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6 October 2010updated 27 Sep 2015 2:11am

What will the “universal credit“ actually mean for the poor?

Judgement must be reserved until the numbers are spelled out.

By Samira Shackle

The planned cut to child benefit has caused a furore this week, with critics railing against everything from its inconsistencies to the attack on universality. This is, perhaps, rather predictable: it’s a cut to middle-class benefits and such cuts always create a media storm.

But amid the scrutiny of the child benefit policy, are we missing a trick? Iain Duncan Smith yesterday announced a major shake up of the UK’s welfare system — involving the amalgamation of all current benefits into a single universal credit that will be phased out slowly when people start working, in order to make it worth their while to take on minimum-wage jobs.

Many of the aims are laudable, such as the principle of ensuring that people are not worse off financially when they return to work. But the policy has so far been noticeably short on detail. We have been told that it will simplify the system and prevent fraud but what exactly will it mean for families on benefits?

The first point is that although the reforms have been trumpeted as a radical overhaul, motivated by concern for the poor, it is in many ways an extension of means-testing. The same arguments can be levelled against this as against the child benefit move — it further divorces the interests of middle-class families paying for welfare from those of poorer families benefiting from it. Tying these interests together is an important pillar of the welfare state as it prevents the lazy demonisation of the poor. Iain Duncan Smith’s speech yesterday struck a paternalistic tone but it was telling that he spoke of “us” (Conservative voters) and “them” (those in need of assistance).

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However, the key point is this: while helping people to work rather than cutting them off from support appears to be a relatively fair way of cutting spending, it’s difficult to make a judgement on the matter without knowing whether the various elements of the new credit will be higher or lower than the benefits they are replacing.

This fundamental aspect of the reform has not yet been discussed. If Osborne’s reactionary comments on welfare in the past few weeks and the cuts to incapacity and housing benefits that have already been announced are anything to go by, it could well be significantly lower. So far, cuts amounting to £15bn have been announced — that’s 6 per cent of the welfare budget.

Over on the Touchstone blog, Richard Exell highlights another question, which is what the taper rate will be. It’s been speculated that it could be at around 65 per cent — which is a lower withdrawal rate than is currently set for housing benefit — but higher than that for tax credit (which currently tapers at 39p in the pound). This means that thousands could still face reduced incomes and increased marginal effective tax rates (a key disincentive to work in the benefits system).

A final, key point that has gone largely unaddressed here at the Conservative conference is the shortage of job vacancies. We have been told that the universal credit will include sticks as well as carrots and could be cut off from those who refuse work — although we do not know precisely the criteria for this. While Duncan Smith acknowledged in passing that it can be difficult to find jobs, the extent to which the current high levels of unemployment are due to the labour market is never explored — ministers instead choose to rail against those on benefits as a “lifestyle choice”. Job vacancies already stand at around 160,000 below their pre-recession peak, with certain areas disproportionately affected. This is likely to worsen as public-sector job cuts hit. It is difficult to incentivise work if there is no work to go to.

While there are theoretically many good things about the universal credit (such as withdrawing benefits slowly when people return to work), judgement must be reserved until the numbers are spelled out. Given the brutal cuts to benefits for some of the country’s most vulnerable that have already been set out, it is likely that this will not be the positive sea change for the poor that it is hailed as.

 

 

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