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Whatever happened to Universal Credit?

Henry Anderson

The papers called it the “Easterhouse epiphany”. Then-leader of the Conservatives, Iain Duncan-Smith, was so moved by the deprivation he witnessed in the Glasgow estate in 2002 that he dedicated his party to compassionate welfare reform. After his damascene conversion, he returned to London and founded the Centre for Social Justice to flesh out these ideas. In 2009, it devised a policy that would come to dominate the UK Government’s welfare reform agenda and become inextricably linked with Duncan-Smith: Universal Credit.

16 years on, Iain Duncan-Smith has been and gone, serving as Work & Pensions Secretary from 2010 until his resignation in 2016. Universal Credit, however, remains and last week the National Audit Office (NAO) concluded it has not delivered value for money and probably never will. The NAO’s damning report mainly dealt with projected savings which had not materialised, but also laid bare the DWP’s bunker mentality to criticism. Despite overwhelming evidence to the contrary – its own surveys finding four in ten claimants were experiencing financial difficulty, one in five being paid late and increased foodbank use in Universal Credit areas – the report found the DWP “does not accept that Universal Credit has caused hardship among claimants”.

Despite this litany of failings, the auditors said there was “no realistic alternative” but to plough on. In his characteristically blunt tone, Work & Pensions Committee Chair, Frank Field, explained: “It has advanced to a stage where there is now a mega cost to scrap it and a mega cost to taxpayers to continue with it.

The policy had its beginnings in a real problem. When the Conservative party came to power in 2010, there was increasing attention in the party about how the benefits system could disincentivise individuals from working. Much of this was transparently political – the suggestion that there was a mass of families trapped in a cycle of “welfare dependency”, for example – but there was also the aim to “make work pay”.

Under previous governments, a byzantine web of means-tested benefits had developed. Each was introduced with good intentions, but interactions between them produced a series of cliff-edges whereby individuals would see their benefits withdrawn as they moved into work. In the worst cases, 96p was lost for every £1 earnt – a marginal tax rate of 96% on the lowest paid.

Universal Credit attempted to address this by rolling six benefits into one and applying a common “taper rate”. Claimants would lose 65p (later reduced to 63p) of Universal Credit for every extra £1 earnt. The DWP initially predicted that all claimants would receive Universal Credit by October 2017, but this has been progressively pushed further back and now stands at March 2023.

It’s clear, therefore, that something needs to be done. Driven by intense criticism and negative headlines late last year, the Government announced a number of tweaks at the Autumn Budget, including quicker advance payments and shorter waiting times. The auditors went further and called for a pause before the wholesale migration of existing claimants to Universal Credit, recommending it should “not expand before business-as-usual operations can cope with higher claimant volumes”.

Political parties share the NAO’s acceptance that Universal Credit is here to stay. Labour is supportive of the principle of the reform but has vehemently criticised its implementation. The SNP has called for its rollout to be halted while “fundamental flaws” are addressed. Meanwhile, the Scottish Government has sought to ameliorate some of the most damaging aspects of Universal Credit’s design. As a result, Scottish claimants can receive payments fortnightly, rather than monthly, and can have rent paid directly to landlords (a reform subsequently copied by the UK Government). Elsewhere, thinktanks have made a number of technical recommendations to improve Universal Credit.

 

A more obvious solution would be to direct more funding into the welfare budget – a move politically unpalatable to the current UK Government. Since 2010, Universal Credit and the welfare budget more generally have been seen as easy targets by ministers looking to cut public spending. Through financial sleights of hand in successive budgets – the benefits cap, the two-child limit, the benefits freeze – the value of Universal Credit has been steadily eroded. After George Osborne’s planned tax credit cuts sparked a Conservative rebellion in 2015, these were publicly abandoned but quietly pencilled in to the Universal Credit budget at a later date.

In 2016, many concluded Iain Duncan-Smith’s unexpected Cabinet resignation was motivated by a desire to bolster Leave and harm Remain in the run-up to the EU referendum. In public, he attributed it to growing frustration at “distinctly political” cuts to working-age benefits. Whatever the real reason, the cumulative result of this approach is that Universal Credit is £3bn less generous than the system it replaced and will leave working families £625 a year worse off according to the Resolution Foundation. Ultimately, it’s hard to see how the admirable intention to “make work pay” can ever be achieved alongside continuing cuts to the wider welfare budget.

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