Gavin Rice: There are better ways to invest in Universal Credit than the £20 uplift

26 Oct

Gavin Rice is Policy Director at The Centre for Social Justice.

It’s only when history comes to be written that unsung heroes emerge.

Edmund Hillary may be remembered as the first person to climb Everest, but it was Tenzing Norgay who carried his bags. We have all heard of Neil Armstrong and Buzz Aldrin, but how many know that Michael Collins orbited the Moon alone for 21.5 hours while his colleagues made history?

Likewise, while the cause celebre of the pandemic has been Rishi Sunak’s salary-saving, budget-busting furlough scheme, the quiet saviour of the lockdown has been Universal Credit.

In the first two weeks of the pandemic, Universal Credit (UC) processed one million new cases. At the peak of demand the number receiving this lifeline benefit more than doubled, from 2.9 million cases before the pandemic to a high of over six million – an increase of over 100 per cent. In September there were still 5.8 million claimants, more than was ever originally envisaged, and after the end of furlough last month there will be more to come. Through the economic maelstrom of the last 18 months, 96 per cent of payments were made on time.

Not that Chancellor will be talking about that when he reveals his Autumn Budget on Wednesday. His decision to end the £20 per week uplift in October led to six former Secretaries of State for Work and Pensions, and 50 Conservative backbenchers, to call publicly for its retention.

UC was designed by the Centre for Social Justice (CSJ) with two main goals: reducing the complexity of the old, “legacy” system by rolling six overlapping benefits into one, and eliminating financial disincentives to work.

Before UC, welfare claimants could find themselves no better off even when taking on work, since their benefits would be withdrawn. In some cases 100 per cent of someone’s earnings could be lost in withdrawal, removing any incentive to work more. UC slashed these barriers via the “taper”, meaning work would always pay.

Inefficiencies were eradicated by means testing on a household basis. UC produced a data-rich system, with clear information about each household’s income available centrally to the DWP. And conditionality was introduced, meaning claimants would be obliged to look for work if they were able. Work coaches helped hundreds of thousands to stand on their own two feet.

But the pandemic came like a bolt from the blue. The Chancellor and Thérèse Coffey, the Secretary of State for Work and Pensions, agreed an emergency increase of £20 to the Standard Allowance – the basic rate of UC given to all claimants. In this way they protected people’s incomes at a time of national crisis. Work search duties and sanctions were rightfully suspended.

More money in welfare isn’t everything, but the £20 increase followed a decade of cuts to benefits through the benefits freeze and benefits cap, which kept UC falling in real terms. That’s why the Centre for Social Justice supported keeping it, as a way of partially redressing these reductions.

But there is now a vital conversation to be had about the future of UC. There are many other ways the Government can invest in this vital national infrastructure other than the much-discussed £20.

First, it could cut the taper rate of UC down – the CSJ originally recommended a rate of 55p in the pound, rather than the current 63p. Softening the taper would eliminate the situation, flagged by Sir Keir Starmer, in which someone on UC who is working full time on minimum wage could face a withdrawal rate of 75 per cent, since they would be liable for income tax and national insurance. This would seriously benefit the 40 per cent of UC claimants who are in work.

Money saved by removing the £20 uplift could be put back into the Child Element to support households with children, thus helping families struggling with the cost of living at a time of high inflation and soaring energy prices.

The maximum amount of childcare covered by a UC award could be raised from 85 per cent to 100 per cent, as called for by the CSJ. And, at zero balance sheet cost to the Treasury, the maximum rate of monthly debt recovery for UC recipients eligible to repay arrears or historical benefit overpayments could be reduced from 25 per cent of their incomes down to 10 per cent.

But there could be much more to Universal Credit than that. The goal of levelling-up, reskilling for a low-carbon economy, increasing labour productivity, and relying less on low-skilled immigration will need a streamlined, time-tested state apparatus to drive it.

We have record numbers receiving benefits, yet also have a labour shortage. UC should provide the structure to link the welfare system to the jobs market. Why not ‘bake’ skills into claimant contracts?

The DWP should become a skills department, not just a deliverer of cash. Through partnership with employers and educational providers, UC should become the engine of opportunity.

No-one is going to sing about it. Wednesday’s budget will barely mention it. But just like Sherpa Tenzing and Michael Collins, Universal Credit will do the heavy lifting in this recovery.

Iain Duncan Smith: The Universal Credit uplift is an opportunity, not a problem. Keeping it would help save taxpayers’ money and improve lives.

