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9 September 2021

Why the government’s argument for cutting Universal Credit isn’t credible

Ministers’ claim that cutting benefits incentivises work ignores how many claimants are in work already.

By David Gauke

According to reports in the Financial Times, there is much concern within government about the consequences of removing the £20-a-week Universal Credit (UC) next month. “The internal modelling of ending the UC uplift is catastrophic,” says a well-placed Whitehall official. “Homelessness and poverty are likely to rise, and food bank usage will soar. It could be the real disaster of the autumn.”

There are two arguments deployed by the government to justify the cut. The first is one of affordability. This was a temporary increase at a time of emergency. We are poorer and more indebted than we were pre-pandemic and, the argument goes, we cannot afford a permanently higher welfare bill.

I served long enough in the Treasury – and share that institution’s fiscal caution – not to dismiss such arguments, although – as ever – this is a question of priorities. It is also the case that there is no fiscal imperative for the higher entitlements to be removed in one move.

The second argument is about work incentives. As Anoosh Chakelian set out in these pages, ministers have repeatedly argued that the focus should be on getting claimants into work and boosting wages rather than increasing benefit payments.

This rhetoric taps into the commonsensical view that generous welfare payments can disincentivise work, resulting in a dependency culture. This is ultimately detrimental to both taxpayers and claimants. Some on the left find such talk offensive but this is not a concern that exists solely on the right or those distant from working-class communities. Former Labour ministers such as Frank Field and David Blunkett have long criticised the “something for nothing” culture, reflecting their own views and the views of their voters.

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The difficulty with the work incentive argument in this particular context is that it appears to misunderstand the role and nature of UC. It is not solely an unemployment benefit. As Anoosh pointed out, 37 per cent of UC claimants are already in work.

This argument also ignores the rationale behind the introduction of UC – to make sure that our welfare system makes it easier for claimants to gain employment, stay in employment and increase their earnings. This involved ensuring that one benefit applied whether in work or out of work, and designing the system so that claimants kept a reasonable proportion of every additional pound earned as benefits were withdrawn and taxes on income applied.

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Some of the more controversial aspects of UC also exist to ensure that the experience of being out of work is not dramatically different from being in work, so that claimants find the transition manageable. Claimants are paid monthly in arrears, budget for their housing costs and undertake certain tasks (looking for work), and turn up to meetings at appointed times (with their work coaches) – and failure to do so may come at the risk of losing payments. In each case, the intention is to reflect what happens to those in work.

Some of these aspects attract criticism (the approach to housing payments has become more flexible, with more payments going directly to the landlord), but they are features not bugs. Everything about the design of UC is focused on minimising the challenges of moving into work.

This means that ministers’ argument that cutting UC is somehow necessary to get people back into work lacks credibility and coherence, and undermines their own record of reform in this area. 

[See also: Why cutting Universal Credit is even worse than you think]

That is not to say that the uplift policy is perfect. By necessity, the uplift was a crude measure (it was administratively simple to give every claimant the same weekly increase) but a simple cancellation would be too detrimental to millions of our poorest citizens, especially at a time of rising prices and continued economic uncertainty.

When the six of us who had served as Work and Pensions Secretary from 2010 to 2019 argued against simply dropping the uplift, we recognised there was a case for redeploying the uplift expenditure in a better way – even if that meant that some claimants would be cash losers – by, for example, lowering the taper rate or increasing work allowances. This would be consistent with the focus of making work pay.

There is one other factor. There are occasions when achieving a policy objective in an efficient way and protecting the poorest can be in tension – raising tax revenue or achieving net zero are two examples. With tax policy, we put in place various complexities (zero rates of VAT, for example) to address these concerns but they are usually somewhat ill-targeted. Similar problems are likely to arise as we put a price on carbon, with this likely to be accompanied with a host of complex exemptions.

The way the state works in aggregate should be progressive, but it is not necessary for everything the state does to be so. If a government can ensure that its welfare system both incentivises work and is sufficiently generous to protect against poverty, abandons the argument that welfare spending automatically undermines work, and articulates a vision of a generous but demanding welfare state, there are opportunities to deliver better policies elsewhere while protecting the poorest in society. 

The current rhetoric of focusing on work not benefits, however, betrays some lazy thinking that will provide a weak justification for the consequences of ending the uplift. It could be a painful mistake for claimants and the government.

[See also: Remainers lost the argument on free movement – and the UK is paying the price]