Major repairs

An incoming Labour government will be confronted with the severe problems currently facing claimants grappling with universal credit. What will the Labour party need to do to put social security back on track?

Tory ministers claimed universal credit would be a panacea for the benefit system. This was always nonsense – just like their absurd claim that the new system could be fully implemented by October 2017. On current plans, roll out will finish in 2024. The Conservative party was extraordinarily naïve – even claiming in 2010 that the universal credit computer system “would not constitute a major IT project”.

But many of the arguments for universal credit are sound. It does give the system a clearer purpose – to support people to obtain work and progress in their careers; and it has the potential to be simpler than previous arrangements. In particular, financial gains from work are clearer than in the past.

The hardship being inflicted by universal credit does not arise from its basic principles, but from the shocking way it has been implemented. The naivety of Department for Work and Pensions (DWP) ministers, plus ex-chancellor George Osborne’s desperate hunt for cost savings, were a toxic combination. But Labour will not want to revert to jobseekers’ allowance and income support.

Universal credit’s worst feature is a five-week delay between making a claim and entitlement to benefit. The theory is that everyone would have their final month’s pay cheque from their last job in the bank, so would not need money for a month. But what about those who are paid weekly, or people on zero-hours contracts – or people transferring onto the universal credit system from other benefits? The theory simply does not apply to them. Ministers, repeatedly pressed in the House of Commons, find the five-week delay impossible to justify.

When Iain Duncan Smith resigned as work and pensions secretary, his successor cut the delay from six weeks to five, and also managed to make benefit advances much easier to obtain. But the problem with an advance is it is paid as a loan, and you are therefore in debt to the DWP right from the start of your claim. It can then be impossible to escape indebtedness. This is why foodbank demand surged when universal credit was rolled out, and why rent arrears soared. Many private landlords who were happy to accept tenants on the old housing benefit now refuse tenants on universal credit.

Labour will need to scrap the five week wait, possibly with the exception of people leaving a monthly paid job.

Many other changes will be needed too. Conservative MP Eric Pickles – to bolster his feeble commitment to localism whilst secretary of state for communities and local government – refused to allow council tax benefit into universal credit. Instead, every council had to devise its own form of council tax support. Some have been extremely meagre. The original idea of a consistent taper applying everywhere – so everyone knew what their position would be if they got a new job – was torpedoed from the outset. Council tax should now be brought in to universal credit.

It was claimed the old social security system was riddled with cliff edges and benefit traps – meaning that in some situations, claimants were better off staying unemployed. Universal credit was supposed to sweep these away. But, in new rules on free school meals for universal credit, ministers have created a benefit trap far worse than anything in the old system.

It is a difficult problem. Under the old system, if you are out of work and in receipt of benefits, your children are eligible for free school meals; if you are in work, they are not. But, with universal credit, the distinction between in-work and out-of-work benefits has disappeared. Iain Duncan Smith promised in 2011 to explain how it would work with universal credit by ‘the summer’. In fact, no answer was forthcoming until last year.

Free school meal entitlement now depends on whether your income is above or below a threshold. The very last thing people whose income is just below the threshold will want is a pay rise, because they will immediately have to start paying for school meals. Labour will need to fix this – either by extending free school meals, currently available only to infant school children, to all; or by introducing a national electronic card system, providing a contribution to school meal charges which can be tapered away with income.

With tax credits, great care was taken to reflect the realities facing women – for example, paying sums relating to children directly to the mother rather than the father. Iain Duncan Smith deliberately omitted all these from universal credit. Labour will need to put them back.

Universal credit has – in principle – important advantages over the old benefit system as a tool for fighting poverty. It would be a mistake to throw them all away. But implementation has been both cruel and incompetent. A new government committed to tackling poverty would need to undertake major repairs, perhaps taking up to a decade to complete.  But it can be done, and it should be.

This blog is part of our Poverty and social security: where next? series. Read more about the project here.