13 Sep

Iain Duncan Smith is a former Secretary of State for Work and Pensions, and is MP for Chingford and Woodford Green.

This year has tested many of our institutions to the limit but one, Universal Credit (UC), has been the quiet ship in the fleet, rising to the challenge, and delivering – despite the huge increase in claims as the Coronavirus struck, providing a lifeline for millions up and down the country.

Even the Labour Party has acknowledged the triumph of UC. Despite its to scrap it, Stephen Timms, the Labour Chair of the House of Commons Work and Pensions Committee and former self-confessed critic, now calls UC “…a national asset which we should make the most of” and rightly stated that through the pandemic “Universal Credit has delivered”.

An astonishing million new claims were made in a fortnight in March 2020 but, despite this unprecedented influx, 96 per cent of claims made during the first months were paid in full and on time, a figure which is now at 98 per cent.

The five million claims made since the beginning of the pandemic represent two-fifths of all claims made since UCs creation in April 2013 – a figure that would just not have been possible under the paper based legacy system that UC replaced.

It is also worth reminding ourselves that, under the previous system, many claimants would have had to go in person to the Job Centre to make their claims, thus increasing the risk of catching Covid: instead, they were able to avoid that and claim online.

In the face of this unprecedented challenge, the Chancellor made the right decision to increase the amount that UC claimants received. This meant families on UC had an extra £20 a week in their pockets and, over the winter of 2020, 600,000 people were insulated from poverty.

I and five of my successor Secretaries of State at the Department for Work and Pensions have since made it clear that we believe the Chancellor should seize the opportunity to protect more families from poverty and make the £20 uplift permanent.

Importantly, the £20 returned to UC some of the original investment that was in my design, but which was removed by the then Chancellor, George Osborne. The additional money shouldn’t be seen as an exceptional uplift, but as a means of restoring UC to its rightful level. Removing it now would hit one third of working age families with children across the country.

As Conservatives, we believe in a welfare system that supports aspiration and allows people to live with dignity. UC is designed to support people and move them into work, which ultimately is the best route out of poverty. Those on UC who take on extra work hours are supported through the flexible taper rate, meaning that no one is penalised for securing extra work.

The furlough scheme has a fraud and error rate as high as 10 per cent and, although it was needed through the critical phase of the pandemic, the Chancellor is right to now bring to an end.

The Treasury must understand that, since UC gives a true picture of the need of each household, it can be better targeted and more efficient, thus resulting in significant further savings. UC has, more than any other form of Government spending, the greatest capacity to tackle poverty as it is hugely targeted meaning every pound spent on UC goes in the pockets of those who need it most. Research by the Resolution Foundation has shown that increases to UC, and in particular raising the UC work allowance, is a notably much more efficient way of improving the incomes of the poorest than raising the personal income tax allowance.

As our economy fully re-opens, there may be bumps along the way and the flexible design of UC allows the system to adjust nimbly to these changes. As the jobs market begins to expand, the taper rate of UC could, for example, be lowered. This would leave low hours workers with more money, helping accelerate them into full-time work and off benefits. This in turn would reduce the total amount of money spent on UC, as people move on into work and start to pay tax.

That’s why, instead of seeing this £20 uplift to UC as a problem to be solved, we should see it as a dynamic investment in a system that can turn people’s prospects around, in turn saving taxpayers’ money whilst improving lives.

As the economy reopens, UC won’t just be critical in building social cohesion, but will be seen as an investment in people who have too often been left behind. After all, you can’t advocate levelling up if you first level down.

Paul Maynard: There are better ways to help low-income families than the Universal Credit uplift

12 Feb

Paul Maynard was Parliamentary Under Secretary of State at the Department for Transport from July 2019 to February 2020. He is MP for Blackpool North and Cleveleys.

When in the Whips Office, I used to try and remind my ‘flock’ that we were supposed to be part of a parliamentary team. That our role was as ‘participants’ rather than ‘commentators’, of whom we had a few too many within Parliament during those turgid months spent trying to deliver Theresa May’s Brexit deal.

(Surely Paul Goodman alone fulfilled that necessarily sceptical eye without the rest of getting stuck publicly stuck in.)

However, one consequence of Covid is we’re all passing public comment, as the space for private comment within the parliamentary party has shrunk behind Zoom and Teams. I find myself, at times, competing with the Leader of the Opposition as Captain Hindsight.

