Earlier this week, Esther McVey told the Cabinet that millions of families, including half of all lone parents and two-thirds of working-age couples with children, will lose around £2,400 each year as the next stage of Universal Credit rolls out. Theresa May reassured the Commons on Wednesday that transitional relief would provide protection. Yesterday, the Work and Pensions Secretary again insisted that some claimants will none the less lose out. These will experience knock-on effects on their incomes. How should the Government respond?
We have always had reservations about any scheme which relies on real-time reporting of changes in income. Gordon Brown has recently criticised the new system, but in this respect it mirrors his own tax credit system, which ran into trouble over overpayments and underpayments, and continues to do so. That Universal Credit requires a new computer system has added to its troubles. But at the heart of the scheme is a noble aim: to ensure that poorer people gain more from working more. Under the system that it is intended to replace, benefit withdrawal rates can be 90 per cent, or even higher.
Unless there is some form of minimum income, which brings its own mass of problems, there will always be a trade-off between higher wages and lower benefits. This has been an element of the system since John Major’s Government introduced Family Credit. But it must be recognised that, in broad terms, some poorer families are facing staggeringly high tax rates, for reasons connected to benefit withdrawal and other factors. Even Universal Credit tapers away at a rate of up to 60 per cent. However, that’s clearly an advance on what Ministers call the legacy system.
Now translate those dry figures into raw politics. Any system which produces winners and losers also produces the same result: the winners quietly pocket their gains, the losers noisily protest. Many of the latter will be concentrated in marginal seats that the Party wants to hold or win, and fall fairly and squarely into Robert Halfon’s group of Tory Workers, or should do. Call them battlers or strivers or the little guy – or what have you: there is an electoral imperative as well as a justice requirement here. Furthermore, Conservative MPs are threatening to help overturn the planned reductions – Nigels Mills, Johnny Mercer, Halfon himself, and others.
Earlier this week, Mark Wallace walked this site’s readers through an origin of the problem: the row between George Osborne and Iain Duncan Smith over the funding of Universal Credit, which contributed to the latter’s spectacular resignation as Work and Pensions Secretary. There is no need to go over the dispute again. But it provides the source of a resolution. Treasury Ministers are sounding out potential rebels over a policy choice: should the forthcoming Budget put £2 billion into raising income tax thresholds, as the Conservative Manifesto promised, or divert the money instead into universal credit?
There may be a policy choice, but there’s no political one. Unless the Chancellor volunteers more for Universal Credit, Tory backbenchers will force his hand. Frankly, if you’re a Minister, and you’re facing a backbench coalition that stretches from Heidi Allen to Jacob Rees-Mogg – who urged more money for the credit in our Moggcast earlier this week – you will know that you’re on a loser. The script isn’t hard to write: in his Budget speech, Philip Hammond will announce that the Treasury will provide the money required. And face another financial headache – as, emboldened by the Prime Minister’s Party Conference speech, his colleagues queue up, brandishing their next demands.