Universal credit: what is it and what exactly is wrong with it?

Is the unpopular benefits scheme championed by Iain Duncan Smith too big to fail?

What is universal credit?

Universal credit is the supposed flagship reform of the benefits system, rolling together six so-called “legacy” benefits (including unemployment benefit, tax credits and housing benefit) into one benefit paid monthly to claimants. The aim, for which there was general support across the political divide, was to simplify the benefits system, make it more efficient and increase the incentives for people to work rather than stay on benefits.

How long has it been around?

The project was legislated for in 2011 under the auspices of its most vocal champion, the former secretary of state for work and pensions Iain Duncan Smith. The plan was to roll it out across the UK by 2017. However, a series of management failures, expensive IT blunders and design faults mean it has fallen at least five years behind schedule. Under the current schedule it will be fully implemented to about 7 million claimants by 2022-23, when it will account for around £63bn of spending.

Does it work?

Strangely, given that it has been around for so long in one form or another, it is still far too early to tell. Certainly the “customer” experience of universal credit for too many claimants (and other stakeholders, such as landlords) has been dismal. Critics argue that cuts to the benefit mean it is now less likely to incentivise jobless people to move into work, or to work more hours. Ministers claim evidence from early official trials shows universal credit claimants were more likely to get a job. However, the Office for Budgetary Responsibility (OBR) said there was still insufficient evidence to judge.

Why is it so controversial?

For all its theoretical benefits, in practice universal credit has been hugely problematic, generating what some fear are “poll tax” levels of unpopularity. While it began life intending to be more generous to most claimants, it is now, as a result of cuts, significantly less generous, leaving many claimants worse off when they move on to it than they were under legacy benefits. Added to that are design flaws and administrative glitches that put poorer claimants especially at heightened risk of hunger, debt and rent arrears, ill-health and homelessness. Food banks, for example, have reported that demand for charity food goes up significantly when universal credit is introduced into the local area.

Hasn’t the government moved to address some of these flaws?

Following massive pressure in the autumn from campaigners and many Conservative backbench MPs who were shocked by the hardship and destitution faced by many claimants, ministers introduced a number of changes, including shortening the built-in 42-day wait for a first payment to 35 days, making advance loans more readily available to claimants unable to wait long periods for financial assistance, and making the universal credit telephone helpline free. Critics say the changes don’t go far enough and have called for the rollout to be paused.

What else is going wrong with universal credit?

Plenty. Landlords (private, council and housing association) are worried about the level of rent arrears racked up by tenants on universal credit. Unchecked, this will lead to a spike in evictions and homelessness. Many private landlords say they will no longer rent to universal credit claimants because the risk of arrears is too high, and the bureaucracy involved in tackling arrears problems once they arise too soul-destroying. Housing associations have warned that the accumulated bad debts run up by tenants as a result of universal credit could affect their housebuilding plans. Claimants complain that universal credit is bafflingly complex, unreliable and difficult to manage, particularly if you are without internet access, and that universal credit staff are often poorly trained.

So ironing out a few more technical glitches will fix it?

Nope. Huge underlying problems remain. Multibillion-pound cuts to work allowances imposed by the former chancellor George Osborne have left it hollowed out. According to the Resolution Foundation thinktank, universal credit will leave about 2.5 million low-income working households more than £1,000 a year worse off. Reversing those cuts requires a political decision, not more technical fixes.

Can we expect further changes to universal credit?

The key policy question facing each of the four work and pensions secretaries (and myriad policy wonk round tables) since 2015 has been: do we scrap universal credit? So far, politicians have not wanted to pull the plug – the billions pumped into universal credit and the huge amount of political capital and credibility invested in it have been hugely persuasive. So is it too big to fail? The recently departed permanent secretary at the Department for Work and Pensions (DWP), Robert Devereux, who oversaw universal credit between 2011 and 2018, suggested it was too well-established to reverse. Yet it has influential enemies, from the Treasury (which has always opposed the project) to the chair of the works and pensions select committee, Frank Field. The DWP has to present a renewed business case to the Treasury later this year. If it cannot prove universal credit is working or delivering savings (and the OBR suggests this is currently far from clear), this may be problematic. It may not sink universal credit, but more changes are likely.

What might trigger further changes?

The OBR assessment of universal credit this week pointed out that the project remained fundamentally volatile, not least because – without changes – relatively large numbers of claimants are likely to lose out as the system rolls out across the country. These include: working families claiming tax credits; disabled claimants who stand to lose disability premiums when they move from legacy benefits; and self-employed workers. All three groups have been affected negatively by budget changes that have subsequently been reversed after public outcry. The intention under universal credit to force up to a million low-paid workers to seek more hours or move to higher-paid jobs, under threat of financial sanctions (“in-work conditionality”), is another unexploded bomb. Big changes, however, will require substantial investment.


Patrick Butler Social policy editor

The GuardianTramp

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