Nowhere is that more true personally than seeking a viable route out of our current Universal Credit (UC) policy dilemma. I’ve written previously about the positive impact the uplift of £20 has had on my constituency. But the real challenge now is a political problem which, I would argue, is wider than just that about UC: how do we transition from financial decisions taken in the early stages of the pandemic to post-pandemic spending which is more reflective of our economic instincts – but which doesn’t have a detrimental impact on my constituents’ financial resilience in what will continue to be difficult times?

Whilst we should perhaps have planned an exit strategy when first announced, it is a perfectly fair narrative that this was introduced when it was expected to be a very temporary measure like furlough. One iron rule of politics is that when something financial is bestowed, to remove it is the political equivalent of extracting a splinter.

I am sure if we had we known lockdown would still be going on now, a more elegant way of buttressing financial support might have been found than the straightforward uplift – but maybe not, bearing in mind that any solution needed swift implementation and so had to be simple enough for DWP’s systems.

Many argue this uplift should now be permanent. There will always be a reason to justify its continuation, with Labour seeking to place us on the wrong side of the divide. There will always be a problem lobby groups will uncover and which extending the UC uplift will somehow single-handedly solve. And no-one is mentioning the changes to Local Housing Allowance yet – just as crucial in my view.

But has our national socio-economic system changed in a such a permanent, structural way as to justify permanent retention? If not (and my answer is no), what gradual changes are required to both UC and more widely so as to avoid a damaging cliff edge?

One idea is to link any fiscal movements (be it tax or benefits) to levels of unemployment. Scott Morrison’s approach in Australia is to attain a six per cent unemployment rate before making fiscal changes. We can argue over differing thresholds for differing interventions, but it is certainly a more calibrated route out than a blunt tool such as a £500 bonus. Whether the Treasury would appreciate having its hands so tied is another matter.

The interaction with furlough matters too. We know that any end of furlough will lead to higher unemployment – so it is hard  to argue that reducing UC’s generosity at that point makes sense.

Some would argue, as the Economist has done, that a gradual diminution in the percentage of wages paid under the furlough scheme starts reallocating labour away from so-called ‘zombie companies’ towards those areas which have either continued to grow during lockdown, or are likely to bounce back more quickly.

But doing that requires also amending some elements of UC to make them equally responsive to an evolving labour market. As many have already noted, the CPS has come out with some intriguing proposals worthy of consideration, including upgrading UC (and crucially legacy benefits) by 0.5 per cent. Most critically, they argue for cutting the taper rate back to 55p so people back in work can keep 8p more of every pound they earn – underpinning UC’s original spirit and purpose.

More fundamentally, this discussion is occurring in a vacuum where we act as though UC is the only policy lever Government has to pull to address what, essentially, is a discussion about reinforcing the financial resilience of those on low incomes. It is an important ‘supply side’ tool – but it needs complementing by a ‘demand side’ tool that seeks to put those regarded as “in difficulty” or “surviving financially” by the Financial Conduct Authority on a sustainable route to that ‘financial resilience’.

(And that is a figure worth dwelling on – updated data published by the FCA on Thursday shows that the numbers in ‘financial difficulty’ rose from 10.7 million in March to 14.2 million by October, some 27 per cent of the adult population. You don’t need to do a module on Venn diagrams to twig that a significant proportion of those who voted for us in 2019 for the first time are in that 27 per cent, whether they live in a ‘red’, ‘blue’ or ‘chicken parmo’ belt or anywhere else, for that matter.)

The other week I put forward a 10 Minute Rule Bill on reviewing Local Welfare Assistance Schemes where I talked about the consequences of the ‘poverty premium’. Low-income families have an average of only £95 in savings. Forty per cent of those aged 20-29 have no savings. It is no wonder that they find themselves in financial crisis when the unexpected strikes – from a fridge no longer working to the death of a family member.

With so many in often unfurnished private rented properties, and on low incomes, over one million are lacking either a cooker, fridge freezer or washing machine. This has serious consequences. No cooker, for example, may mean a focus on costly takeaway meals for those who are ‘time poor’. No washing machine means paying £4 down the launderette (and a further £3 for a drier) rather than 25p for an average home wash

So wider initiatives are needed than just increasing benefit levels. We should be listening to the Centre for Social Justice about supporting families practically, though schemes such as the Holiday Activity & Food Programme. Working with charities like Turn2Us, who are keen to help tackle the extra costs low income families face to support those in persistent poverty.

The DWP has already started cross-government work here – I wait with baited breath the output given the agonies of trying to develop eye-catching initiatives for the ‘Just About Managings’ at every fiscal event, only to see them never see the light of day.

