One size does not fit all: why Universal Credit needs to work for older people

With its age-blind design, Universal Credit is a missed opportunity to tackle the UK’s demographic challenge.

The shape of our labour market has altered dramatically in recent decades. Among the starkest changes is the increase in the number of older workers – from five million in 1992 to 7.5 million in 2012. One in three people of working age in the UK is already over 50 and the growth of this group will continue to far outpace that of their younger counterparts.

For many of these baby boomers, their working lives have coincided with good times of rising employment and a boom in assets like house prices. But it is naïve to think that all the boomers are now sailing into affluent, easy retirements. The UK has four million inactive or unemployed older people, many of whom might still want to work but are prevented by a mix of caring responsibilities, poor health, poor skills and the fact that there’s often no real financial incentive for them to do so. As a result, many people retire or drift out of the labour market without having been able to save all they need for a comfortable old age.

This is bad news for those households left without the savings they need to maintain decent living standards into retirement. But it also spells trouble for the public finances, putting upward pressure on benefit spending and reducing tax revenues just as public spending constraints are at their tightest.

The ageing challenge provides the context for the introduction of Universal Credit (UC). The interaction between the welfare system and incentives is one of the main ways a government can shape labour market behaviour and UC is the government’s flagship welfare reform. The financial support it offers low earners is a potentially powerful tool to boost employment – indeed providing incentives (“work always pays”) is the principle at the heart of UC. And one in five families receiving UC will include at least one person aged 50 or over.

But how effective will UC be in increasing an older person’s incentive to work? This question has received almost no attention. Yet a report out today from the Resolution Foundation, Getting on: older workers and universal credit, shows that while UC offers some benefits to older workers, it also misses an opportunity to develop an age-specific approach to raise their incentives to stay in a job, or return to work.

In fact, while many older workers will be better off under UC, others will see their financial incentives to work sharply reduced. In the most severe case, someone aged over 60 and earning £7 an hour could see their annual income from work fall by £1,640 (from £9,120 to £7,480). This is because many older workers doing between 16 and 30 hours a week on low incomes receive an extra level of support under the current system of tax credits which will disappear under UC. The result is that an additional tranche of low-paid older people working more than 16 hours a week will be worse off.

The problem is that in its welcome attempt to simplify the current mishmash of working and workless benefits, UC has been designed on an age-blind basis. This passes up the opportunity to incorporate age-specific measures which would make work more appealing to older people, especially those over 55 who are nearing retirement. For example, UC could allow older workers to keep more of their earnings before support starts to be withdrawn (raising the ‘disregard’). A new, higher disregard for workers over 55 would leave low paid older workers better off by £150 a month. This would come at an overall public cost of £200 million; however this cost would fall if older people moved into in work as a result - the Treasury saves around £5,300 a year when a person moves from longer-term unemployment to work 25 hours a week.

The introduction of UC is by no means all bad news. Greater simplicity is to be welcomed. UC also makes support more flexible, helping those who wish to retire gradually and those who can’t work full-time because of caring duties or poor health. UC also provides more incentive to save into a pension than the current system, a very desirable change.

Despite the positives, there is a strong case for making UC more attractive for people to work past the age of 50 and on into their 60s. The UK would add another 1.5 million workers if it matched the older employment rates of other advanced economies, and efforts to boost employment among this group will be vital to living standards in the coming decades.

Our ageing population and relatively poor performance in this field makes this a crucial economic issue for the country. As things stand, UC with its present age-blind design is a missed opportunity to tackle the UK’s demographic challenge.

Giselle Cory is senior research and policy analyst at the Resolution Foundation

Work and Pensions Secretary Iain Duncan Smith speaks at last year's Conservative conference in Birmingham. Photograph: Getty Images.

Giselle Cory is senior research and policy analyst at IPPR.

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BHS is Theresa May’s big chance to reform capitalism – she’d better take it

Almost everyone is disgusted by the tale of BHS. 

Back in 2013, Theresa May gave a speech that might yet prove significant. In it, she declared: “Believing in free markets doesn’t mean we believe that anything goes.”

Capitalism wasn’t perfect, she continued: 

“Where it’s manifestly failing, where it’s losing public support, where it’s not helping to provide opportunity for all, we have to reform it.”

Three years on and just days into her premiership, May has the chance to be a reformist, thanks to one hell of an example of failing capitalism – BHS. 

The report from the Work and Pensions select committee was damning. Philip Green, the business tycoon, bought BHS and took more out than he put in. In a difficult environment, and without new investment, it began to bleed money. Green’s prize became a liability, and by 2014 he was desperate to get rid of it. He found a willing buyer, Paul Sutton, but the buyer had previously been convicted of fraud. So he sold it to Sutton’s former driver instead, for a quid. Yes, you read that right. He sold it to a crook’s driver for a quid.

This might all sound like a ludicrous but entertaining deal, if it wasn’t for the thousands of hapless BHS workers involved. One year later, the business collapsed, along with their job prospects. Not only that, but Green’s lack of attention to the pension fund meant their dreams of a comfortable retirement were now in jeopardy. 

The report called BHS “the unacceptable face of capitalism”. It concluded: 

"The truth is that a large proportion of those who have got rich or richer off the back of BHS are to blame. Sir Philip Green, Dominic Chappell and their respective directors, advisers and hangers-on are all culpable. 

“The tragedy is that those who have lost out are the ordinary employees and pensioners.”

May appears to agree. Her spokeswoman told journalists the PM would “look carefully” at policies to tackle “corporate irresponsibility”. 

She should take the opportunity.

Attempts to reshape capitalism are almost always blunted in practice. Corporations can make threats of their own. Think of Google’s sweetheart tax deals, banks’ excessive pay. Each time politicians tried to clamp down, there were threats of moving overseas. If the economy weakens in response to Brexit, the power to call the shots should tip more towards these companies. 

But this time, there will be few defenders of the BHS approach.

Firstly, the report's revelations about corporate governance damage many well-known brands, which are tarnished by association. Financial services firms will be just as keen as the public to avoid another BHS. Simon Walker, director general of the Institute of Directors, said that the circumstances of the collapse of BHS were “a blight on the reputation of British business”.

Secondly, the pensions issue will not go away. Neglected by Green until it was too late, the £571m hole in the BHS pension finances is extreme. But Tom McPhail from pensions firm Hargreaves Lansdown has warned there are thousands of other defined benefit schemes struggling with deficits. In the light of BHS, May has an opportunity to take an otherwise dusty issue – protections for workplace pensions - and place it top of the agenda. 

Thirdly, the BHS scandal is wreathed in the kind of opaque company structures loathed by voters on the left and right alike. The report found the Green family used private, offshore companies to direct the flow of money away from BHS, which made it in turn hard to investigate. The report stated: “These arrangements were designed to reduce tax bills. They have also had the effect of reducing levels of corporate transparency.”

BHS may have failed as a company, but its demise has succeeded in uniting the left and right. Trade unionists want more protection for workers; City boys are worried about their reputation; patriots mourn the death of a proud British company. May has a mandate to clean up capitalism - she should seize it.