The coalition government plans to replace all existing working age benefits with a single Universal Credit. Last week the Work and Pensions Committee held an oral evidence session on this proposal. I was asked to appear before the committee and explain Reform’s concerns over these plans.
The session began with the Institute for Fiscal Studies and the Centre for Social Justice discussing their work on the winners and losers from the Universal Credit. These organisations should be congratulated for their work on this and it is a shame that the government has not undertaken or published similar work.
Yet having too detailed a focus on winners and losers at this stage is likely to lead to a discussion that is precise but misses the point. Not only, as the IFS noted, do we not know most of the details of how the Universal Credit will work in practice, but ex ante modelling of welfare reforms can only produce estimates and not facts.
All models are subject to limitations such as the need to draw on survey data with limited information on people, or challenges in knowing precisely how people will respond to a reform. (This does not mean that models should not be used, but just that they should always be used with caution.)
A limitation I highlighted in my remarks to the committee was the need to not just look at the impact of reform at the individual or family level but to consider how reforms interact with the labour market in the real world. A concern with the White Paper on the Universal Credit is that it contains no indication that these broader labour market issues have been given any consideration, although there is much overseas and local evidence to draw on. Indeed, as Chris Goulden from the Joseph Rowntree Foundation has noted ‘the kinds of jobs that are incentivised will be vital. It will be no good for long-term poverty if the benefits bill is reduced by making it easier for people to get stuck in cycles of low-paid, unskilled, insecure and dead-end jobs.’
The White Paper also indicates a concerning lack of thought on implementation. Treating implementation as an afterthought is a recipe for disaster. It is not good enough to kick these difficult issues into touch. How confident can we be that a PAYE system that already has trouble in doing its basic job of collecting income taxes and pension contributions will be successfully automated and extended to the welfare system?
Problems in introducing the child support computer system should provide a warning for this. How will some of the most difficult issues in welfare policy (such as aligning the definition of primary caregiver or assessable income over programmes with different objectives) be resolved? To paraphrase the Governor of the Bank of England, welfare ‘policy cannot be based on wishful thinking.’
Welfare policy also needs to recognise that families must take some responsibility themselves. In the real world there is no perfect welfare system where at every point work always pays, all in-work costs are covered and change never creates “losers.” There are at times, for example, costs associated with working that no realistic welfare system could ever compensate for. But this should not be used as an excuse when families fail to make decisions that are in their – and society’s – long term interests. The flipside to having a welfare system which provides an important social safety net is that most people can reasonably be expected to take up work if it is available and adequate.
It is time that the Coalition got real and abandoned its expensive and poorly thought-out plans for a Universal Credit.
Dr Patrick Nolan is chief economist at the think-tank Reform.