The Treasury should be considering how best to respond to last week’s Woolard Review on the debt landscape – a much broader piece of work than just Klarna and Buy Now Pay Later, as the media have focused on. It sets out many ideas to put people on a journey from high-cost credit products to lower-cost credit, with the objective of greater financial resilience.

Maybe BEIS too should fully consider the recommendations of Matthew Taylor’s report on insecure working before time and events make the layer of dust on it too thick to brush off, and remove it from the departmental draw it seems to be languishing in?

An ever better first step might be to pay close attention to Baroness Stroud and the Social Metrics Commission, who will help us examine the differing needs of groups within that broader 10 million, from the ‘indigent’, to those in persistent poverty to those ‘just about managing’. A broader canvas, perhaps, than a focused discussion on a £20 uplift – but an agenda that helps give ‘levelling up’ the ‘red belt’ a bit more of a tangible shape and feel.

Joe Shalam: We can’t let an unemployment crisis become a debt crisis

5 Nov

Joe Shalam is Head of Financial Inclusion at the Centre for Social Justice.

As the Government’s credit card bends under the weight of our Covid-19 response, the national debt has exceeded GDP for the first time in over 50 years.

But the pandemic has just as alarming implications for household debt: this is, after all, the more immediate source of anxiety for families hit by coronavirus-related income shocks.

The Centre for Social Justice (CSJ) has always considered serious personal debt a pathway to poverty. We see this in the way it tears families apart, the strain it puts on employment, and its cruel encouragement towards alcohol and substance dependency. Any thoughtful poverty strategy needs to address the menace of debt for those who don’t have much to begin with.

While record amounts were repaid on credit cards during national lockdown by workers deprived of their shopping habits, expensive daily commute and flat whites, we must not let this disguise the tidal wave of debt crashing down on low-income families in Britain. A recent survey showed that low-income households were twice as likely as high-income households to have increased their reliance on consumer credit in response to the pandemic. The charity StepChange report that 2.8 million people have fallen into arrears on bills, including 820,000 on council tax alone.

In focus groups led by the CSJ across the country, community-based money advisors express deep anxiety over the loan sharks ‘licking their lips’ at the growing indebtedness and desperation in our most disadvantaged areas. Ensuring that the Illegal Money Lending Team is well resourced to combat the scourge of loan sharks will be critical going forward, as will maintaining the Financial Conduct Authority’s proactive approach to forbearance in the consumer credit sector.

But given longer-term changes in the composition of ‘problem debt’ in England, it is also the public sector’s duty to reconsider its role as a creditor. As the CSJ showed in our Collecting Dust report, recent years have seen a marked rise in the number of people seriously indebted to public bodies. Our analysis found that 42 per cent of debt problems reported last year related to debts owed to national and local government, most commonly for council tax arrears but also for tax credit and benefit debt.

This has doubled from 21 per cent a decade ago, overtaking difficulties relating to consumer debts, which fell from 57 per cent to 32 per cent over the same period.

Over the same period, charities tell us that debt collection in the private sector has changed dramatically and for the better. Galvanised by the introduction of the FCA’s ‘Treating Customers Fairly’ guidelines, we now see independent debt advice referrals, thought-out vulnerability policies, and personalised repayment plans offered much more widely.

This approach not only provides a sustainable route out for people in debt – frankly, it makes commercial sense. More money is recovered, fewer costly interventions are required, and fewer people default as they are supported to meet their obligations.

Despite this, today it is the public sector who employ the most heavy-handed and unsophisticated methods of debt collection. Out-of-date rules governing council debt collection mean that families with small debts find these rapidly inflated by punitive fees and charges. Councils working religiously to ‘in-year’ targets abandoned in the commercial sector escalated 2.6 million debts to bailiffs last year, increasingly for parking fines.

On top of this, there is some £7 billion owed to government for historical welfare debts (caused primarily by a design flaw in the old benefit system), which is now being collected bluntly via large benefit deductions as people move over to Universal Credit. This is nowhere near talked about enough and has a huge impact on the money received by welfare claimants.

At the height of the crisis the Government suspended these deductions. We need to write off historical welfare debt now so Universal Credit can do its job in helping those who have fallen on hard times, cover day to day costs, and get people back into work.

The Cabinet Office has since launched a cross-Whitehall review of debt management, which is extremely welcome. The Government should take this opportunity to introduce a Debt Management Bill. Drawing from the best of the commercial sector, the bill would establish a unit in the Cabinet Office to enable a ‘single view’ of the various debts owed by a family in order to work out an affordable repayment plan.

