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Wed, 5 August 2020

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Work should always pay – so why aren’t we investing in Universal Credit?

Work should always pay – so why aren’t we investing in Universal Credit?
4 min read

The Liberal Democrat Spokesperson for Work & Pensions repeats his party's stance on Universal Credit following a speech by Sir Vince Cable today. He says: "Instead of leaving vulnerable people in the lurch, we would pause the UC roll-out so we can fix it and properly invest in it".


How would you feel if your income was taxed at 63%? Would you accept that request from your boss to work that extra shift? Would you even want to work at all?

These questions matter because this is the reality for thousands of people already living on Universal Credit (UC) and for hundreds of thousands when it’s fully rolled out. Frankly, if we want to get people into work, we have to decide whether this is acceptable.

The fundamental principle behind UC – the principle that won it cross-party support in the Coalition years – was that it would ensure work always pays. Supporters said you would be better off in work and that you’d keep more of what you earn when you increase your hours.

Compared to the legacy system of tax credits and housing benefit, it’s a vast improvement. Under those systems, some people keep less than 10p of every extra pound they earn!

But then along came George Osborne. In 2015, he slashed the UC budget by £3 billion a year. We could see it coming. The Tories promised £12 billion of welfare cuts in their 2015 manifesto. Cuts of this scale would have to include savagely reducing UC, something that Danny Alexander warned in the election campaign.

The cuts have taken the form of a reduction in ‘work allowances’. They work a bit like the income tax personal allowance, and they’re just as vital. They’re the amount someone on UC can earn in a job before their benefit payments start to reduce.

Before 2015, a single parent renting on UC could earn up to £3,156 a year and keep every single penny. George Osborne cut it by over a quarter. Before 2015, a couple without children could earn around £1,300 a year before any UC payments were withdrawn. Now, there’s no work allowance for childless households; their UC is cut as soon as they start work.

The impact of this has been devastating. UC now has far more losers than winners. The Resolution Foundation warns that 3.2 million working families will be worse off than under tax credits, by an average of £48 a week. Combine this with the 

Conservative’s four-year freeze on working-age benefits and you have a toxic mix.

What’s Labour’s response? At first, it was inadequate; they inexplicably did not commit to ending the benefits freeze at the last election. Now it has become reckless, as they consider scrapping UC altogether, keeping people on a legacy system that is broken, fragmented, confusing and unfair whilst they come up with fanciful alternatives.

At the Joseph Rowntree Foundation today, Vince Cable will set out the Liberal Democrats’ approach. Instead of leaving vulnerable people in the lurch, we would pause the UC roll-out so we can fix it and properly invest in it:

Restoring the work allowances and reviewing the 63% ‘taper rate’, so people keep more of what they earn.

Ending the benefits freeze, giving low-income families with children an extra £200 a year.

Promoting aspiration and entrepreneurship, rather than making unreasonable demands on self-employed workers who claim UC.

Giving free school meals to all households on UC, so parents don’t have to choose between working that extra shift and a healthy nutritious meal for their children.

Reforming the transition between tax credits and UC so that families do not fall through the cracks.

UC will not work for working families if it doesn’t get the investment it needs urgently. But they’ll be left in limbo if it’s scrapped entirely. At this Budget, the Chancellor must give UC the investment it needs, so we can lift people out of poverty and ensure that work always pays. Otherwise, I fear that UC will fail. That serves nobody, least of all those in our communities that it was originally supposed to help.

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