Why universal credit is failing
Another budget, another bung for the Tories’ flagship Welfare reform: Universal Credit (UC). Eight years on, six years behind schedule and with the National Audit Office reporting in June its “doubt[s] it will ever be possible… to measure whether the economic goal of increasing employment has been achieved” it is worth considering how the government got itself into this mess. Why has this policy been so doggedly pursued, despite what appears to be a myriad of failings?
UC started life in 2009, with Iain Duncan Smith and Tim Montgomerie’s centre-right think tank the ‘Centre for Social Justice’ publishing Dynamic Benefits: Towards Welfare that Works. This report stated (accurately) that: ‘The emerging underclass lives in communities consistently defined by five characteristics… family breakdown; educational failure; drug and alcohol addiction; severe personal indebtedness; and economic dependency- caused by intergenerational worklessness.’ When the Tory-Lib Dem coalition ascended to power in 2010, Duncan Smith was named the Secretary of State for Work and Pensions, anointing ‘The biggest reform of welfare in a generation’ at that year’s Conservative conference.
The intention was to create a system where the so called ‘Poverty Trap’ would be eliminated, ‘finally making work pay.’ For those with an unnatural love of explanatory graphs, this (from Walker, R. 2005. p. 209), should elucidate the problem:
Still confused? Don’t worry, so is Her Majesty’s Government. To provide (some) clarity: at t* benefits begin to be ‘tapered’- withdrawn at a certain percentage of every extra pound earned- and when the claimant begins to pay income tax at x*, the withdrawal of the benefit and the income tax rate combine to remove more than a pound from the claimant with each extra pound earned, thus creating the perverse incentive to work fewer hours, earn less money and ultimately remain trapped in poverty. In effect, a penalty is imposed upon those who wish to work full-time and earn more. In extreme cases the withdrawal of various benefits at once meant that claimants were better off not even bothering to get a job or only very slightly better off getting one, thus creating situations such as those seen in the infamous Channel 4 ‘documentary’ series Benefits Street.
Any rational person must admit that the aim to consolidate six separate benefits to eliminate this poverty trap was clearly necessary if the UK was to even begin to tackle the intergenerational degradation of swathes of people from the East End of Glasgow to Tower Hamlets, the Welsh Valleys to Belfast.
Rationality and good intentions are, however, rarely enough. Particularly with Gideon ‘George’ Osborne in charge of the purse strings. Even though Duncan Smith may have demonstrated striking emotional connection with the plight of those trapped in the vicious self- perpetuating cycle of modern British poverty- going as far as to state that ‘we are here to save lives, not condemn people’ in 2014- this sentiment was not echoed by Osborne, siding instead with ‘the shift- worker, leaving home in the dark hours of the early morning, who looks up at the closed blinds of their next-door neighbour, sleeping off a life on benefits.’
Within government, two views of welfare reform vied for pre-eminence: one of promoting quasi-Victorian self-reliance, responsibility and basic fairness (Duncan Smith); and one of the short-term bottom line, voter triangulation and spending cuts (Osborne). That the latter won the day is apparent from this week’s budget, with yet another partial reversal of an ill thought-through Osborne UC spend-thrift measure.
Had UC been met not with the suspicion from Osborne that Duncan Smith was ‘more concerned with moral crusades than the imperatives of the fiscal crisis,’ but the reforming zeal of a Macmillan at the Ministry of Housing or the social mobility rocket fuel of the Major government’s expansion of higher education, the United Kingdom may have begun the first steps of rescuing countless millions of its citizens from the rot of the ‘surplus to requirements’ scrapheap of the post-70s economic consensus. Alas, while this Conservative government is many things, a model of Cameron’s ‘Compassionate Conservatism’ it is not.
Some may scoff at the idea that transferring people from out-of-work poverty, to what in many cases is in-work poverty, is the truly compassionate thing to do. However, the simple truth remains that obtaining full-time employment is the single best (although admittedly not guaranteed) route out of poverty for households in modern Britain. Despite this, The Joseph Rowntree Foundation presented evidence in July of this year that lone parents are worse off working 30 hours or more a week than 29 due to the income tax threshold, the UC taper rate and childcare costs, thus locking those who must not only care for themselves but also their children into part-time work. Furthermore, due to the continual issues of late payments to claimants, the five week delay before a claimant receives their first payment and 30% experiencing underpayment, the Trussell Trust reported increases in demand for their foodbanks rising by over 50% in the areas recently transferred to UC.
So, has Universal Credit failed? The short answer would appear to be yes, but on closer examination one must conclude that due to Treasury tight-fistedness, poor management and lukewarm commitment to the original guiding philosophy that ‘work should pay’ of UC from this Government, it is failing, not yet failed. The Chancellor’s extra £1.7 Billion in last week’s budget feels like a sticking plaster on the Mariana Trench, and will not come close to solving the myriad issues with the new system.
If from reading this you are insufficiently convinced of the towering complexity of this issue, you are either a genius or have got the wrong end of the stick. Sadly, this is the complexity that The UK is in the process of saddling some 3 million of its subjects with. If the system is to be saved it seems that the Shadow Chancellor’s proposal to “pause and fix” UC should be followed. That said, even in the ideal world where Universal Credit is fixed and the ‘taper rate’ is in fact the headline figure, including income tax and childcare costs, one must consider that this taper rate still sits at 63%. Therefore, two questions should be posed, to conclude: 1. Would you work an extra hour on £7.83 (Minimum Wage) if you were to only gain £4.83? 2. What does it say about our system of political economy that the highest marginal tax rate is not the 45% plus NI contributions of the wealthiest, but the 63% plus income tax of the very poorest?
The views expressed in this article are the author's own and do not necessarily reflect any editorial policy.
David Paterson graduated from The University of Aberdeen with a M.A. (Hons.) in Legal Studies and Political Science. Hisresearch interests include the impact of social trust on Welfare State legitimacy, the impact of diversity on Welfare States and the role of ‘Unifying narratives’ in securing the Welfare State. He is at St Antony’s College and in his spare time he cooks and posts photos of the results on Instagram @insta_scranning.