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| Universal credit is trouble, but it's no welfare revolution | Universal credit is trouble, but it's no welfare revolution |
| (about 2 hours later) | |
| If it's a revolution, it is a quiet one. Single people, without a disability or dependents, living in Ashton-Under-Lyne outside Manchester, are in the vanguard of a whole new world of welfare provision. | If it's a revolution, it is a quiet one. Single people, without a disability or dependents, living in Ashton-Under-Lyne outside Manchester, are in the vanguard of a whole new world of welfare provision. |
| The welfare secretary, Iain Duncan Smith, has sounded understandably twitchy about the implementation plans for his much hailed universal credit. The original idea was that new claims for out-of-work benefits would stop going through the new system by October, with new tax credit claims ending next April, and full implementation completed by 2017. Now there is no stated end date for existing benefits to be phased out. | The welfare secretary, Iain Duncan Smith, has sounded understandably twitchy about the implementation plans for his much hailed universal credit. The original idea was that new claims for out-of-work benefits would stop going through the new system by October, with new tax credit claims ending next April, and full implementation completed by 2017. Now there is no stated end date for existing benefits to be phased out. |
| The fear (not least in the Treasury) is that the Department for Work and Pensions will have to run two systems in parallel for a long time to come and maybe even reintroduce paper-based record-keeping. The worst-case scenario is an IT and administrative meltdown that leaves millions of households without money and employers snarled up in a fiendishly complex reporting system. | The fear (not least in the Treasury) is that the Department for Work and Pensions will have to run two systems in parallel for a long time to come and maybe even reintroduce paper-based record-keeping. The worst-case scenario is an IT and administrative meltdown that leaves millions of households without money and employers snarled up in a fiendishly complex reporting system. |
| That is why Duncan Smith is making a virtue of a cautious step-by-step approach. | That is why Duncan Smith is making a virtue of a cautious step-by-step approach. |
| Yet he's shown no caution about the impact of the change, describing it at the weekend as "nothing less than the start of a fundamental cultural shift of the welfare system". | Yet he's shown no caution about the impact of the change, describing it at the weekend as "nothing less than the start of a fundamental cultural shift of the welfare system". |
| Such a grand claim has helped Duncan Smith to sustain the impetus for reform, when many in Whitehall wanted universal credit decapitated, never mind delayed. In resisting those moves, the welfare secretary has shown political tenacity and the value of developing a clear argument based on a plausible plan developed in opposition. The danger is that he's over-hyped the impact of his reforms. | Such a grand claim has helped Duncan Smith to sustain the impetus for reform, when many in Whitehall wanted universal credit decapitated, never mind delayed. In resisting those moves, the welfare secretary has shown political tenacity and the value of developing a clear argument based on a plausible plan developed in opposition. The danger is that he's over-hyped the impact of his reforms. |
| First, the grand claim of better financial incentives to work is not so clear cut. One study suggests more people under the new system will face a higher effective tax rate on each extra pound earned (1.8 million) than will face a lower one (1.7 million). Those in receipt of tax credits to top up low pay will see more of their extra earnings clawed back. Incentives to work among potential second earners – crucial for reducing household poverty – will be unequivocally worse. And the reforms are bad news for those with savings: households with over £16,000 in the bank will not be entitled to receive any universal credit. | First, the grand claim of better financial incentives to work is not so clear cut. One study suggests more people under the new system will face a higher effective tax rate on each extra pound earned (1.8 million) than will face a lower one (1.7 million). Those in receipt of tax credits to top up low pay will see more of their extra earnings clawed back. Incentives to work among potential second earners – crucial for reducing household poverty – will be unequivocally worse. And the reforms are bad news for those with savings: households with over £16,000 in the bank will not be entitled to receive any universal credit. |
| The "winners" are those taking small steps into employment by doing just a few hours' work a week. The danger here is that people might get stuck permanently both "in work" and "on benefits". The current system rewards to those working at least 16 hours a week with a big jump in income. Without that, the knock-on fear is that employers will respond to the new incentives by offering more precarious "mini jobs" – temporary, fixed-term or zero-hours – thereby further increasing the subsidisation of low pay by the welfare system. | The "winners" are those taking small steps into employment by doing just a few hours' work a week. The danger here is that people might get stuck permanently both "in work" and "on benefits". The current system rewards to those working at least 16 hours a week with a big jump in income. Without that, the knock-on fear is that employers will respond to the new incentives by offering more precarious "mini jobs" – temporary, fixed-term or zero-hours – thereby further increasing the subsidisation of low pay by the welfare system. |
| The grand claim of simplification is also overstated. Once fully up and running, universal credit will mean people only having to deal with one agency to get a single combined payment. This is a valuable change, but is more a tidying up exercise than a revolution. And even then a number of benefits – such as contributory jobseeker's allowance, child benefit and disability living allowance – will remain outside universal credit. | The grand claim of simplification is also overstated. Once fully up and running, universal credit will mean people only having to deal with one agency to get a single combined payment. This is a valuable change, but is more a tidying up exercise than a revolution. And even then a number of benefits – such as contributory jobseeker's allowance, child benefit and disability living allowance – will remain outside universal credit. |
| More fundamentally, the reform amalgamates existing payments, without asking what they are for, who they go to and on what basis. | More fundamentally, the reform amalgamates existing payments, without asking what they are for, who they go to and on what basis. |
| So far, the chancellor has cut benefits and tax credits by £21bn. He has also signalled a desire to introduce some form of "cap" on overall social security spending. These changes are practically murky, but politically clear: setting up a trade-off between further reductions in welfare spending on the one hand and higher taxes, more borrowing or greater cuts in public services on the other. In the face of this sharp populist stance, those who believe that social security is a force for spreading power and protection in our society – as vital now as ever– need an alternative not just a defence. | So far, the chancellor has cut benefits and tax credits by £21bn. He has also signalled a desire to introduce some form of "cap" on overall social security spending. These changes are practically murky, but politically clear: setting up a trade-off between further reductions in welfare spending on the one hand and higher taxes, more borrowing or greater cuts in public services on the other. In the face of this sharp populist stance, those who believe that social security is a force for spreading power and protection in our society – as vital now as ever– need an alternative not just a defence. |
| That must start by opening up a much more fundamental debate about where benefit and tax credit spending is directed, what accounts for its growth and what purposes we want it to serve. And whatever its merits, universal credit is not going to achieve this task. | That must start by opening up a much more fundamental debate about where benefit and tax credit spending is directed, what accounts for its growth and what purposes we want it to serve. And whatever its merits, universal credit is not going to achieve this task. |