Universal Credit: from benefits panacea to government blunder

Only a fraction of the households in the UK originally intended to be receiving a new one-stop benefit payment in 2017 are currently doing so. As of January 12 2017, 960,000 claims have been made for Universal Credit and over 450,000 people were receiving the benefit, of whom 170,000 are in employment, according to new figures published by the Department for Work and Pensions. This is a far cry from the 7m originally intended to be receiving Universal Credit by late 2017. Full implementation has now been delayed until March 2022.

When Universal Credit was announced in 2010 by Ian Duncan Smith, whose Centre for Social Justice developed the proposal, it garnered support for its ambition to simplify the benefit system, improve work incentives, increase “self-reliance”, and redistribute existing expenditure to benefit the poorest.

It replaces six means-tested benefits – many of which are claimed by low-paid families – with a single monthly household payment. It is paid in arrears and most new claimants are eligible for a payment six weeks after claiming. For the time being, it is only being used for new claimants, and some who experience a significant change in circumstances.

Successive revisions to the Universal Credit roll-out assumption. Office for Budget Responsibility

Nearly all adult Universal Credit claimants are expected to prepare for, take and increase employment, including those already in jobs but earning below threshold levels. Work incentives are underpinned by digital employment services: the “stick” of a strict sanctions system and the “carrot” of a graduated system of “work allowances” after which there is a 65% withdrawal rate of credit for each £1 of extra earnings. This will change to 63% in April 2017.

When fully rolled out, the government suggests the “dynamic” effects of Universal Credit on the employment behaviour of those who claim it will benefit the country by £7 billion a year.

Problems piling up

Critics, however, quickly pointed to design flaws and the erroneous assumptions made about the circumstances, employment capacity and budgeting skills of vulnerable individuals, poor families and low-paid workers. Incremental reforms have been made to administrative processes but mounting evidence, gathered by MPs on the Work and Pensions Select Committee, illustrates the problems experienced in the transition to the new system.

Local authorities, welfare agencies and landlords highlight slow and inaccurate payments, administrative complexity and poor communications, increased rent arrears and risks of eviction. Claimants have been subject to inappropriate job search requirements and sanctions. The Department of Work and Pensions (DWP) acknowledges some problems but anticipates that most will be resolved through ameliorative measures, such as the provision of “money advice” and “alternative payment arrangements”. The select committee is unconvinced and, in February, submitted 20 detailed concerns and questions to the minister. And these problems have occurred before the DWP even starts to migrate millions of existing benefit households into the new system.

A series of reports from the Public Accounts Committee have catalogued problems that have beset the implementation of Universal Credit. These include over-optimistic and untested assumptions, weak management, ineffective project control and poor governance. In his valedictory evidence to the Work and Pensions Committee in February, Lord Freud, who for five years was responsible for implementation of Universal Credit, acknowledged it had been “harder than anticipated”, blaming the high turnover of senior civil servants and the loss of in-house expertise to design the IT system.

The practical result was a major “reset” of the project in 2013 with the DWP utilising a “twin track” approach. This presently comprises the national expansion of a more limited live service, where Universal Credit claims are made online, with other transactions managed by phone and post. Over time, there will be a gradual roll out of the more complex, full digital service, which has now been developed in-house. Freud asserted that this will allow for a more considered implementation. He also claimed that reported problems currently experienced by Universal Credit claimants are exaggerated, not directly caused by the new system (as with some rent arrears), and will be offset as minor adjustments are made, people settle in the system and increase their earned income.

More people will lose out

Whatever the merits of the original Universal Credit design, its capacity to deliver the outcomes promised has been further compromised by a plethora of other welfare reforms eroding the living standards of claimants. Universal Credit payment rates have been frozen for four years, and the full roll out will now be associated with benefit cuts and delayed tax credit related reductions. New claimants on Universal Credit have already been hit by some of these reductions, which have been incorporated into the design of the new system. Existing benefit claimants – not yet on Universal Credit – enjoy some transitional protection but will lose this if their circumstances change.

The cumulative impact is that Universal Credit has become a tool for delivering welfare cuts rather than improving living standards. The new benefit now creates more losers than gainers and, when combined with the reduced value of work allowances, there are now fewer incentives for lone parents and second earners to work. Equally concerning, much of the increased employment secured by those who do gain will be in “mini-jobs” where families will combine work and welfare rather than move from welfare to work.

Early findings show that although, within nine months, the first wave of largely childless, single Universal Credit recipients worked 12 days more than comparable claimants, the primary change had simply been to make “it more worthwhile and easier for them to do small amounts of work”.

The political scientists Anthony King and Ivor Crewe identified factors that contribute to “blunders of government”, several of which concern the tax and benefit system, have wasted billions of pounds of public money and damaged the interests of the people they were supposedly trying to help. This includes ministerial activism, group think, an absence of parliamentary challenge, failure to consider alternatives, cultural disconnect, ICT failures, frequent overlapping legislative changes and weakened administrative capacity. Sounds familiar, doesn’t it?

Dan Finn previously received funding from the Joseph Rowntree Foundation to undertake an early assessment of the likely impact of Universal Credit on service users.