Universal Credit – reform, repeal or revolution?

I ought to start off with what might be described as a confession. I rather welcomed the concept of Universal Credit when it was first mooted – the notion that you might combine a number of different benefits, with different application processes and eligibility criteria, into one benefit, struck me as a bit of a no-brainer. I am, after all, a bureaucrat. And, from a user perspective, simplifying what was necessary to establish a claim could only help more people to get the support that they were due.

But what happened next was the inevitable result of deliberate underfunding and a failure to ensure that the systems were in place and fully tested before being rolled out. What followed was a slowly unfolding nightmare for everyone involved but mostly for those who needed a working system most, the claimants. Higher taper levels for earned income destroyed the incentive to seek work, maladministration and a punitive sanctions system meant that claimants suffered from a complete lack of support when they were at their most vulnerable. And sadly, little has changed. The temporary £20 per week increase during the pandemic made a sizeable difference to many, but reversion to the previously existing arrangements, combined with the surge in inflation and energy costs, has thrown hundreds of thousands of households into crisis.

So, what is to be done? Can you fix the Universal Credit system, or should it just be burned to the ground and a new start made?

I would argue that any major overhaul would just cause the administration of our welfare system to collapse altogether. It might be said that the Department for Work and Pensions is, like the Home Office, blighted by a process-bound culture of mean-spiritedness, and the anecdotal evidence is damning in that sense. But an organisation with low morale and poor resourcing would struggle to handle what it currently does, let alone a whole new system.

Instead, I would turn to the original, rather more lofty, aims of Universal Credit, initially focusing on five aspects;

      1. Reduce child poverty – abolish the two child limit. It might be morally acceptable to some Conservatives to “punish” those who have more than two children without the means to support them, but children don’t make that choice, and punishing them is immoral.
      2. Make work more attractive – we need more people to come back into the workforce, but it has to be worth it, and reducing the taper rate to 55% last year was a start. I’d take it further though, increasing the Work Allowance to a level nearer the Income Tax Personal Allowance and/or reducing the taper rate to 50%.
      3. Introduce a fairer sanction system – whilst there will always be those who try to cheat the system, there are too many claimants who, through no fault of their own are punished for failures beyond their ability to influence. If a system is intended to help people, it shouldn’t punish them.
      4. Bridge the crisis gap – if you’re lucky enough to have savings, you might be able to handle a five week gap before payments start to come through. But we know that household financial resilience hasn’t been good for some time, and is worse now. Enable people to have their entitlement assessed quickly, within a week, preferably, and then the issue of repayment of initial DWP loans will be mitigated.
      5. Accept the new economy – the Universal Credit system doesn’t really reflect the reality of those in self-employment or in the gig economy, where income isn’t even across a year. Whilst Real Time Information allows variable hours working within HMRC’s PAYE system to be reflected, enabling the self-employed to report income more frequently would enable Universal Credit payments to reflect seasonal or cyclical variations.

I suspect that my proposals aren’t complete, and am almost certain that they don’t represent a “solution”. But sometimes, government isn’t about just change, it’s about managing what exists more effectively. These proposals would not require radical changes in the management of the underlying systems but would move it back towards what many hoped it would achieve at its introduction. They would certainly address some of the concerns of Professor Philip Alston in his 2019 report on extreme poverty and human rights in the United Kingdom.

* Mark Valladares is the Monday Editor of Liberal Democrat Voice, and an occasional reader of Liberator Magazine.

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22 Comments

  • Katharine Pindar 6th Jun '22 - 4:16pm

    Philip Alston’s devastating Statement on poverty in our country was published at the end of his comprehensive visit of November 2018. His final Report was published in April 2019, and was sadly neglected by our Work and Pensions Spokesperson of the time, despite much publicity in Liberal Democrat Voice. You are right to raise the numerous failings of the Universal Credit system, Mark, but I am pleased to tell you that our party’s Fairer Society Working Group, of which I am a member, is completing a paper proposing immediate necessary reforms and extension of the provisions of UC. This could lead to a great reduction of poverty during the next Parliament, if it results in a motion passed by Conference in September and followed up by the next government.

  • There is one further reform – omitted from Mark’s list: merge UC into the tax system so that people only have one unified system to deal with.

  • Michael Kilpatrick Michael Kilpatrick 6th Jun '22 - 6:57pm

    Erm, isn’t our policy now for Universal Basic Income? And doesn’t that rather involve the elimination of a number of distinct and badly-coordinated benefits as a result?

