If a political party were to stand today on a platform of cutting financial support for low- and middle-income parents in order to pay for tax cuts for the more affluent, it wouldn’t get elected. It’s this reality that explains the paradox at the heart of modern British conservatism. Tory prime ministers and chancellors since 2010 have insisted they understand the struggle many families face in a time of anaemic wage growth and rising prices, and have promised that these families will be relatively protected from the deep spending cuts they have wielded.
But their deeds betray their words: every independent analysis of budgets since 2010 shows such promises to be lies. By 2021, Conservative chancellors will have delivered more than £80bn of tax cuts a year, including £22bn a year in income tax cuts. The bulk of the proceeds have found their way into the pockets of the most affluent half of families. Meanwhile, billions of planned cuts to tax credits and benefits mean low-income families and disabled people stand to lose eye-watering sums. The poorest fifth of families with children will, by 2020, be more than £3,000 a year worse off on average as a result of tax and benefit changes since 2010, while some of the most affluent families with children will find themselves £500 a year richer.
And it’s in the crosshairs of this great Tory redistribution, from the struggling-to-get-by to the comfortably affluent, that the government’s flagship benefit reform has got caught up. Universal credit, which combines six existing benefits into one new one, had two original aims. First, to simplify a horribly complicated system in which people could be in receipt of several different benefits at the same time, administered by different government agencies and means-tested in different ways, which made it almost impossible for anyone to work out what they were entitled to.
The second aim was to improve people’s incentives to increase their earnings. In the old system, a minority of people on benefits saw their income increase by less than 10p for every extra pound they earned, as a result of multiple benefits being withdrawn simultaneously as their earnings increased. By being more generous – by withdrawing benefits more slowly as people’s earnings increase – universal credit was supposed to fix this.
The problem is that deep cuts, planned by George Osborne and being executed by Philip Hammond, have meant that, far from being more generous, universal credit is £3bn a year meaner than the system it is replacing. Some families will gain, but more will lose: 3.2 million families will be just under £2,500 a year worse off under universal credit than under the old system, and that’s before taking into account other benefit and tax credit cuts. Any transition protection from the government will be temporary, lasting only until a family experiences a small change in circumstance. The cuts also completely undermine the original objective to improve work incentives: in fact,under the new system, many people will have less incentive to increase their earnings.
The much-delayed rollout of universal credit has also been plagued by serious design flaws and implementation problems. The six-week delay between making an application and receiving a first payment has pushed huge numbers of families into debt and rent arrears, with many people fearing they would be made homeless as a result.
Such a significant benefit reform was never going to go completely smoothly, but a staged rollout over several years should have provided the opportunity for the teething problems that have caused huge hardship to have been swiftly fixed. Instead, it has taken the government years to reduce the six-week wait to five, despite repeated and insistent warnings about its pernicious effects. There are many other issues on which it has been utterly unresponsive, including the heavy administrative burden it puts on applicants, with punishing financial consequences if they get things even slightly wrong.
Claims by former Conservative ministers that universal credit could be a poll tax moment may seem like hyperbole. But John Major is right. Around a million households are currently in receipt of universal credit, but by 2023, when full rollout is complete, it will be 7 million, including more than half of all families with children. Not only is it wrong-headed to make millions of families thousands of pounds a year worse off while delivering tax breaks that largely benefit the more affluent, it is politically crazy.
The National Audit Office is right that it is too late to drop universal credit – turning the clock back would be hugely complex and expensive. But it urgently needs a massive cash boost, funded by halting the further unnecessary income tax cuts planned in the next few years and a redesign to ensure it works with the ebb and flow of real-world lives.
Tory chancellors have repeatedly refused to change tack in the face of arguments that loading the burden of austerity on to low-income parents and their children is morally reprehensible. We can only hope that the fact it increasingly runs counter to their political self-interest will be what saves millions of families from this cruel, government-imposed hardship.
