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10 November 2015

Iain Duncan Smith must guarantee that Universal Credit will not be cut

Reducing payments to low and middle income workers is no way out of the tax credits mess. 

By Owen Smith

Trying to find out exactly what’s going on with the government’s enforced rethink on tax credit cuts is a bit like listening to people panicking behind a closed door.

You hear the occasional snap of raised voices or see leaked snippets from “friends” of Iain Duncan Smith or the Chancellor, passed around like notes at the back of a classroom. These give a vague picture of the frantic discussions that are happening but, critically, the three million working families who are set to lose an average of £1,300 a year still have no firm idea what the government plans to do to their finances next April.

Although one rumour that’s refusing to fade is the plot to take billions of pounds out of the Universal Credit budget to try and cover the Tories’ tracks on tax credits. As a result, I have written to Iain Duncan Smith today, calling on him to provide a public, cast-iron guarantee to the millions of working families who are worried about cuts to their incomes that no further money will be taken out of the Universal Credit budget.

The Tories think they might be able to get away with it because Universal Credit is a bit of a black box – a complicated new system that many people don’t yet fully understand. So I commissioned analysis from the House of Commons Library to model a real example of the impact further cuts would create, to give the government a much needed dose of reality.

Under current plans for Universal Credit, for every extra £1 low and some middle paid workers earn over a certain threshold they lose 65p of support from the government. If the plans that have been rumoured come to pass, the Tories would increase this “taper rate” to 75p in the pound. That equates to some low paid people effectively paying a tax rate of well over 80 per cent.

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The upshot of all this is that a single parent of two children, working full time on the minimum wage, who is already set to lose more than £2,400 next year, as a result of the government’s plans, would see those losses rise to over £3,100 a year. The evidence is clear and damning, cutting Universal Credit in the way that’s been rumoured will mean huge losses for millions of working families.

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This throws up all of the same problems that the Tories planned cuts to tax credits caused in the first place. Little wonder that even Iain Duncan Smith’s own think-tank, the Centre for Social Justice, has argued that the government should not “raid Universal Credit to pay for any transitional changes” to tax credits, as they will just be recreating the same problem.

What is more, further cuts to Universal Credit would completely undermine the whole premise of this incredibly costly programme, which was supposed to be that people would always be better off in work. That principle of the project has had cross party support, but the roll out by this Tory government has been horribly beset by mismanagement and costly delays. So if the core element of the system were now to collapse, Universal Credit starts looking more and more like a very expensive white elephant.

The evidence is overwhelming and comes from every direction. Cutting Universal Credit is no way out of the tax credits mess for the Tories, as it would do little more than rebadge the same cuts.

Throughout his time at the DWP Iain Duncan Smith has never shown himself to be a friend of people on low and middle incomes. However, if he can’t even give a guarantee today that his Universal Credit system will not be further undermined, people will question if he has become a man in office but increasingly not in power.