Universal credit and the Tories’ stumbling welfare reforms

What is universal credit?

It is the flagship reform of the UK's state benefits and tax-credits system, first announced in 2011, replacing six "legacy" benefits paid to working-age households with one single monthly payment. The six means-tested benefits that are being rolled up into universal credit are: jobseeker's allowance, income support, housing benefit, employment and support allowance, working-tax credit and child-tax credit. The project, which won't now be fully implemented until at least 2023 six years later than originally planned was originally driven by Iain Duncan Smith, Conservative secretary of state for work and pensions between 2010 and 2016.

What is the rationale behind it?

The idea, which enjoyed broad cross-party support, was to simplify the system, make it more efficient and crucially to ensure that low earners would always be better off in employment. A major problem with the previous system was that the multiple benefits threw up all kinds of perverse disincentives (such as losing money if you work extra hours; in effect a tax rate of 100%). Under the new system, these disincentives would be minimised, and claimants would only have to claim once, instead of having to supply reams of personal information again and again to different government agencies. They'd also be less likely to miss out on benefits to which they didn't realise they were entitled. In other words, universal credit was conceived as a reasonably generous reform that would position the Conservatives as the champions of the working poor.

What happened?

Two big problems. First, as part of his spending cuts, George Osborne (as chancellor in 2010-2016) cut the level that claimants could earn before their benefits were withdrawn, thus saving money but reducing the reform's effectiveness in creating an incentive to work. The overall result is that the universal-credit system is expected to be about 3% less generous overall than the previous system, shaving £2bn off the total spend. That means that many claimants in particular self-employed people will be worse off than under the previous system. Meanwhile, the Office for Budget Responsibility argues that the reform may in practice not save as much as ministers hope, and that the uncertainty poses a "significant risk" to the public finances in coming years as the numbers grow. Only 660,000 people (around 10% of all claimants) were in receipt of universal credit by last November, but the rollout of the benefit is expected to gather pace this year, with two million people projected to be covered by March 2019 and about seven million by 2022-2023.

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And the second big problem?

The rollout, costing £2bn to date, has been shambolic due to multiple management and IT failures and to radical flaws in the overall design. For example, a key benefit of universal credit is supposed to be simplicity and a smoother claim system. But the Department for Work and Pensions (DWP) greatly overestimated the number of claimants who would be able to confirm their identity online using the government's online interface Verify. The officials reckoned on 90%, but the reality is just 38% (according to the National Audit Office, or NAO), meaning the supposed savings are much lower amid administrative chaos. Additionally, under the new system claimants receive one monthly payment, but have to wait five weeks and in many cases much longer for their claim to be assessed.

Why is that such a problem?

Many low earners are paid weekly, not monthly, and reams of research show that people on low incomes struggle to budget over long periods. And the five-week wait for money, in cases where people have no other savings or resources, has proved disastrous leading to real hardship: a surge in the use of food banks in the areas where universal credit has been brought in; a spike in rent arrears and evictions; and widespread reports of private landlords now refusing to let to benefit claimants. The NAO report is harsh in its criticism of the DWP for failing to react to the mounting evidence of real hardship from claimants and other stakeholders including landlords and welfare advisers and instead being "defensive, insensitive,and dismissive".

Will it get more people into work?

No one knows, but there are reasons to be sceptical. The NAO says that the DWP will "never be able to measure" whether universal credit actually leads to 200,000 more people in work, because it cannot isolate the effect of the reform from other factors that raise employment. The way the DWP has rolled out the reform means it "lacks appropriate control groups" of legacy (old system) claimants, says the NAO, and "the larger claims for universal credit, such as boosted employment, are unlikely to be demonstrable at any point in the future. Nor for that matter will value for money."

What is the government doing?

Pressing ahead, later this year the DWP has to reconvince the Treasury that the business case for universal credit still makes sense, at which point a crunch could come. For now, under intense political pressure not least from Tory MPs the government has taken some steps to improve things. It cut the target waiting time from six to five weeks, and bumped up the transitional loans that claimants have access to. Yet the government still seems bizarrely deaf to the hardship and upset the scheme is causing, argues The Economist. Despite evidence that it should pause the scheme, change course, or "risk doing real damage", the government seems determined to plough ahead with this "giant, increasingly unpopular project".