The limits of Universal Credit

Published on: 
06 March 2015
Written by: 

Alison Garnham

Chief executive

This article originally appeared in the Bright Blue and the Fabian's publication A future without poverty.

Since 2010 the Government has overseen an ambitious, large-scale programme of income redistribution.

From poorer to richer groups.

That’s the striking conclusion to be drawn from the most comprehensive analysis to date of the Government’s social policy record published recently by the LSE and the universities of Manchester and York.

The prevailing narrative has been that benefit cuts have been forced on the government by the overriding need to reduce the deficit; that there is no alternative. But ‘The Coalition’s Social Policy Record: Policy, Spending and Outcomes 2010-2015’ makes clear this isn’t the case:

“Almost all of the savings achieved by cutting benefits were offset by gains for richer groups. Given the Chancellor’s emphasis on the centrality of cutting ‘welfare’ to reducing the deficit, this will be a surprising finding to many people, but reflects in particular the very large cost of raising the income tax personal allowance.”

All this is the antithesis of ‘we’re all in it together’. The low paid, the disabled and children have had their living standards lowered and life chances damaged to fund tax rises for the better off, not deficit reduction. Not surprisingly, the Institute for Fiscal Studies’ projects the number of children living in poverty will rise from 2.3 million in 2010 to 3.0 million by 2020.

Universal Credit, the Government’s key poverty-reducing policy, is supposed to be a bright, shining light on this bleak horizon but the prospects for its success have undoubtedly dimmed in the past couple of years.

Much of the scrutiny of Universal Credit has been on its delays and IT difficulties. To some extent that’s perfectly understandable.

But the really big question is: will Universal Credit deliver on its promise to strengthen work incentives and reduce poverty?

Universal Credit supporters point to two design features which should help. First, the work allowance enables claimants to earn a set amount before benefits start being reduced. The larger this amount, the stronger the work incentive. Second, the unified taper of 65% ensures that when benefits do start being withdrawn then this happens in a straightforward and easy to understand way.

But both of these features are much weaker than originally intended. The value of the work allowance has been cut in real terms in repeat raids by the Treasury. The unified taper is also less generous than originally planned and can no longer be said to be unified now that council tax benefit has been localised. As the Public Accounts Committee has pointed out, this has meant that some claimants facing effective tax rates of more than 90%, much higher than Universal Credit promised.

A future without poverty isn’t going to happen by itself. It will require tough choices from any future Government. But choosing to protect the childhoods and life chances of children in low income families isn’t a tough choice; it’s one of the most fundamental obligations we have to our children.