With three months to go before the pilots, and nine months to enrolment of new cases, it’s being reported that HMRC’s “real time information” system is unable to cope with monthly returns. In a quarter of cases, HMRC cannot match the codes for employers and bank records. Records of employment make up only one link in the chain needed for Universal Credit to work – after that, the information has to be matched with Universal Credit receipt and processed both by DWP and local authorities.
While this has been going on, Iain Duncan Smith has been very critical of the Tax Credit scheme, which he says is “not fit for purpose.” He points to the disincentives it creates and the problems of error and abuse. He’s probably right about that – which makes it more incomprehensible that he has chosen to push through a complex, unworkable system based on the same principles. The new Universal Credit is going to take forward most of the things that don’t work about Tax Credits, and add problems of its own.
The main argument in favour of Tax Credits has been their distributive effect. The problems with Tax Credits have been considerable, however – among them, the staggering complexity, the unstable income they provide, the high marginal rate of deduction and the requirement for claimants to make up for miscalculations made by the administration. I think the Labour government made a serious mistake when it went down this road, but there’s not much help for that now, because any reform of the system has to begin from where we are. To replace Tax Credits, we’d need at least three major changes: a minimum wage well above current levels, a universal child care system (because the element for child care costs has to be replaced), and substantially greater Child Benefits. I suspect that would be still cheaper than what we’re doing now.