It would bring council debt management rapidly up to speed, amending the council tax regulations to end rules which expand debts into an entire year’s bill, and putting the existing good practice guidelines for collection on a statutory footing. Finally, it would introduce proper affordability assessments for benefit deductions and cap these at 10 per cent of Universal Credit’s standard allowance.

In short, the bill would produce savings for the taxpayer through enhanced debt recovery while providing more people with a route out of debt in this time of crisis. An effective Conservative poverty strategy must aim to get people out of debt, not just get debt out of people.

Syed Kamall: Rashford’s campaign calls for state action – but it equally highlights the power of individuals and community

29 Oct

Professor Syed Kamall is Academic and Research Director at the IEA. From May 2005 to June 2019, he was a Conservative MEP for London.

While Marcus Rashford’s campaign to provide free meals for children has gained much publicity and public support, it has also come under criticism for providing meals for children regardless of need and for even nationalising parental responsibility.

The campaign is built on the assumption that state intervention is necessary to solve societal problems but equally it has highlighted the power of private individuals to affect change, as well as the dedication of volunteers in our local communities.

The campaign perhaps should be seen in the context of our country’s long history of helping those in need. As far back as 1597-8, the Elizabethan Poor Laws were administered through parish overseers, who provided relief for the aged, sick, and infant poor, as well as work for the able-bodied in workhouses. The latter would of course be unacceptable today. In the late 18th century, this was supplemented by the Speenhamland system, providing allowances to workers with below subsistence wages.

By the nineteenth century, it is estimated that as much money passed through voluntary organisations to those in need as did through the poor law. Many adults belonged to an average of five or six voluntary organisations, such as trades unions and friendly societies, offering financial protection against sickness and unemployment as well as savings societies, literary and scientific institutes.

While charitable provision was diverse, it did not reach everyone in need, which led to calls for state intervention and the introduction of state pensions in 1908 and state social insurance in 1911. Voluntary organisations began to accept money from the state, becoming complementary or supplementary welfare providers, but no longer being seen as the first port of call for those in need.

The 1942 Beveridge Report recommended a single contribution and a single state benefit agency for social insurance. Beveridge wanted friendly societies to act as state benefit agencies offering additional services if funded voluntary contributions. However, this idea was rejected by the Government and led to the post-war welfare state.

Despite the growth of state welfare, the UK maintains a mixed welfare model with thousands of local civil society non-state projects in neighbourhoods across the country, providing support and signposting for families in need, long before we saw the inspiring help that volunteers have provided during the Covid-19 lockdown. However, even within these organisations, there are some who see their efforts as stepping in where the state should be acting, rather than as part of a rich tapestry of local civil society.

This bias towards state-intervention is one that sees multi-millionaire footballers become advocates for more government action, where local community groups may already exist and even do a better job than state agencies. When I was a politician, I was sometimes contacted by constituents asking me to find a taxpayer-funded local council or national government or EU grant or hoping I could pass a law to solve a local problem. When I offered to introduce them to a project that had solved a similar problem in their neighbourhood, some were inspired while others saw this as an example of state failure.

Poverty, especially child poverty, has a devastating impact and as a society we should do everything in our power to offer routes out of poverty. But government is not the answer to every problem, and in our rush to do something, we should not overlook or squeeze out alternative solutions.

While some critics may prefer that Rashford built a coalition of other millionaires and companies to support local civil society organisations or offer to pay more tax before calling for state intervention, they risk overlooking the incredible good this young working class man has done.

Whether he sees it or not, his campaign has demonstrated the power of local civil society non-state organisations to address problems in their neighbourhoods. He has also inspired others to – In the words of Gandhi – become the change they want to see.

He is also raised the issue of corporate welfare, which in some cases has also seen money given to companies who did not necessarily need it. Is it any wonder, that Rashford and others argue spending public money on school dinners would be a better use of the taxpayer’s money, especially when so much has been splashed around?

Finally, the campaign has reignited the debate over universal provision vs targeted help and whether a better way to help hungry families would be via Universal Credit, giving families in need the money directly to make the best use of it for their individual circumstances and not to assume that parents will use the money for non-essentials rather than food.

On such an emotive subject it is easy for the waters to get muddied, for political opponents to take polarised positions and to trade accusations of being uncaring or misguided. Maybe we should instead take a moment to applaud Rashford for his actions, for demonstrating that welfare beyond the state is very much alive and for igniting a debate on the effectiveness of the solutions he proposes.