The Universal Credit benefit system is set to be be implemented starting October 2013. Lindsay Judge evaluates the system and finds that overall it represents a real advance on the current social security system on many counts. However, she identifies some serious design flaws and argues that what is needed to increase work incentives and tackle poverty is not just work but good work.
Can the social security system offer adequate support to those on low incomes and, at the same time, incentivise claimants to work? The government certainly thinks so, and expects its new benefit, universal credit (UC), to do just this from October this year. A recent report written by Child Poverty Action Group for the TUC interrogates whether UC will be able to deliver on this promise. It assesses the new benefit against its three original objectives: simplifying the benefits system; making work pay; and reducing worklessness and poverty. The report finds that while UC has positive features, it risks failing unless its design is adjusted and broader policies are put in place to tackle the causes of poverty.
But first, the facts. UC is the new means-tested benefit that the government is introducing from October 2013 for the working age population in the UK. It will replace many existing in- and out-of-work benefits, and instead will offer integrated support for living costs, housing, children and childcare in one single payment. UC relies on two key design features to deliver on its objectives. First, it allows claimants who enter work to keep their entire UC award up to a certain income point (the ‘disregard‘). Second, once claimants earn more than this threshold, their benefit is reduced at a steady and predictable rate for every extra pound they earn (the ’taper’). In both respects, UC represents an advance on the current system with its sharp cliff edges and opaque interactions between various benefits.
So far so good, but a look at the fine print is not so encouraging. While UC undoubtedly simplifies aspects of the current system, for example, it also introduces many new complexities. The benefit will require most claimants to apply online; to claim as a couple rather than individually; and to manage their finances on the monthly basis that awards will be paid. While some will adjust to these changes with ease, research suggests a significant group will struggle to adapt especially in view of recent cuts to advice services.
It is also questionable whether the new UC system will ensure that work always pays. Despite aiming to smooth the path into work, cliff edges will still exist under UC: home owners, for example, will lose help with mortgage interest support once they start to work, while those eligible for passported benefits such as free school meals still do not know at which income point this important source of support will cease.
Even when work pays on paper, the lived reality may prove otherwise. One of the biggest costs for working families are the notoriously high childcare prices we have in the UK. While childcare support will be available to all who are working under UC, low-income families can claim only 70% of costs for up to two children. While the government has recently committed to find an additional £200 million to support UC claimants with childcare, the current method to allocate this looks set to be both complex and potentially unfair.
For many, then, the suggestion that work will always pay under UC will not hold true. And for those who will be a few pounds a week better off than under the current system, the gains they net are so underwhelming that one has to wonder whether the government truly expects to achieve its second objective through UC. In fact, as the report argues, analysis that focuses on the award amounts and work incentives embedded in UC misses a crucial point: that the key way the government is making work pay – no matter how sporadic, insecure or poorly paid it is – is by driving down the value of out-of-work benefits.
UC awards will import many of the current benefit levels, the value of which has been reduced significantly over the last three years. Cuts have been compounded further by the Chancellor’s recent decision to uprate most working-age benefits, and going forward UC rates, at a sub-inflation 1 per cent over the next three years. Taken together, these changes serve to reduce the support available to both in- and out-of-work individuals and families to ever-more paltry levels.
Given this, the report questions whether it is impoverishment, and not UC, which will truly ‘make work pay’? Moreover, the (often weak) financial incentives to find work under UC go hand in hand with an increasingly stringent sanctions regime. Claimants will be expected to look for work sooner than currently, further afield, and to justify decisions not to take up opportunities more often. If they fail to abide by the terms of their claimant commitment – the contract-like document they sign as part of their claim – their UC award can be docked for anything from four weeks to three years.
The government’s programme for reducing worklessness through UC, then, can perhaps be described as some small carrots and a large stick. But should such a strategy work, would it also have the desired effect of reducing poverty? Worklessness is, of course, strongly correlated with poverty but the fact that 50 per cent of the working age population living in poverty today is in work tells us that employment is not a simple solution to poverty.
Instead, of course what is needed to increase work incentives and tackle poverty is not just work but good work: adequately paid, with regular hours and a degree of security, and prospects for progression. Without taking steps to address the low-pay no-pay sector of our economy it is hard to see how the government can deliver on its claim that UC will combat poverty in any sustainable way.
Overall, the report acknowledges that UC represents a real advance on the current social security system on many counts. However, it also argues that without action to address the many weaknesses in the model, coupled with a broader economic strategy that delivers decent jobs at the bottom end of the labour market, in the final analysis UC risks failure even on its own terms.
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Lindsay Judge is Senior Policy and Research Officer at Child Poverty Action Group (CPAG). Her interests include the politics of poverty and social exclusion as well as more technical issues such as social security design. Before joining CPAG she worked for the World Bank and Oxfam advising on empowerment and poverty reduction stratgeies in both developing and transition economies.