  • Good article with good suggestions, Mark. A key purpose of introducing Universal Credit was an attempt to eliminate the poverty trap/welfare trap. Unemployment payments would taper off as the recipient moved into work, not suddenly stop, thus avoiding a ‘cliff edge’ that was said to ‘trap’ people in unemployment and hence poverty. For too many people, however, UC has made their situation more difficult rather than helping or incentivising employment as this article notes Universal Credit and the ‘Welfare Trap’ 2017
    Beveridge was unable to tackle the problem of rents and the issue of poverty is inextricably linked to housing costs. As this report THE BEVERIDGE REPORT 80 YEARS ON: SQUALOR AND HOUSING — ‘A TRUE GOLIATH writes there are two main solutions to the housing crisis – construction of sufficient public housing to meet needs and Land Value Tax.

  • @ Mark Valladares An interesting article, and thanks for raising the issue, Mark.

    Good luck when you talk to the party leadership. In Government the present Leader voted to introduce Universal Credit on 1 Feb, 2012, (as well as the bedroom tax). As a Lib Dem Councillor with responsibility for Social Care I well remember the impact it had. The party also voted,

    1. Not to make an exception for those with a cancer diagnosis or undergoing cancer treatment from the 365 day limit on receiving contribution based Employment and Support Allowance.
    2. Not to exclude child benefit from the benefit cap.
    3. Not to set the lower rate of the Universal Credit payment in relation to disabled children and young people at a minimum of two-thirds of the higher rate.

    All this (and more) is on the record on the ‘They Work For You’ website. I wish you more luck than my good friend Katharine got when she attempted to speak to the then party Work and Pensions Spokesperson after the Alston Report was published in 2019.

  • Michael,

    UC replaces Child and working tax Credit, Housing benefit and income support/job seekers allowance.
    An working age UBI of £77 per week would only replace income support/job seekers allowance. Hosing benefit, child element of UC and Childcare support for working parents would still be required.

  • @ Joe Bourke Will the Royal family qualify for UBI under the present party policy, or will it be restricted to the likes of Paddington Bear ?

  • Michael Kilpatrick Michael Kilpatrick 6th Jun '22 - 10:33pm

    Joe, where did the figure of £77 per week for UBI come from? Is that the figure of the initial roll-out as per the Policy Paper in 2021? If so, isn’t it the case that the long-term goal is for a more significant UBI but that the initial roll-out would, for many practical reasons, need to be limited to that figure? Have I understood that correctly?

  • Katharine Pindar 7th Jun '22 - 1:16am

    Joe Bourke. You are right, of course, Joe, that poverty is intricately linked with housing costs (so that housing benefit rates should relate to the rents of the area where the recipient lives), and with work in the gig economy as well, and the Fairer Society Working Group is looking into questions of work and workers’ rights, while another group is considering housing more widely. You may be interested to know that one of the options our group is offering is to reform and merge UC into an old favourite of yours, Guaranteed Minimum Income. Universal Basic Income is also extensively reviewed and considered for implementation after trials.

  • Mick Taylor 7th Jun '22 - 5:54am

    UC is now so discredited that it needs scrapping. It is based on the wholly illiberal idea of the deserving and undeserving poor and has a built in assumption that everyone is a benefit cheat. As a party we do not have the courage to challenge this. Whatever happenedceot to Beveridge’s con

  • Mick Taylor 7th Jun '22 - 5:59am

    Beveridges concept of support from the cradle to the grave? UBI is a step towards a society where people are treated fairly and we must embrace it, not try to save the lost cause that UC has become

  • Rif Winfield 7th Jun '22 - 9:50am

    Perfectly correct, Mick. Those who argue for tinkering with the UC system simply do not understand what UBI signifies. It is what it says on the tin! UBI would be paid to EVERY ADULT in the country, those in employment or self-employed as well as those currently on benefits, pensioners, students (over 18), etc. And at a level which covered the basic weekly needs of the average human being. THAT is how the system would be simplified. And paying it to everyone would mean that people who were able to work would always benefit financially by choosing to do so. Yes, it is true that to balance the books would mean a considerably higher rate of income tax on earned income. But this is a price worth paying for everyone except those on very high incomes. I’d remind you, Mick, that this is a policy which the Liberal Party chose to adopt in the 1970s, and it’s just as relevant now.

  • Peter Davies 7th Jun '22 - 11:46am

    UBI is an entitlement. It is paid to everyone through the tax system with no assessment of whether they deserve or need it. As such, any realistic level of UBI will fail to meet the needs of some. UC is a good complement to ensure that nobody starves or is homeless without completely removing incentives to work.

    The way to get the best of both worlds is to keep UBI simple (everybody gets it, everyone pays tax on all their income), set it as high as we can afford to so that it is enough for most people and then top it up using a UC system. You could simply calculate their net income under the current tax and benefit system (or with reforms like Mark’s which cost little) and if that beats their net income under UBI, top it up. That way, nobody poor loses out. Many poor people are a bit better off and no longer need to have any contact with the DWP.

    I think that answers Martin’s “I wouldn’t start from here” point which is indeed the big problem with any transition to UBI.

  • Lorenzo Cherin 7th Jun '22 - 12:40pm

    Mark , good points. You misunderstand the self employed aspect. It is because of too frequent a need to report earnings, problematic results are happening. The far better tax credits system for the self employed, requires annual reports, not monthly.

