For the Treasury, the Universal Credit is looking like an unaffordable vanity project, at a time when squeezing £10bn from benefits would come in handy. IDS disagrees
There has been a lot of talk about the Universal Credit over the past couple of weeks, both inside and outside government.
The Resolution Foundation has pointed out how the new system will see families worse off, as the benefits rolled up in this payment will be uprated by CPI instead of the more generous inflation rate of RPI.
The charity Gingerbread has explained that the increase in tax free allowances will not be enjoyed by working families on Universal Credit, as the withdrawal rates (made as income rises) will all but wipe this increase out.
But these unintended consequences aren't exactly a surprise. In order to reduce the welfare bill, the government announced back in 2010 it would be uprating benefits by the stingier CPI inflation rate, and would ensure benefits were more smoothly withdrawn in line with earnings to ensure work always paid more than benefits. It was obvious that poorer families were going to lose out. That’s a somewhat unavoidable truth when it comes to welfare cuts.
And yet, there are calls within government to cut welfare further and faster – something Welfare Secretary Iain Duncan Smith is resisting but which the Treasury is understandably keen on. As growth predictions remain stubbornly below where they should be, the Universal Credit is looking to the Treasury like an increasingly unaffordable vanity project at a time when squeezing another £10 billion from the benefits bill would really come in handy.
The Treasury is thinking cashflow, IDS is thinking invest to save. It’s an inevitable collision course which has been seen in aviation, environmental protection and care funding. All have been associated with Treasury displeasure, and duly derailed or delayed by those that hold the purse strings.
But IDS has proven to be not as easily overruled as other ministers and will no doubt use the fact that 1) he has already ushered in a series of significant cuts to benefits (DLA reform, time limitation and penalties in JSA and ESA, the overall household benefits cap) through the Welfare Reform Act; 2) the battle in parliament over the said Act – which includes plans for the Universal Credit - was drawn out and bloody. U-turning on such a hard won battle ought to be avoided; and 3) the PM backed these very high profile plans. The Universal Credit isn’t something that can be 'quietly dropped' (whatever Frank Field says).
For me, however, this big argument – the Universal Credit is cutting too much versus it not cutting enough – is a bit of a distraction. No doubt it is a fundamentally important ideological issue, but I believe the battle for Universal Credit will be won and lost in the nitty gritty.
First, to make Universal Credit work, we need the most ambitious IT system since the NHS – and we all remember how well that went. The spectre of a funding black hole looms large. But there are also a series of smaller questions which haven’t been tackled.
The Credit will be paid in monthly payments, yet many families have expressed concern about being able to budget in that way when their costs fall on a weekly basis. Landlords will no longer get Housing Benefit direct – it will be paid in the Credit for families to pass on. Demos polling – due to be released in a few weeks – shows the vast majority of the public are against this idea, recognising that many struggling to make ends meet might well eat into their rent money to – well – eat.
Payments in arrears for monthly adjusted tax credits could see people losing money for a month when they secure employment. Digital literacy and access to IT are no doubt going to be killers for a primarily digital system, as will the hazy plans over using PayPoints for those (nearly 2 million people) without bank accounts.
IDS has a big picture – a shining new vision of integrated funding streams. Unfortunately, we’re dealing with the messy world of low income family finance. It doesn’t obey basic government reform rules: integration is not always best (some people actually like separate benefits to help them with ‘jam jar’ style budgeting); less bureaucracy is not always welcome; and digital systems aren’t always the easiest.
Unless these rather unglamorous issues are ironed out well in advance, the whole system will grind to an embarrassing halt.
It is ironic that, in the argument of the big hitters - HMT’s distaste for big-spend new systems when short term cuts are needed versus IDS’s long term vision of a welfare regime to rival the best in the world - it is the details, the implementation, that will eventually call the winner.
Maybe this is why IDS is more dismayed by Sir Jeremy Heywood’s scepticism about the plan than about the grumblings at HMT.
