Getting Universal Credit to work better: a very modest start

Aside from the very necessary and short-term measures in the benefit system to tackle coronavirus, there were two tweaks to Universal Credit (UC) in the budget.

Debt repayments have been made more manageable

From October 2021 (which is fair way off) claimants will now be given 24 months, rather than 12, to pay off any advance – in effect a loan – they take to tide them over the five-week wait for their first UC payment. For those who take a 100% advance, that will reduce the loan repayment rate from 8% a month at the moment to 4%. This is, undoubtedly, an improvement.

In addition, and at first sight more importantly, the maximum deduction that can be made to repay not just the advance but other forms of debt is being cut from 30% to 25%. That is a whole lot better than the 40% that it was until late 2019.

But, while the repayment of debt has been made more manageable, the budget announcement barely touched on the issue of £10bn worth of historic social security debt that UC has been set up to reclaim.

Historical debt remains high

The largest part of this historic debt is some £6bn due from overpayments of tax credits. Even after the budget announcement, some of those transferring from tax credits will still face extended periods, in some cases years, living on only 75% of the standard personal allowance. For a single adult, that will mean living on an income of around £55 a week to cover daily living expenses such as food, clothing, utilities, laundry and phone bills.

Deductions to repay the huge sums of past benefit debt are already causing hardship – almost a fifth of UC claimants, some 1.5m people, currently have 30% or more of their standard allowances deducted. The numbers affected by such debt will rise as the numbers transferring to UC rise.

The reduction to 25% is an improvement. But not a huge one. The clue to how modest these welcome measures are is in the budget numbers. The cost of working-age benefits is currently a bit under £65bn a year. The cost of these changes is zero in the current year and £15m next year. The cost peaks at £165m in 2022/23, before declining quite rapidly.

As last week’s publication from the Institute for Government, Universal Credit: Getting it to work better, argued, something much more radical needs to be done to tackle the inherited debt in the social security system. For example, and ideally, writing off or ignoring large parts of it, given that much of this debt has been sitting on the government’s books for years. Or by reducing, by a much larger margin, the maximum deduction made in order to repay it. Down perhaps to 10%, not the planned 25%.

Coronavirus changes the context

The budget announcements are welcome tweaks – but they remain tweaks, and do not extend the steps the government has already taken to reduce the impact of the five-week wait for entirely new claimants of Universal Credit.

Last week’s report argued that new claimants should be given a non-repayable two-week “welcome grant” to UC – a move that would merely match the measures that the government has already announced for other claimants already in the benefit system. That “welcome grant” needs to be done on a permanent basis.

If coronavirus leads to a significant downturn and job losses, this will need to be done quickly as an emergency measure.

Under the old system, the newly unemployed faced a two-week wait for Jobseeker’s Allowance, the unemployment benefit. Under UC they will face a five-week wait at best (with the offer of an advance/loan). Fortunately, every budget has a contingency fund. If Covid-19 does start to produce significant job losses, getting money to the newly unemployed fast will be one of the things it should be spent on.

The government’s new timeframe for Universal Credit has been questioned

Finally, as a footnote, the budget confirmed that the expected end date for the full roll-out of Universal Credit has slipped again to September 2024. But the Office for Budget Responsibility (OBR), which has always taken a sceptical view of the government’s repeatedly revised timetable for the completion of the transfer to UC, has become yet more sceptical.

It used to add six months to the government’s projection of when the roll-out would be completed. In the light of experience, it announced yesterday that it is now adding 18 months to that. This means the OBR is now assuming the process will not be complete until September 2026. That will be two years later than the current timetable, nine years later than the coalition’s original plan – and almost 16 years on from the moment when Universal Credit was first announced.

Did anyone ever say that reforming social security is easy?