    Brown devised a good system. This party was too keen to change that which was good, do nothing about that which is not. As David says, it is shameful, or in the past must be called that.

    So we get idle nonsense about changing the monarchy, which works, and needs nothing to fix it.

    But very little about our flawed public services which are a failure often.

    It is not for top down civil servants who are uncivil, even uncivilised, and who serve nothing but themselves and their interests.

    If we had the courage to criticise the staff at the Home Office and the DWP, more than we do, and as much as the Ministers, we might get the problems and find the solutions.

    Universal credit ought to be scrapped. The DWP ought to be, as it is now, completely abolished. And universal basic income ought to be over one hundred pounds.

    It need not be universal. A basic income of a hundred and twenty pounds paid and removed up to and not after earnings of a hundred and twenty thousand is fair and easy to comprehend.

    We need to treat people as people, as equals. As Mick reveals, the system as now does not.

  • Making tax digital will require self-employed with income over £10k to report their earnings quarterly to HMRC from April 2024. It may be that quarterly reporting could aid in resolving Mark’s 5th point – to enable Universal Credit payments to reflect seasonal or cyclical variations.

  • Katharine,

    I look forward to seeing the Fairer Society Working Group policy recommendations.
    I think reform and merger of UC into a Guaranteed Minimum Income is a practical policy that can receive broad electoral support https://www.libdemvoice.org/minimum-income-guarantee-63647.html and it will likely need to accompanied by a comprehensive job guarantee scheme.
    The party will soon need to develop an election manifesto that provides an alternative to the Conservative’s leveling-up agenda.

  • The past is shameful. On the doorstep the harrowing effects of UC have not been forgotten by those who put their trust in the LISTER and were hung out on the cross. Well said, David Raw. Anybody who wants to punish people in a bad situation or go on about people, if there are a few, who don’t want to work and supposedly live a millionaire life on benefits are just slave owning, non thinking Tories. You need to worry about those who need help and give them the help they NEED, they and their relatives are tax paying, law abiding parts of this community, and you need to show your commitment to keeping this society a balanced, fair and pleasant land, not a plantation.

  • Peter Davies 8th Jun '22 - 9:27pm

    On Mark’s point 2: Making work pay was the standard justification for UC. To get the optimum system to incentivize work you have to ask what effective tax rate it gives each category of workers and how able they are to respond. Because taper works on net income, raising the lower bound (work allowance) by £1000 generally raises the the upper bound (where taper runs out) by £1470 or £1724 once you get over the higher rate limit which you could easily do if you took the work allowance up to personal allowance levels.

    People in standard low-paid employment generally only have the choice of working or not working and they choose working. If they have any choice it is on overtime. That is never affected in the right direction by work allowance. A higher work allowance may mean that they are still within the taper and overtime is effectively taxed at 66% instead of 32%.

    Gig workers assess each job as it comes. Expenses are roughly proportional to the hours they work. Each extra job they take is less likely to seem attractive as they are less desperate and more exhausted. Raising the work allowance improves incentives for jobs they would have taken anyway while reducing them for jobs that are marginal.

    Work allowance is of course very expensive. With a 55% taper rate a £12,500 Work allowance would be worth £132 per week, almost twice what most people are suggesting for UBI and with the upper limit rising a lot of people would be getting it.

  • Katharine Pindar 10th Jun '22 - 1:08am

    Joe, regarding the need for a comprehensive job guarantee scheme, which you mentioned in your comment to me on June 7, 4.21 pm, you probably recall that in last September’s Federal Conference in the Fairer, Greener, More Caring Society motion we passed the following (helped by an amendment from Michael BG which I think invoked the policy paper) : ‘Introduce a green jobs guarantee, offering a well-paying green job to anyone who wants one; Providing training courses free to those not in work via a training guarantee scheme.’

    Our party passes so many good policies, it is just our continuing job to remind our current working groups and our Manifesto team about them! I posted this part of the motion on line last month to the member of our Fairer Society Working Group who is leading on our Jobs and Skills section, along with Michael’s suggestion that £3 billion for the job guarantee and training schemes might provide places for about 250,000 unemployed people in one year, while a further £1.2 billion would provide training, support and experience for 100.000 people on Employment and Support Allowance to help them get into work. Another suggestion is that we should give incentives to employers to take on disabled people and others who receive ESA, crediting them with the employers’ national insurance for the first year and 50% in the second. I expect we shall still need to be persuasive in party policy developments to get such measures reiterated and furthered.

  • Peter Hirst 13th Jun '22 - 5:02pm

    It is an opportune time to push UBI up the political agenda. It might even form part of our common agenda with other Parties in the run up to the next GE. The devil is in the details. Perhaps a suitably resourced computor programme might come up with the best compromise between competing objectives.

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