Universal credit complex and costly
Press release issued: 4 December 2010
The coalition government’s plan to introduce a universal credit to replace the current range of welfare benefits and tax credits will result in large numbers of benefit recipients losing out and substantial costs to the Treasury, according to Professor Paul Gregg of the Centre for Market and Public Organisation (CMPO).
The coalition government’s plan to introduce a universal credit to replace the current range of welfare benefits and tax credits will result in large numbers of benefit recipients losing out while adding to the Treasury's financial burden, according to Professor Paul Gregg of the Centre for Market and Public Organisation (CMPO).
The government argues that the current system is too complicated and that work incentives are too low because benefits are withdrawn when people earn more. The universal credit would take all income-related benefits and tax credits for working-age people into a single system with a single withdrawal rate as earnings rise.
Writing in the current issue of Research in Public Policy, Professor Gregg argues that the universal credit still needs to address entitlements to individual contributory benefits (mainly short-term Jobseeker’s Allowance and incapacity-related benefits), which are based on National Insurance contributions rather than family needs.
Keeping these individual elements separate from the family-based universal credit will add considerable complexity to the system, undermining the very logic of the reforms, he contends.
Additionally, some benefits – housing benefit, council tax benefit, the higher value of benefits for disability than for jobseekers, disability living allowance and attendance allowance – are additional costs that only apply to some claimants. A single universal credit would not be high enough to meet these additional costs unless it was very generous and thus prohibitively costly. But keeping them as extra payments requiring additional claims means that the new system would simply replicate the current system but with extra supplements rather than different benefits. This is both a complex and a costly option.
Furthermore, he demonstrates that the government’s assertions used to justify the reform – that welfare spending is out of control and the system unworkable – are not backed up by the facts.
The real picture that emerges for the welfare system is one of long-term declines in the numbers of claims (down from six million at the end of the last recession to five million today), and in total spending as a share of GDP. Although there has been a 40 per cent real increase in welfare spending over the last decade, the rise was much greater in the 50s, 60s and 70s. Indeed, apart from the current recession, the growth of welfare spending has slowed rapidly since the mid-1980s, and is less out of control now than at any time since the Second World War.