The social protection system is failing. We have to find ways round the problem.

We have moved into lockdown, and the government has still given little thought to how to protect the situation of people on very low incomes.  The main concessions relate to the failing system of Universal Credit: work allowances and benefit levels have been increased, the presumptive income of self-employed people no longer applies, and new sanctions have been suspended.  Universal Credit is not, however, equipped to respond to people’s circumstances even in normal times, and it cannot cope with the surge in applications.

First, people have to apply.    This is a clip posted on Twitter by an applicant looking to verify his identity:  it will take nearly a month for the position to rise to the point where it can be dealt with and then there is a 45-minute window to respond.  After that, there is a five week wait for benefit delivery. Claimants are offered loans to fill in the gaps, which means a long-term reduction in the future amount of support available.

What are the alternatives?  There is a strong case being made currently for something like a Universal Basic Income.  UBI only provides people with cash, but that meets the present situation: there are plentiful supplies of goods, and what we need to do at present is to make sure that people have the resources to buy them.  I’ve objected to the idea in the past, mainly on two grounds: the distributive impact, which is likely to exclude people on existing benefits, and the opportunity cost.  Neither of those reservations really applies to the present situation.  The government could do worse than offering a flat rate payment to everyone.

However, the mechanisms to deliver a universal income don’t currently exist, and in a crisis, we need to be considering what can be done quickly and immediately.  There are three benefits which have widespread coverage, making it possible to make special payments using mechanisms that are already in existence.

    • The Xmas bonus currently goes to 17.5 million people, mainly pensioners, carers and people with disabilities.
    • The Winter Fuel Payment, which might be more adaptable to special one-off payments, goes to 12 million pensioners.
    • Child Benefit goes to 12.7 million children in 7.3m households.

It should be possible, then, rapidly to make arrangements to make special payments,  with minimum fuss and no additional verification, to up to 37.5 million people (17.5 + 12.7 + 7.3).   It’s not ideal, but we need to find mechanisms that are practical and effective; this would cover a lot of the ground that needs to be covered.

This still leaves a large hole: the position of adults of working age who have no children.  The government obviously hopes that employees within the PAYE system can be supported through businesses, using roughly the same mechanism as Statutory Sick Pay – it won’t work, unfortunately, for the most precarious workers, or self-employed people.    I’ve canvassed in the past another option: make the tax allowance convertible, so that people can claim the equivalent in cash.   That should, in principle, cover most of the people left out by the first proposition, with the added advantage that people who already have sufficient taxable income will be paying it back in tax.

A submission on the economics of Universal Credit

The House of Lords Economic Affairs Committee has asked for submissions on ‘The Economics of Universal Credit’.  My submission has just appeared here, as an MS Word Document. This is my summary of the main points:

The aims of Universal Credit (questions 1 and 2)
• Universal Credit is a portmanteau benefit, not a simplification.
• It has not reduced costs, reduced error or improved the efficiency of benefit administration.
• ‘Personalisation’ has led to unstable, unreliable income flows.

The relationship of UC to the labour market (questions 6 and 7)
• UC has not evidently reduced worklessness, but the relentless emphasis on work is in any case a distortion of perspective.
• The marginal rate of deduction is very high. There is no good evidence of incentive effects, but arguments on this basis are more concerned with equity than with economic behaviour.

I conclude that “The purposes of UC are defeated by its complexity, and its failure to provide a stable, predictable income.”  I doubt that anyone who has followed this blog over the course of the last ten years will be surprised by that judgment.

This document was in MS Word, a proprietary format, because that was what the Lords Committee specified.  To make it accessible, here is a PDF version.

More on the problems of Universal Credit

A report from the IPPR is critical of Universal Credit.  The report focuses on a series of features about UC which are causing problems. They include

        • the five-week wait
        • monthly payments
        • the two-child rule
        • the benefit cap
        • the high taper rate
        • the level of benefit
        • joint payments
        • sanctions and conditionality
        • the management of ‘debt’ to the system.

What’s striking in this list is that only one of those features – monthly payments, linked to monthly assessments – is integral to the design of the benefit.  All of the others have been tacked on, like decorations on a Xmas tree.  But UC has other, built-in flaws – problems that exist because of what the benefit is.  They include

        • the attempt to lump disparate benefits together, with the effect that problems in one part can lead to catastrophic suspension of the whole
        • the dismantling of the support system for Housing Benefits
        • the unpredictable and fluctuating benefit entitlement, exacerbated by the idea that assessments relate to income now rather than historic income
        • the very idea of a taper, which means that people cannot know when they become entitled to a benefit and when they cease to be entitled – a recurring problem with Housing Benefit and Tax Credits
        • the obsession with entry or re-entry to work, when the vast majority of intended claimants will not be part of the labour market
        • the implications of the ‘work allowance’, set too low to allow for continuous contact, and
        • the idea that technology, rather than competent administration, can settle complex human problems.

