How sound is the case for Universal Credit?

Following my FoI request and a conversation with someone who ought to know, I’ve been doing a little chasing about the Business Case.  I’ve been told that there isn’t likely to be much difference between the (unpublished) Outline Business Case and the Strategic Outline case.  That wasn’t published last year, but the National Audit Office listed the main claims:

UC Business Case

Some of these figures are difficult to interpret, and that’s not just because the rollout of UC has been much slower than anticipated.

  • Line 4, listing an increase in benefits spending, reflects the potential costs of improved earnings disregards but is subject to change:  unemployment has been lower than expected, coverage has been reduced and benefit rates and tapers are under review.
  • Line 6, the gain to governments from increased unemployment, is unclear.  The initial returns from early cohorts do suggest a marginal  increase in employment – 3%, rather than the 8% that the government is claiming – but it’s not clear that there will be a commensurate return to the government, either through taxation or through benefit foregone.  The same issues reflect on line 9, wider gains from increased unemployment.
  • Line 8, Distributional benefits (non-cash), represents most of the supposed gain from UC – indeed, the Business Case hangs on it.  This has not been explained directly, but last March the Treasury published a distributional analysis accompanying the Budget, including this chart:
  • UC Distributional EffectWhile I’m happy to agree that a 3% increase in the income of people in the bottom tenth would have positive social effects,  I can’t quite see how this will yield a distributional benefit of £15-30 billion over twelve years.

The most obvious questions relate to line 5, Reduced overpayments.  This is supposed to account for £14 billion over twelve years, or £1.16 billion per annum.  The net total loss for all DWP benefits (including Housing Benefit) through error and fraud has recently been given as £2.1 billion a year.  Even if we use the gross figures, before recovery of overpayments, the total overpayments for all the benefits being incorporated into Universal Credit is £1.4 billion. Net overpayments for Tax Credits came, on the most recent figures I have, to just over £1.5 billion.  So it looks as though the Business Case is claiming that net overpayments will be reduced by something between a third and a half.

We know rather a lot about overpayments, because there are detailed estimates of how they happen.  The main reasons for overpayment are  confusion about employment and earnings, household composition and capital holdings.   Even if Universal Credit deals with the first of these, there is nothing it can do about the other two.  Nor, when we get down to detail, is UC going to be able to resolve lots of the smaller problems, such as people becoming hard to trace, residency rules or resolving whether people are really entitled.  The assumption that Universal Credit will make these issues disappear looks like wishful thinking.



2 thoughts on “How sound is the case for Universal Credit?”

  1. I’m sure you must be right. UC is going to be a muddle, with people slipping through the net. I wonder if there is any statute, regulation, that makes it illicit for people with nothing to be left with nothing in terms of benefits and if so whether the govt. could be challenged along those lines, in individual cases at least?

  2. Paul Spicker @PSpicker
    Replying to @EmpManPaul
    @EmpManPaul We don’t know, because the case hasn’t actually been published.

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