferred by the next government. Here are a few of them:


  • Free school meals. Eligibility for free school meals is currently determined by receipt of certain benefits such as working tax credits. The new system will have to devise a way to determine who should and should not get financial help with these extra costs. The threatened withdrawal of free school meals would act as a big disincentive to work if it happens at a particular earnings threshold. Somehow some more money – quite a bit of it – will be needed.
  • Boosting the earnings of in-work claimants. Universal Credit will offer much weaker financial incentives for people to increase their hours. For this reason, the government is introducing ‘in-work conditionality’, which will seek to push people to earn more through taking on more hours at the same job, an additional part-time job or higher hourly wages. This is a leap in the dark and policy remains very sketchy. Whoever is in government post-2015 will need crunchy schemes to help the low paid, such as the SMF’s idea of a payment by results programme to help boost the wages of those stuck on low earnings.
  • Reforming Council Tax support. The reform of Council Tax Benefit plays havoc with Universal Credit, undermining the whole effort to simplify benefits and to improve work incentives. Part of the problem is a withdrawal of money by the back door (a 10% cut to council tax support); a second is that benefits policy has been localised thus causing confusion. This the sort of localisation that even council leaders might argue against.
  • More people will have their savings means-tested. Previously, tax credits were not subject to a wealth means-test. However, any claimant of Universal Credit who has more than £6,000 in non-housing assets will see their payments reduced or stopped. Little thought has been given to the effect of this policy on people saving for house deposits or those over 55 who can access their pension pots.


3. Bringing the remaining 99.7% of claimants onto Universal Credit is likely to crowd out any time for other welfare reform during the next parliament. Is that a price that the next government will think is worth paying?


Iain Duncan Smith has put much store in the ‘phased roll-out’ of the scheme. This staged approach is such that, under the OBR’s projections, even by 2018 more than 2 million claimants will still be on the old benefit system.

The logic of ‘phased’ implementation has much merit as a means of limiting risk as the number of claimants grows and as the new technologies are brought in. But, the downside is that Universal Credit is going to continue to consume huge energies from the incoming government in May, leaving little if any space for imaginative welfare reform through to 2020.

One can’t help concluding that, with such a huge proportion of the job still to be done, any incoming government will have to make a big decision early on as to whether to continue with the scheme and, if so, how. At the very least, May 2015 must be the time to focus on the basic tenets of the reform, such as simplification and transparency of work incentives.


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