EXPLAINED: What is the Universal Credit row all about?

Posted On: 
26th October 2018

The debate over Universal Credit has been rumbling on for years with the pressure on Philip Hammond now at breaking point. But what is the debate all about? PoliticsHome explains. 

Universal Credit has suffered setbacks ever since it was dreamed up by Iain Duncan Smith
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WHAT IS UNIVERSAL CREDIT?

Universal Credit is not just a phrase MPs like to use to bash Iain Duncan Smith. It’s a revolutionary new benefits system that many believe will make the welfare system easier and better. But there is a huge debate going on about some of the details in the system, and pressure is mounting on Chancellor Philip Hammond to act in his Budget on Monday.

The point of Universal Credit is to roll six means-tested benefits and tax credits into one. Those are income-based Employment and Support Allowance, Income Support, income-based Jobseeker's Allowance, Housing Benefit, Working Tax Credit and Child Tax Credit. So instead of dealing with a number of separate processes and receiving a number of separate payments, Universal Credit will take all your circumstances into account and give you one lump sum.

But that isn’t all. Universal Credit is also designed to be a flexible sum of money - so that claimants can work more and not see dramatic reductions in their benefits like they do under the old system. The idea is that for every £1 you earn, the benefit will reduce by £63p - leaving an extra 37p in your pocket as an incentive. People who have dependent children and people with illness or disability also get to earn a set amount before the benefit cut starts kicking in. That's called the work allowance. 

The final big difference is that Universal Credit is paid monthly. The idea is that most people are paid monthly at work, so the system should mirror that for claimants to prepare people for employment.

 

HAVEN’T ARGUMENTS ABOUT UNIVERSAL CREDIT BEEN RUMBLING ON FOR AGES?

Yes they have. One reason is that a major and complex change like this to the welfare system is going to take a lot of time to implement around the country. But on top of that the Government has suffered a number of setbacks with the rollout, such as IT disasters and bad budget planning, and has made a number of controversial changes to the system along the way.

The key change came in 2015 when then-chancellor George Osborne cut cash from the system when he was forced to U-turn on tax credit cuts. Now it has emerged that people who are switching to Universal Credit from the old benefits system could end up with less money - with reports some households could lose more than £2,000 a year.

Katie Schmuecker, head of policy for the Joseph Rowntree Foundation, told PoliticsHome: “As well as well documented problems with claiming Universal Credit, the cuts announced after the 2015 election mean 3.2 million working households will be worse off on Universal Credit compared with tax credits. Most are families with children who will be around £50 a week worse off."

The Government has said it has put aside £3bn to support people who are moving from the old benefits system to Universal Credit - but critics argue the money is not enough to help everyone, and it will not cover people whose circumstances change, for example those who lose their job or split up with a partner they were jointly claiming with. It also will not cover those who make a brand new claim, or who come off benefits and then go back onto them.

Even Work and Pensions Secretary Esther McVey has admitted some people will be worse off when they switch - which is never a good look for a Government.

 

SO WHAT IS NEW?

The row has heated up again in recent weeks in part because the Government was preparing to roll the benefit out to millions more people from January. The upcoming Budget was going to be the final big fiscal event before that rollout, so the pressure has mounted on Philip Hammond to pull his wallet out.

Just last week the Government said it would delay the next phase until the end of 2020 - yet another setback to its timetable. But the pressure has been kept up to replace cash that George Osborne cut back in 2015. Some Tory MPs have urged Hammond to delay a promised cut in income tax so that the savings can be pumped into Universal Credit instead.

There is also pressure on the Government to reduce the five-week wait for the first payment - a long-running debate which ministers have already tried to address once when they reduced the wait from six weeks to five. Others have suggested the point at which the benefit cut kicks in for those on the work allowance model should be raised. 

Ministers have not been helped by a series of damning reports by Government watchdogs and think tanks. In June this year, the National Audit Office said Universal Credit fails to deliver on its promises and will leave thousands of vulnerable claimants in hardship. Just today the Public Accounts Committee said the flagship welfare policy had caused “financial hardship for claimants” but that ministers were ignoring concerns.

 

WHAT IS LIKELY TO HAPPEN?

It seems hard to imagine Philip Hammond getting through the Budget on Monday without some kind of concession on Universal Credit. The political mood is too fraught for the Government to simply push ahead without listening to critics now that the row is spreading across the Tory benches like a rash.

Katie Schmuecker from the JRF said: "Working families need support in the Budget - in recent years the number of people living in poverty in working families has risen more quickly than the employment rate. Two-thirds of the children in poverty now live in a working family.

"JRF recommends that in his Budget on Monday, Chancellor Philip Hammond increases the work allowances - they operate like a personal tax allowance, letting parents keep every extra pound they earn, up to a threshold. Increasing them  to their original level for families with children, would give a boost to low-income families and act to tackle the burning injustice of in-work poverty."

Downing Street says the DWP "has always taken a tst and learn approach when it comes to the system". A spokesperson for the PM today said: "They have acted on feedback and improved it and they have made numerous changes as a result of that feedback. So they are listening."

Labour meanwhile has been somewhat confused in what it has promised on Universal Credit. In its 2017 manifesto the party said it would “reform and redesign” Universal Credit. Earlier this month Shadow Chancellor John McDonnell gave his strongest hint yet that Labour would scrap the system altogether, arguing it had “got to go”. However other Labour figures have simply said the system needs to be reassessed.