Good Chancellor, but not good enough on Universal Credit

By Dr Chris O’Leary

There has been much speculation over the last week that the Chancellor would use yesterday’s Budget to bring some much needed good news for families in receipt of Universal Credit, the Government’s flagship welfare reform. Introduced by Iain Duncan-Smith as a means to simplify and refocus working age benefits, Universal Credit replaced six very complex benefits, introducing a single payment made directly to claimants, whether or not they are in work. The aim was to reduce administration costs, make it easier for families to navigate the system, and incentivise people into work. While great in theory, Universal Credit has been hampered with problems from the outset, and has been causing significant issues in recent months. The roll out of Universal Credit is now six years behind the original schedule, and has cost considerably more than originally planned.

Much has been heard about the personal hardships created by Universal Credit.  Delays in processing claims affecting twenty per cent of all claimants; the gap between a claim being made and someone being eligible for payment; cuts made by George Osborne as Chancellor, and changes to the form and frequency of payments, have resulted in 4 in every 10 Universal Credit claimants experiencing financial difficulties as a result of the programme’s rollout (NAO, 2018).

Yesterday’s announcement will do much to alleviate some of these financial difficulties. The Chancellor has effectively reversed the cuts imposed on Universal Credit by George Osborne. Yesterday’s changes mean:

  • a significant increase in work allowances, meaning that from April 2019, claimants will be able to keep an extra £1000 a year in earnings before their Universal Credit payments are reduced;
  • there will be additional transitional protections for those people moving from the old benefit system and onto Universal Credit;
  • claimants will get a longer time to repay overpayments and changes to how advances are treated; and
  • the Government has also announced a further extension to the implementation of Universal Credit.

All of this is very welcome news, and will benefit many, many families and individuals on Universal Credit. But it does not address the fundamental flaws in the programme. While, according to the National Audit Office, there is no via alternative to the continued roll out of Universal Credit (NAO, 2018), there remain for me three fundamental issues that the Government needs to address.

Too many claimants

We have seen a significant increase in the number of working families who are dependent on the benefit system for part of their income. There are a number of reasons for this, and it is partly because Universal Credit is better at moving people into work than its predecessor benefits. By 2024/25, it is estimated that some 8.5 million people will be in receipt of Universal Credit. That’s a staggering 14 per cent of the working age population. Put it another way, one in every five households in the UK will be dependent on Universal Credit for some or all of its income.

This is just not sustainable in the long term, and creates a client state in which a huge proportion of the population is reliant on the state for its income. While the Chancellor yesterday did announce an increase in the National Living Wage (which will increase the earnt income of many Universal Credit claimants), it is still the case that the public purse is subsidising low wages through the benefit system. This cannot be good for taxpayers, or those families who are reliant on Universal Credit.

Housing Benefit is broken

My recently published research has found that the Local Housing Allowance – which determines how much of someone’s rent will be covered by Housing Benefit payments – is fundamentally flawed and urgently needs to be reviewed (O’Leary, 2018). The Local Housing Allowance is a rent cap (Rugg and Rhodes, 2018), and like all rent caps it just doesn’t work. But more significantly, it is a rent cap that only covers part of the rental market, with huge and increasing gaps between the rent levels and the amount of rent that will be covered by Housing Benefit coupled with healthy demand and rising rents levels in other parts of the private rented sector. Add to that direct payments of Housing Benefit to claimants and long delays in claims being processed, and it is easy to see why there has been a massive reduction in available properties and huge increases in homelessness in recent years. Yet there was nothing in yesterday’s announcement that will address this – no reversal of the Osborne cuts to Housing Benefit that saw rates frozen for four years, no reversal of the reduction from median market rents to the 30th percentile and, most significantly, no fundamental review of the Local Housing Allowance itself.

It’s the implementation, stupid

If ever evidence was needed, the roll out of Universal Credit has demonstrated that Government is simply not good at major IT projects, or at project implementation. Time and time again, key elements of the implementation programme have been poorly designed and executed, compounded by a refusal by the Department for Work and Pensions to accept that there are problems, and that these problems are detrimentally affecting families with some of the lowest incomes and thus least able to deal with financial challenges. While the Government has announced further delays to the implementation of Universal Credit, it has not given any signal that it has or will listen to the voices of those who best understand the system, namely Universal Credit claimants themselves.

So, overall, there is much to welcome in yesterday’s announcement. The increase in work allowances, for example, will benefit many thousands of Universal Credit claimants, and has been called for by a number of charities and think tanks in the field. But the fundamental flaws in the system have yet to be addressed and, without action on these, we will continue to see homelessness as a result of the Local Housing Allowance, and increasing numbers of households dependent on the state for part of their income. The Chancellor missed an opportunity yesterday to go much further and deliver the welfare reform we were originally promised with Universal Credit.

 

References

NAO (2018) Rolling out Universal Credit, National Audit Office, UK: London

O’Leary, C (2018) Homelessness from the private rented sector, MetroPolis Policy Brief, available at https://mcrmetropolis.uk/blog/homelessness-from-the-private-rented-sector/

Rugg, J and Rhodes, D (2018) The evolving private rented sector: its contribution and potential, Centre for Housing Studies, University of York, UK: York. Available at https://www.york.ac.uk/media/news-and-events/pressreleases/2018/the-evolving-private-rented-sector.pdf

 

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