Universal credit: designed to punish undeserving poor
Rollout of the new benefit is widely recognised as being in chaos, and the immediate answer lies in breaking with the politics of austerity, writes Eddie Ford
When the idea of universal credit (UC) was first touted, we were told it would both incentivise work and be a marvellously efficient system that brings together loads of separate benefits into one simple payment. In this way, the story went, UC would do away with the ‘cliff edge’ of the previous system, whereby people on a low income would lose all their benefits at once as soon as they started working more than 16 hours - meaning that potentially you could end up substantially worse off by working (clearly a crazy situation).Under the new regime, the theory goes, there is no limit to the number of hours you can work per week - with benefit payments reduced at a consistent rate, as income and earnings increase: ie, for every extra £1 you earn after tax, you will lose 63p in benefits. Sounds simple, right?
But, of course, we were sold a great big cruel lie, as in reality UC was a massive exercise by the Tories to cut costs and save money by robbing claimants of money they desperately need just to get by. This became immediately apparent in 2015, when the then chancellor, George Osborne, shamelessly raided UC to the sum of £3 billion in his budget in order to pay for an increase in the personal allowance (the point at which people start paying income tax) - the Tories promising in the last general election to raise it to £12,500.
The obvious effect of Osborne’s slash-and-burn sortie against universal credit, which Philip Hammond has pledged to implement, is that, far from being more generous, it is meaner than the system it is replacing. As a result, most claimants will be worse off, and any ‘transition protection’ from the government will be temporary - lasting only until a family experiences even the smallest change in circumstances. Needless to say, the cuts completely undermined the original stated objective of improving work incentives. In fact, under UC, many people will have less incentive to increase their income from paid work - making the new system a Kafkaesque exercise.
Demonstrating the bankrupt nature of UC, a comprehensive analysis published last week by the Policy in Practice consultancy firm amply showed that almost two in five households (2.8 million homes) currently in receipt of benefits would lose an average of £52 a week. Those especially hit will be homeowners, working single parents, the self-employed and the disabled, making a mockery of Theresa May’s professed concern for the “just about managing” or the “left behinds”.
Therefore, according to the research, a million homeowners currently receiving tax credits will be worse off under the new system, losing an average of £43 a week. Some 600,000 working single parents now under the tax credits system will be worse off by an average of £16 a week - and about 750,000 households on disability benefits will be stung for £76 a week. As for the self-employed, the supposed ‘movers and shakers’, 600,000 will be hit by the ‘minimum income floor’ rule, which assumes that you are earning a certain amount through self-employment even when you do not - usually £1,187 a month.1 Families with more than two children suffer as a result of changes to the law that limits state support to two children - meaning that 300,000 families will be worse off to an average of £40 a week.
The data produced by Policy in Practice did also show that two million households would gain compared to the old system, but only by a very modest £26 a week on average - these households include 900,000 employed private tenants and people deemed too ill to work. Meanwhile, another study by the Resolution Foundation suggested that 3.2 million working families are set to lose an average of £48 a week as a result, equivalent to about £2,400 a year.
Compounding the “burning injustice” - to use the words of Theresa May, when she first became prime minister - universal credit is insidiously designed to be paid in arrears once a person’s monthly income has been assessed (which usually takes four weeks, plus a further week to process the payment). Hence new claimants have to wait 35 days or more before receiving their first payment, which inevitably pushes huge numbers of families into debt and rent arrears - many fear they could be made homeless as a result. Generously, any claimants who request an advance to help them avoid debt will have up to 40% of their payment deducted to pay back the advance!
Adding insult to injury, some UC advocates fed us the fairy story that cutting housing benefit - which effectively is what happens under the new system - will force landlords to lower rents, when all available evidence points to the exact opposite. For example, a recent survey by the Royal Institution of Chartered Surveyors found that rents could rise by 15% by 2023 - the number of rental properties will dry up, as small-scale landlords pull out of the market.2
Millions are suddenly going to find themselves worse off, fuelling widespread anger. This prospect has caused aTory rebellion, with some MPs now threatening to block the future roll-out of UC unless the billions taken out of the system by Osborne are put back in. One of those discontented Tories is none other than Iain Duncan Smith, the original architect of universal credit.
Last week work and pensions secretary Esther McVey let the cat out of the bag when she admitted, when pressed in an interview with the BBC, that “some people will be worse off”. Of course, this admission contradicted the government line and it was hardly surprising that Downing Street immediately distanced itself from McVey’s comments, insisting she was referring to new claimants who may not be paid as much as they would have been in previous years.
Trying to contain the situation, May’s spokesperson said: “The PM made it really clear that when people move across onto UC as part of managed migration there is not going to be a reduction in their benefits; that’s because we’ve put £3 million of transitional protections in. At the same time, there are people who are making a new claim or who have had a change in their circumstances and their payment will reflect their new circumstances, as you would expect.”
But the damage was done. McVey’s comment was seen as totally contemptuous of the fact that these are precisely the people who are already among the poorest - now to be made even poorer by universal credit. Alongside Iain Duncan Smith, several other MPs, including Plymouth’s Johnny Mercer, the education committee chair, Robert Halfon, and a persistent critic, Heidi Allen, have called for cuts to the system to be reversed. Mercer tweeted: “Stop the tax-free allowance rise and reinvest into UC, or I can’t support it. Not politically deliverable in Plymouth, I’m afraid”. Going even further, one allegedly well-connected Tory backbencher declared that universal credit, not Brexit, could end up being “the final straw” for May’s fortunes.
These complaints come after John Major, the former Tory prime minister, warned on October 11 that, unless UC is radically overhauled, “you will run into the sort of problems the Conservative Party ran into in the late 1980s” - by which he meant the poll tax disaster, of course, which sunk the Thatcher government. With millions of families facing the prospect of being thousands of pounds a year worse off, Major believes,“that is not something the majority of the British population would think of as fair”.
Another former prime minister, Gordon Brown, urged the government to abandon the full national rollout. He worried that, combined with other welfare changes, UC means the number of families with children living in poverty is set to rise to 5.2 million by 2020. The former Labour leader called for the scrapping of this “harsh, harmful and hated experiment” - otherwise risk a return to “poll tax-style chaos”. In reply, communists say that such a mass rebellion would be most welcome.