The Observer view on the rollout of universal credit
‘We will govern in the interests of ordinary working families”, pledged the latest Conservative manifesto, a line that will ring increasingly hollow in the next few years. By 2022, millions of families will find themselves thousands of pounds a year worse off: not as a result of sluggish wage growth or the rising cost of essentials, rather, as a direct result of this government’s decisions to cut financial support for low-income working parents while it delivers expensive tax cuts for more affluent families.
The original architect of these welfare cuts was former chancellor George Osborne. But Theresa May and Philip Hammond have become their chief implementers. From next month, turbo-chargers will be placed underneath the rollout of universal credit, the government’s new benefit that brings together six existing benefits for low-income households. At present, just under 600,000 people are on the benefit; by 2022, it will be more than seven million families – more than half of families with children.
Universal credit had noble origins when it was conceived in 2010. Its aims were twofold. First, to simplify a fiendishly complex benefits system in which people found themselves on multiple benefits administered by numerous government agencies, all means-tested in different ways, making it virtually impossible to calculate what they were entitled to.
Second, universal credit was supposed to improve people’s incentives to increase their earnings in a system in which some saw their income increase by less than 10p for every extra pound they earn as a result of the steep rate at which their benefits were withdrawn. There is an inescapable trade-off in welfare policy between cost and work incentives. The more a benefit is targeted at those on low incomes, the more it affects their work incentives – because the more quickly it gets withdrawn as their earnings increase. However, the less targeted a benefit is, the more expensive it becomes because it has to be paid to more people. Universal credit, as originally conceived, was intended to be more forgiving of increases in family income and thus improve incentives to work.
But universal credit has morphed from an ambitious attempt to improve the benefits system into a cruel instrument that loads the burden of austerity on families who can least afford it. As a result of Osborne’s cuts, universal credit is significantly meaner than the system it is replacing.
Combined with other welfare cuts, it will leave low-income families with children up to £3,400 a year worse off by 2020. The Resolution Foundation has warned that the unprecedented scale of these welfare cuts means they are on course to forge the biggest increase in inequality in a generation. At the same time, Conservative chancellors will have instigated more than £80bn of tax cuts a year by 2021, including £22bn of income tax cuts, four-fifths of which benefit the richest half of families, and more than £13bn in corporation tax cuts.
The cuts to universal credit make a mockery of the policy’s original objective to improve work incentives. More people will face worse, rather than better, incentives to increase their earnings. For example, a second earner in a couple who earns £5,000 a year will only see their family’s income go up by less than £2,000 – before allowing for childcare costs.
Beyond the cuts, flaws in the design of universal credit are imposing serious hardship on families, pushing them into debt spirals. Unlike the current system, new claimants have to wait at least six weeks to receive their first payment after losing a job. Many have no way of filling this gap in income. A Citizens Advice survey found that three in five have to borrow money while waiting for this first payment. The government’s own figures show two in five renters on universal credit are in rent arrears eight weeks after their initial claim.
Far from reducing complexity, universal credit has simply replaced one sort of complexity with another. It puts more administrative burden on claimants to provide evidence in the correct form, leading to cases such as that of a woman who faced long delays to her payment because the childminder receipts she submitted were not on headed paper, which resulted in her losing her childcare place and, ultimately, her job.
Universal credit also does nothing to address the key weaknesses in the labour market. Thanks in large part to the success of the welfare-towork initiatives of the last two decades, worklessness is no longer the problem it used to be – Britain now enjoys record employment rates. But low pay is a huge problem: more than one in five workers in the UK is low paid, one of the worst rates in the OECD.
Low pay underpins the record levels of in-work poverty we are seeing: getting a job is far from a guaranteed route out of poverty. However, rather than provide support to people to progress in the workplace, universal credit introduces a system of sanctions for those deemed not to be taking enough action to increase their hours, putting significant discretion in the hands of jobcentre advisers as to how and when such sanctions are applied.
Given the problems already rife in the sanctions system – people having benefits docked for missing appointments for reasons completely out of their control, such as public transport delays – it is not difficult to envisage this manifesting itself in a terrible catch-22, where people not only can’t get more work from their employer but face a double whammy of having their benefits docked as a result.
The rollout of universal credit must be put on hold while these fundamental flaws are addressed. According to the Resolution Foundation, it would cost just £6bn a year to reverse the cuts to the universal credit system, a fraction of what the government has spent on unnecessary tax cuts for the more affluent.
If not, universal credit will come to be a symbol of the callous, cruel Conservatism that, far from being limited to the party’s fringes, has defined the way it has run Britain since 2010. It is a political creed that thinks nothing of driving more parents towards debt, pushing child poverty up to record levels and forcing more people to live on the street. Make no mistake: this Tory party is as nasty as ever.