Reviving universal credit

Many people may remain unaware of the seismic reforms to the benefits system due to be rolled out from October next year and many of the finer details have yet to be ironed out but the public debate about universal credit (the new welfare system which will replace tax credit and most out-of-work benefits) appears to have started in earnest in the last month amid reports that senior civil servants have begun expressing disquiet over the reforms.

The Social Market Foundation and the Social Security Advisory Committee have both highlighted aspects of the proposals which they feel are unworkable and leading charities have set out serious concerns around implementation. The Labour party have called for roll-out to be delayed for 12 months to ensure the computer systems required to operate the new system are set up and any potential problems identified and rectified.

There are a multitude of challenges facing the new system from worries about whether the IT will be ready to concerns that the change will create budgeting problems for households. Additionally the boost to work incentives that universal credit is meant to deliver may be undermined if the devolution of council tax benefit to local authorities in England (and devolved governments in Wales and Scotland) and the incorporation of free school meals isn’t right.

These challenges are recognised in the sensible approach that has been set out for universal credit’s implementation, with a planned phasing in of the new system over a four year period and intention to transfer those claimants who are likely to ‘benefit most’ from the new system first. This latter move anticipates that universal credit, as it is currently proposed, will work better for some than others – especially given the funding constraints under which officials are having to introduce the new system.

Insufficient funding for the new system means that the original proposals to maximise work incentives and the income of those in low paid jobs, as set out by the Centre for Social Justice in 2009 won’t be fully realised, initially at least. Save the Children’s report Ensuring Universal Credit supports working mums laid out a series of concerns that the full potential of universal credit to boost work incentives and tackle in-work poverty wouldn’t be realised unless more is done to support second earners into work and steps are taken to ensure the system works well for single parents on low to modest incomes.

Under the new system, despite improved work incentives for many, some claimants will still face high marginal deduction rates (the amount they lose for every extra £1 earned in benefit withdrawal and taxation) of 76p and the government’s own impact assessment shows that 1.7 million households will face lower entitlements under the new system.

The Social Market Foundation is concerned that universal credit could create major budgeting problems for households with claimants expressing concerns about moves to monthly payments (some benefits are currently paid more regularly and a significant proportion of low paid jobs are paid on a weekly rather than monthly basis) and the decision to pay the housing element to the claimant rather than direct to the landlord. This raises genuine concerns that claimants will find they are short of money each month, dipping into their housing element payment so they can cover the food bills but finding they are quickly in arrears with their landlord or taking up the offer of ‘support’ from payday lenders or the local loan shark.

In this context, many observers could be forgiven for thinking that universal credit is doomed to failure before the pilots and pathfinders have even started. The fact remains that universal credit has 12 months until it is rolled out, changes can still be made to the way it operates and the option for pushing back the start date is there should ministers and officials in DWP feel it necessary.

The rationale for universal credit remains strong – we need a simplified benefits system that increases take up of social security and makes the benefits of being in work clear and transparent to all. Universal credit isn’t a panacea. In the context of sustained high unemployment, increasing divergence between areas experiencing economic recovery and those getting left behind and a record number of people working part-time because they can’t find full-time work universal credit can’t solve all the challenges we face. With 60 per cent of children in poverty living in working households, government could be much bolder, taking an axe to in-work child poverty in a number of ways:

• Boosting support for childcare costs
• Letting claimants keep more of their universal credit payment before it starts being withdrawn (known as earnings disregards).
• Setting out a clear timetable for reducing the rate at which benefits are withdrawn so it reaches the 55 per cent ‘taper rate‘ originally proposed by CSJ
• Ensuring all children in low to modest income families receive free school meals
• Encouraging take up of the living wage by employers to maximise the benefit of improved tapers under universal credit and ease pressure on the social security budget.

And government can reduce the likelihood that changes to universal credit will cause budgeting problems for low income families by:

• Arranging for elements relating to children to be paid to the main carer/second earner in couple families
• Giving all universal credit recipients the option to receive payments on a weekly or fortnightly basis.
• Cancelling the planned devolution of council tax benefit
• Extending transitional protection so that no one – including when circumstances change – is worse off under universal credit than they would be under the current system.

Universal credit must not be held up as perfect by those looking to defend it and completely devoid of merit by those with concerns about specific aspects of its design. Instead these steps, although not an exhaustive list, show it is possible for government to address the very valid concerns being expressed and help reposition universal credit as something to be welcomed and embraced. With wider social security cuts and reforms likely to push hundreds of thousands of children into poverty over the coming years it is crucial for low income families and the fight against child poverty that we get universal credit right.