The IPPR are right to complain that this is “a tightrope over poverty, not a social safety net”.   But they don’t go anything like far enough.

 

Somewhere, in a world quite unlike our own, Universal Credit is working brilliantly

Universal Credit has its defenders, and the Daily Express has come out fighting:

“disruptive” proposals could hammer 30 million Britons, cost tens of billions of pounds and send taxes soaring.

The middle bit of this could be true, because all major reforms have a price tag; introducing Universal Credit had cost more than £2bn by last year, though that figure ignores the false start and ‘reset’.  The very belated Final Business Case claimed that UC will gain £24.5 bn in people choosing to work more, £10.5 bn in distributional improvements, and £9.1 billion in reduced fraud and error.  The National Audit Office has told us that “We cannot be certain that Universal Credit will ever be cheaper to administer than the benefits it replaces”; their 2018 report said that

 the extended timescales and the cost of running Universal Credit compared to the benefits it replaces cause us to conclude that the project is not value for money now, and that its future value for money is unproven.

We now know that the figure on fraud and error is wrong, and that Universal Credit has made fraud and error  much worse; and ‘distributional improvements’ don’t save money, they move it to a different place.  So the only possible saving could be by encouraging people into work, and given that only a very small proportion of claimants are continuously unemployed – the majority of claimants are too ill to work, carers, short-term unemployed or already working on low incomes –  it isn’t going to be anything like £24.5bn.  If I had to guess, I would estimate the net gain, by comparison with the previous system, at something closer to zero.

That leaves us with the extraordinary claim that 30 million benefit claimants will be affected.  Yes, that really is what the Express article says:

It would immediately impact around one million people currently on Universal Credit, but it would likely also have an impact on the 30 million-plus people receiving some form of benefits.

To get anywhere near 30m, that has to include all pensioners, and every child where the families receive Child Benefit.  It seems that the lives of children and pensioners have been turned around by the prospect of a benefit that neither group gets, and they can all look forward to a brighter future, if only this benefit remains in place.  But perhaps I  mistake the argument, and the Britons in question are the occupants of a parallel dimension, like the Man in the High Castle, where everything is subtly different.  Suddenly, everything in the Express starts to make sense.

Some snippets on the Scottish variations in benefit rules

I have spent a little time this week preparing for an evidence session of the Commons Scottish Affairs Committee, which was reviewing the development of social security in Scotland.  The hearing, scheduled for next Tuesday, has now been cancelled, because everyone is currently more concerned with High Politics; the process may resume in due course, or it may not.

I’d been focusing on the back half of the committee’s remit, which was concerned with the relationship between the Scottish system and the UK system.  In the process, I’ve spoken with people from a range of organisations, including the Scottish Federation of Housing Associations, Glasgow Welfare Rights, Citizens Advice Scotland, Clydebank Independent Resource Centre, Child Poverty Action Group and One Parent Families Scotland.  I’ve also seen the written submissions from Inclusion Scotland, Poverty Alliance and the Scottish Campaign on Rights to Social Security: the written submissions should be published more generally  shortly, but publication has to be approved by the Committee first.  Thanks to you all.  I also found a SPICE paper, on administrative costs and relationships with the DWP, particularly helpful.

There have been very positive things said about a couple of the new benefits that rely heavily on the cooperation of the DWP, particularly the Carers Allowance Supplement and the Best Start Grant.  There are more reservations about the operation of variations in Universal Credit, partly because the system from direct payment of rent to landlords isn’t adequately integrated,  and because there seems to be some hesitation about applications.  That may reflect advice from housing associations, and there have been some problems with some rent being paid monthly while income is bi-monthly; but I’d guess that it may also be because bi-monthly payments don’t get over the outstanding problems of an unpredictable, fluctuating level of benefit.

Additional note, 30th October: I have just received notice that, following the announcement of a General Election, the Committee’s review of the Scottish social security system will not now take place.

The problems with Universal Credit can’t be fixed by loans or advances.

PRESS RELEASE: UC APPG responds to childcare announcement

From the APPG I have the news that people on Universal Credit will be able to get a loan or advance to pay for their child care.  Whenever someone gets a loan or an advance they have to pay it back, usually by deductions from their benefits.  That means that, whatever their benefit entitlement may be, in the future they will get less than that entitlement.

I apologise for stating something that should be painfully obvious to anyone after a moment’s thought.  (‘Painfully’ was not the first adjective that sprang to mind.  I thought it better to moderate my language for public consumption.)

A report on Universal Credit

The All Party Parliamentary Group on Universal Credit has published a detailed report on Universal Credit, including something in the region of 50 reasonable proposals to help the system work better.  The group has notable expertise in the field, and there is no recommendation I wouldn’t agree with, but I don’t think it goes anything like far enough.  The fundamental design flaw, which they point to at the outset, is this:

many claimants say they cannot understand how their UC is worked out, and it is subject to so many variations that it is far harder to budget on UC that it was on tax credits.

