James Heywood is the Head of Welfare and Opportunity at the Centre for Policy Studies.
One of the iron laws of politics is that it is very easy to give things away and extremely difficult to take them back again. That can prove a particular problem when a government has had to put in place unprecedented levels of support to cope with a pandemic.
This week, for example, the Labour Party has been loudly claiming that the Chancellor is planning to “slash Universal Credit in the middle of a pandemic”. It is transparently disingenuous to claim that ending measures which were clearly intended to be temporary amounts to a ‘cut’, but it is also very easy to do so. As a result, it looks like ministers may be forced into another embarrassing and expensive U-turn.
It’s all too easy to say, with the wisdom of hindsight, that the Government should have made the GBP20 increase to Universal Credit a separate payment to help alleviate hardship during the pandemic, rather than simply increasing the standard rate.
But there is still an extremely good case that, while legitimate concerns have been raised, a policy which may have made sense as an emergency measure would make no sense as a permanent one.
Apart from anything else, a blanket cash uplift is an incredibly blunt policy instrument. In particular, the GBP20 increase was worth a lot more, as a proportion of overall income, to claimants who don’t also have children to support. The standard allowance for a single claimant under 25 increased by 36 per cent, compared to 19 per cent for a couple over 25.
The critics are right that it would clearly be unreasonable to cut off this extra support in April, when restrictions will still be in place and furlough is due to end. The idea being floated by the Treasury of instead giving claimants a one-off GBP500 cheque is slightly bizarre, and would be inherently unfair when claimants are constantly flowing in and out of Universal Credit (although mainly in at the moment, for obvious reasons).
But extending the GBP20 increase indefinitely will add more than six billion pounds to the annual welfare bill – and do so in a way that is far from optimal.
A better option, as set out by the Centre for Policy Studies this week, would be to replace the GBP20 uplift from April with a separate Coronavirus Hardship Payment, with the same value and same eligibility criteria so claimants do not see a fall in income while Covid is still overshadowing the economy. This should be clearly defined as a six-month measure, with a further three months at GBP10 to phase out the support.
It might sound like semantics, but it is much easier to explain why a Coronavirus Hardship Payment is not being retained forever than it is to explain why you’re reducing benefits. What matters is not whether the money is still being spent in three, six, or nine months’ time, but that it doesn’t become a permanent additional liability for the Exchequer.
This move could be accompanied by a much more generous uprating of the standard Universal Credit allowance. It is currently only set to rise by 0.5 per cent in April. If instead a one-off rise of 2.5 per cent (the same rate being applied to the State Pension) were to be applied, this would amount to around an extra GBP100 a year for a single claimant over 25.
Crucially, all of this should be accompanied by reforms which would meaningfully increase the generosity of Universal Credit – but in a way that would be much better targeted than the GBP20 blanket uplift.
Currently, if you enter work you lose 63p of benefit for every GBP1 you earn, once you exceed any “work allowance” you might be entitled to. This acts like a hefty tax on the people we most want to encourage into the world of work. Cutting that rate to 55p, and introducing a new GBP1,000 work allowance for childless claimants (who are set to lose most proportionally from the GBP20 being phased out), would mean the lowest paid could take home a lot more of the money they earn. In polling on welfare by YouGov for the CPS, the public were clear that they thought the benefit system should prioritise making it easier for people to get back into work: this would deliver that.
Something clearly needs to be done to address this issue before it becomes a major political sore and forces the Government into a policy it knows would be both bad and hugely expensive. The package I’ve just set out would cost roughly half of what the GBP20 uplift would cost if it was kept permanently. It could allow ministers to phase out the uplift while highlighting the fact that the Universal Credit system overall will still be more generous post-Covid than it was going into the pandemic – and significantly better at rewarding work.
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