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26 July 2021updated 30 Aug 2021 10:13am

Why cutting Universal Credit is even worse than you think

The £1,000-a-year cut would increase child poverty, damage economic growth and intensify regional inequality. 

By George Eaton

If the welfare state did not exist, we would need to invent it. The Covid-19 pandemic has been indisputable proof of this. Since the start of the crisis in March 2020, the number of people claiming Universal Credit has doubled from three million to six million. After a decade of austerity, the welfare state has been reaffirmed as a form of collective insurance against life’s hazards: ill-health, unemployment, disability and the death of a partner. 

For years in advance of the pandemic, Conservative and Labour politicians competed in a race to the bottom on welfare. Those who had the temerity to claim benefits were depicted as “scroungers” or “shirkers”. In his 2012 Conservative conference speech, then-chancellor George Osborne declared: “Where is the fairness, we ask, for the shift-worker, leaving home in the dark hours of the early morning, who looks up at the closed blinds of their next-door neighbour sleeping off a life on benefits?” In the same year, the shadow work and pensions secretary Liam Byrne declared in a speech at the London School of Economics that Labour was “the party of workers, not shirkers”. That the overwhelming majority of claimants had previously worked, and would soon work again, was seemingly of no relevance. 

Such punitive rhetoric was accompanied by punitive measures: working-age benefit increases were frozen so that payments no longer rose in line with the cost of living; total benefit payments were capped at £20,000 (or £23,000 in London), regardless of household size or need; tax credits were limited to a maximum of two children (a move that is unique in Europe); and claimants were routinely declared “fit for work” when they patently were not (2,380 people died between December 2011 and February 2014 after passing work capability assessments). 

But Covid-19 brought about a pause in the retreat of the welfare state. In March 2020, at the same time as unveiling the furlough scheme, Chancellor Rishi Sunak announced that Universal Credit payments would be increased by £20 a week (or £1,040 a year). Regardless of the pandemic assailing the UK, the move was long overdue. Unemployment benefit had previously been worth no more than it was in the early 1990s, despite the economy having grown by 75 per cent since then. By boosting incomes, the Universal Credit increase helped prevent a yet worse recession and yet higher poverty. As any good Keynesian knows, poorer households are more likely to spend, rather than save, any additional income and stimulate growth as a result

This autumn, however, the £20-a-week lifeline will be removed. During a select committee appearance earlier this month, Boris Johnson remarked that “the emphasis has got to be about getting people into work”. Once again, that 37 per cent of claimants are already in work was of no relevance. 

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The unfairness and irrationality of cutting Universal Credit at this moment is obvious. The furlough scheme is being wound down and will end entirely on 30 September, putting incomes under new stress (unemployment is expected to increase from around 4.8 per cent to around 6 per cent). Though the UK’s national debt has risen to 99.7 per cent of GDP, borrowing costs remain ultra-low by historic standards. By taking £6bn out of the economy, the Universal Credit cut will destroy jobs, not create them. A fragile recovery is no time for what the Joseph Rowntree Foundation has calculated will be “the largest single cut to the basic rate of social security since the Second World War”. 

Universal Credit is worth less than a fifth of average earnings, even with the uplift
Standard rate unemployment benefits for a single person, as a percentage of previous earning

Even with the £20 top-up, the UK’s welfare state is threadbare by European standards. Universal Credit is currently worth just 18 per cent of previous earnings, compared to 90 per cent for the equivalent benefit in Denmark, 80 per cent in Sweden, 75 per cent in Italy and the Netherlands, 70 per cent in Spain and 60 per cent in Germany. Should Universal Credit be cut, unemployment support would fall to its lowest real-terms level since 1990-91 and its lowest ever relative to average earnings. 

To the extent that Boris Johnson’s government has a defining aim it is “levelling up”, but this would be an act of levelling down. As research by the Resolution Foundation has shown, individuals are 50 per cent more likely to lose out in Red Wall regions than in the south-east. A cut to Universal Credit would hit 36 per cent of non-pensioner households in Northern Ireland, 35 per cent in Wales, 34 per cent in the West Midlands, 34 per cent in Yorkshire and the Humber, 34 per cent in the north-east and 31 per cent in the north-west, compared to just 21 per cent in the south-east. Most distressingly, the £20 cut would push 420,000 more children below the poverty line, according to House of Commons library research, adding to the 4.3 million already there.

The cut to Universal Credit will hit Red Wall regions hardest
Proportion of non-pensioner households set to lose more than £1,000 in 2021–2

Since becoming Prime Minister, Johnson has hardly been shy of U-turns. Can he be persuaded to execute another? Opponents to cutting Universal Credit include not only the usual suspects but also six former Conservative work and pensions secretaries (Iain Duncan Smith, Stephen Crabb, Damian Green, David Gauke, Esther McVey and Amber Rudd). Marcus Rashford, perhaps the most effective campaigner in British politics, may again lead the fightback. 

But one should not assume that the government is simply waiting for an excuse to U-turn. Though Sunak acquired a reputation as a big spender during the Covid-19 crisis, he is in reality an ideological dauphin of Osborne. The man who argued in 2015 that “in normal times public spending should not exceed 37 per cent of GDP” has already frozen public sector pay and is poised to make departmental spending cuts of £17bn relative to March 2020 plans. Cutting Universal Credit would complete the reversion to austerity. 

The 1918-19 Spanish Flu, among the deadliest pandemics in human history, spurred the creation of the Swedish welfare state, one of the most egalitarian systems ever known. For Swedes, as with the English and the NHS, this model is a source of patriotic pride. 

Covid-19, a crisis which has newly exposed our collective fragility, should inspire comparable statecraft. But for all the pious talk of “building back better”, the UK is regressing to something worse.

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This article appears in the 28 Jul 2021 issue of the New Statesman, Summer special