Ed Boyd is Managing Director of the Centre for Social Justice.
This morning a private letter to David Gauke, the Work and Pensions Secretary, which called for Universal Credit to be stalled, has been leaked.
It was written by Heidi Allen and supported by a few other Conservative MPs (who, incidentally, have expressed deep frustration at it being made public).
This letter, whilst well meaning, is misguided. Universal Credit is working, and is a vast improvement on the system it replaces. Critics should be calling for it to be invested in, not stalled, for this is what will help transform the lives of the poorest families across Britain.
Universal Credit is one of the most effective poverty-fighting tools in existence. When it is fully rolled out, 300,000 more people will have a job. To put that into perspective, it is five times more jobs than the Government estimated would be lost through the introduction of the living wage. It is more than the population of Bolton.
Moreover, recent data has shown that, compared with the old welfare system, people are more likely to find work, stay in work, and earn more money. This is hardly surprising given it simplifies the benefit system, gives claimants a single work coach to guide them through the process, and lets them keep more of the money they earn.
Universal Credit is replacing the old benefit system, which is so punitive that people out of work would only keep as little as 4p in every pound they earned if they took a job, undermining the principle that it should always pay more to work. This is immoral and reform was long over-due.
The way that it is being rolled out has also learned from the mistakes of the past, which gives the Department for Work and Pensions the intelligence and time to continually adapt and improve the system and ensure it works well for claimants.
The history here is instructive. Back in 2003, Tony Blair’s Government introduced what they considered a game-changing welfare reform: tax credits. In April of that year, the new system was switched on in a “big bang”, rather than being phased in.
It did not take long for things to unravel. Three months later 220,000 families had still not being processed. 400,000 payments arrived late. Stories quickly emerged of people giving up work because they could no longer afford childcare costs and falling into debt as the Government desperately tried to claw back £1.9 billion in overpayments.
Universal Credit is purposely designed not to make the same, painful mistake. There will be no “big bang” moment when Whitehall collectively holds its breath and crosses its fingers, hoping that a complex system will work perfectly the first time it is turned on. Instead, it has adopted a “test and learn” approach, where it is gradually rolled out, with regular pauses to adapt and improve the system.
This “test and learn” approach gives the DWP all the time it needs to make changes to ensure that each stage of the rollout is successful. For example, one area they currently need to adapt is the payment system, to ensure people get their money in a timely manner.
However, not all claimants can wait the standard six weeks for their first paycheck. Anticipating this, the original design included the scope for claimants who need assistance to receive ‘Budget advances,’ which give claimants money in two weeks. These are available for everyone who needs them.
As Universal Credit is rolled out, the DWP can use the “test and learn” approach to ensure that people who need a budget advance get one. If they have any concerns this will not happen as the next stage of the rollout progresses, they can make budget advances the default for a few months whilst they find a fix. There is no need for the system to be stalled to do this.
So, instead of focusing on the pace of the rollout, welfare campaigners should be focused on its generosity. For this is what will change people’s lives. Specifically, two changes are required.
First, people should keep more of what they earn. When George Osborne’s £12 billion in welfare cuts were introduced following the 2015 General Election, the blade fell equally on the previous welfare system (tax credits) and Universal Credit.
The tax credit cuts were later reversed, but not the Universal Credit ones – making the latter a less generous system. It is time to right this wrong and invest in Universal Credit by letting people keep more of what they earn.
The Government took a big, and welcome, step towards this earlier this year by increasing the amount Universal Credit claimants keep from 35p in every £1 earned, to 37p. It is time for the Government to take the next step and increase it further to 40p in the £1 – giving the poorest workers an effective 60 per cent marginal tax rate.
Not only will this help those who are struggling most, but also make the settlement between the poorest and richest fairer. Those in the highest earning bracket have a top rate of tax of 45 per cent.
Without getting too technical, there is an important difference between the two: one is about the rate at which you withdraw a benefit given out; the other is about how much of the money someone’s earned they get to keep.
But despite this, it is difficult to argue that the same incentives towards enterprise, and basic arguments around fairness, should not encourage a more generous settlement for Britain’s poorest workers.
Second, the seven-day waiting period should be phased out. It means that most people who lose their job and rely on the welfare system as a safety net never receive any money for their first week out of work. Nothing to support them to pay for housing, heating or food. While those with savings can cope, people who are only just managing can be pushed into debt.
Universal Credit, unlike Jobseeker’s Allowance, includes housing payments, tax credits and other benefits, so the waiting time should not apply. Moving people on to the monthly payment and getting them used to it is vital, as the large majority of jobs now pay monthly. This learning curve is made more difficult by this extra week’s delay.
It is vitally important not to forget the big picture – Universal Credit is changing lives and making work pay. There are two improvements to make, but neither requires Universal Credit to be stalled. They need something else: political courage. Since the general election, momentum on social justice has slowed as Brexit steals the show.
By investing in Universal Credit at the upcoming Budget the Government would show they are still committed to creating a country that works for everyone, and not just the privileged few. After all, the vast majority of those often described as just about managing will be on Universal Credit.
Re-investing in Universal Credit is a real investment in social justice. Time to show that despite Brexit, this Government hasn’t forgotten those who are too often left behind.