I’ve been asked a couple of times this week how Universal Credit might be introduced more effectively. I’m doubtful that it will ever be introduced, but if it is I doubt that any patches and fixes will make it work. There are two intrinsic problems in the design. The first is that it’s a big benefit, covering lots of different circumstances. That means, inevitably, that it has to be complex, and that any mistake or malfunction in payment will leave vulnerable people without basic support. The second problem is that the benefit’s main design objective, limiting the marginal rate of deduction to 65p in the pound, can’t be achieved. Taxation, National Insurance contributions, Council Tax Reduction and passported benefits have been left out of the sums. The more that gets built in, either people’s income will have to be much higher before they cease to be entitled, or the taper will have to be stricter – and 65% is already more than could be reasonable.
It would be better if the benefit wasn’t there. Given that Conservatives, Labour and Liberal Democrats are all determined that it will be, however, the next important step is to limit the damage to the people who have to depend on it. The Labour Party has received ideas from a “rescue committee” which has proposed several measures: integrating Council Tax Support, making child-related payments to mothers, and simplfying rules for self-employed people. Here are a few modest proposals of my own.
- Paydays. The current intention is for UC to be paid to claimants on monthly on the anniversary of their claim. This is crackers. That date will lose relevance as soon as people’s circumstances change; no-one external can tell the claimant when the benefit is due. It means, as the pilots have already shown, that people haven’t a clue when their benefit is actually going to be paid. Every claimant should have the same pay-day, for every benefit. Some days in the month are unsuitable for the purpose: 1st, 2nd, 25th, 26th (because of bank holidays); 29, 30,31 because they’re not in every month. I propose that everyone should be paid everything on the 15th, and if the 15th falls on a weekend (which it must do 2 times out of 7) on the first Monday after the 15th. There: now everyone (and their landlord) knows when the money’s coming in.
- Income testing. We all know that income testing doesn’t work, but the design of UC doesn’t leave us the option to get rid of it. What we can do, at least, is to stop people being tested for income when they don’t know whether or not they’re actually going to receive it. Income testing should be based on a period immediately before the benefit period – not in the same month, or in ‘real time’ – and governed by what people have actually received, not on notional or overdue payments. With payment on the 15th of each month, this could be the calendar month before the present one for most claimants, or three preceding calendar months for self-employed people.
- Sanctions. UC is supposed to keep contact with people over long periods, without calling on them constantly to reapply. The sanctions regime throws people off benefit, and that’s completely inconsistent with the operation of the benefit. It would be better if there were far fewer sanctions; if there must be sanctions, they shouldn’t ever suspend benefit, but limit what gets paid instead, typically to a proportion of the entitlement.
- A universal service obligation on banks. Social landlords have argued for rent payments to go directly to them, but those can be difficult to coordinate, and it’s not clear that the benefits system has to do them. Most people pay regular bills of the sort via their bank account, through Standing Order or Direct Debit. The problem for poorer people is that they don’t have bank accounts and so don’t have the option to sign up to payments this way. If there was a USO, they could have.
- Postes restantes. This one is straightfoward. Everyone needs an address where they can receive correspondence. With UC, people need both a mail box, and an electronic mail box. Lots of people don’t have one, or live in a succession of places so that’s it’s difficult to keep track. In France, many local authorities provide a poste restante, so that safe and secure delivery of mail is protected.
- Alternative benefits. The money doesn’t have to come through UC alone. The obvious thing to do with Child Tax Credit is to divert some of it through Child Benefit, adding to the safety, security and predicatability of people’s income.
- Increase the minimum wage. This is another measure that needs very little further justification; if wages increase, the benefits bill for those in work goes down.
The thorniest problem is Housing Benefit. There are two main options. If Housing Benefit is taken out of UC and recombined with Council Tax Reduction – as seems likely in Scotland – the tapers will have to be rethought; given the interaction between the benefits, tapers of something like 40% each (which combines to 64%) will be needed. If Housing Benefit remains in UC, the whole system becomes fiendishly complicated. The only way I can see to make HB fit properly with UC is to simplify entitlements radically – a fixed housing allowance for every household, rather than a personalised amount reflecting rent. That unavoidably leads to winners and losers, and wherever there are losers on very low incomes, the impacts could cause real pain. That argues for the fixed allowance to be set at something well above the current average allowance.
I don’t claim to have all the answers, and there may well be problems here I’ve not thought about enough. If so, tell me, and I’ll try to adjust and refine what I’ve said here.