Tuesday, 7 April 2015

What's wrong with Universal Credit?

Universal Credit is the Coalition's flagship welfare policy. Universal Credit is a single benefit that will replace six existing means-tested benefits. Its aim is to be simpler and to create fewer anomalies, (Everyone agrees that the existing system is a mess and creates perverse incentives, ie provides people with rewards for doing things that we don't want them to do.)

There's lots wrong. Let's start with the project of introducing UC:
  • It's way over budget. The DWP says it will cost £12.8 billion over 11 years. The original estimate was £2.2 billion.
  • It's late. The plan was to have one million people on UC by April 2014. In fact hardly anyone was.
  •  It will do less than originally planned. For instance, it won't replace Council Tax benefit.
All this is pretty shambolic - but far from unique for major public sector change programmes. All politicians who plan major changes, and that certainly includes us Greens, should remember the key message here: "Listen to your critics. They know things you need to know."

Now some consequences:
  • In many families it will replace payments to women with payments to men. In most cases this won't matter but in dysfunctional families the men are more likely than women to waste the money.
  • It will make life more difficult for the poorly-paid self-employed (a rapidly growing group under this government!). They will have to submit three different sets of accounts - for VAT, Income Tax and UC.
The worst aspect, in my view, is the claw-back rate. In 2010 the coalition claimed that people on UC would lose £65 of benefits for every extra £100 they earned and that this was acceptable. But recently the Telegraph calculated it at 73% whilst another source has said 76%. In other words a person on minimum wage would be working for just £2 per hour. That's not much of an incentive!

But it gets worse. Because some benefits that aren't included have their own claw-back rates the net claw back rate will sometime be more than 100%. This is surely indefensible.

One final thing. There's an interaction between UC and increases in the tax-free threshold. (That's the LibDems signature policy which "takes lots of poor people out of the tax system".) Any increase in this threshold provides the poor with extra income but because UC is based on net income most of the gain (65% or73%) is clawed back by the state. That's a NEW anomaly since the benefits that UC will replace did not claw-back such gains.

A dreadful policy badly implemented.The Green Party would replace the whole thing with Basic Income - but that needs a separate post.

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