That instability of income is built in to the system.  Some of the fluctuations would be damped down by the group’s proposals, including modifications to work allowances, a review of the treatment of self-employed people and 53-week years, but they would not prevent the wild fluctuations in the amounts being paid month by month. To stop that happening, the system needs

(a) to make payments on a uniform date, rather than a personalised one which varies with weekends and bank holidays;

(b) routinely to make rental payments direct to landlords, as Housing Benefit did; and

(a) to relate entitlement to a preceding period, rather than the current one.  As this report says,

This mismatch of pay cycles and assessment periods and the ‘whole-month’ approach to changes of circumstances, can leave people struggling to budget with unpredictable and arbitrary awards.

 

Universal Credit and a pattern of fraud

A major fraud has been reported affecting Universal Credit.  Over the course of the last eight and a half years, I’ve frequently commented on the vulnerability of the UC system to fraud and error, despite repeated assertions from the government – and the falsification of the business case – to claim the opposite.  This fraud is different from most, because it represents organised criminal activity that is neither attributable to claimants nor to DWP officials.  The criminals  pretend to be other people, both claimants and people who have not claimed, to register for short term loans before any checks might be made.  (This is not, for the most part, ‘identity theft’; it is personation.  A fraud of this sort is typically a fraud on the DWP, not on the claimaint.)

It should have been obvious from the outset that computer-based identification wouldn’t be sufficiently secure for the purposes of the DWP.  There was something close to an admission of this more than  three years ago, when Verify, the successor to the failed “Identity Assurance”, was cut adrift.  But the problem is not only down to poor tech.  The situation has been produced by a system that relied on online verification, rather than claims in person; that left claimants without resources for well over a month; and replaced a system capable of processing the vast majority of claims within 14 days with one that struggled to do it in six weeks, and sometimes could take as long as three months.   Universal Credit is error-prone by design.  Its vulnerability to deception is only a part of that.

 

 

How to abolish universal credit

An inquiry in London is asking how Universal Credit can be replaced.  I’ve previously supported calls to ‘pause’ or stop its roll-out.  Unfortunately, with more than two million people enrolled, we’re well past the point where it can be stopped or cancelled in its present form. The most important stage passed when UC moved past its previous focus on unemployed people and started to enrol other people with a wide range of needs.   Most people who are unemployed cease to be unemployed within a few months, but longer-term claimants are much more likely to be chronically sick or disabled.  They need stable, secure protections. Universal Credit is not good at providing them, because of the  fluctuations in the level of support provided, but the support cannot just be removed while a new system is sorted out.   Transfers from existing benefits can be stopped, but new enrolments can’t be – there have to be benefits available for sickness, unemployment, low earnings.

What can be done, then, to deal with this catastrophe?  Forget the easy, unified solutions; that’s how the mess was made in the first place.  The only practical approach is to start to dismantle the system by moving to new, compartmentalised benefits dealing with the principal contingencies.  Start with invalidity, or long term sickness: it needs to be removed from the principle of work-testing, because the whole point of the provision is that it is supposed to deal with people who it’s not reasonable to expect to work.  Most of the regulations introduced for ESA or UC  have been screamingly inappropriate.  Think about child care; it may be best to take it out of the benefit system altogether.  The changes to Pension Credit are new – couples where one person is still of working age can transfer back to the pension system with no loss.  Housing Benefits are still largely in place – they won’t be for long, and local authorities have been losing expert staff, but the long-heralded abolition of Housing Benefit for pensioners hasn’t happened yet, and that system could keep going.

I’m not going to go through every aspect of the benefit in the same way, but the principle should be clear.  Whenever  you have a complicated problem, the way to deal with it is not with a single, complicated answer.  To deal with an unmanageable  problem, break it up into slightly less complicated ones; break those up in turn into smaller ones, and keep going until there’s a group of problems that it’s actually possible to deal with.

This is, of course, the opposite of what Universal Credit was supposed to do.  The approach is made a little easier by the fact that Universal Credit is not, and never could have been, a unified system: it already has compartments for different aspects of the service (unemployment, employment, housing and so forth).  The system can’t be abolished overnight.  It has to be taken apart piece by piece.

Winners and losers from Universal Credit

In any benefit reform, there are likely to be winners and losers; unless there is a substantial increase in the budget, the gains for some can only be made because others are being paid less. A fascinating report from Mike Brewer and his colleagues at the Institute of Fiscal Studies looks at the difference between short- and long-term gains and losses from Universal Credit. The difference is important, because Universal Credit has in theory been designed to maintain contact with large numbers of people over extended periods of time.

What the IFS report finds includes

  • greater losses for people on long-term low incomes,
  • losses for people with disabilities
  • short term losses for self-employed people with low earnings, that are less likely to last as their circumstances change, and
  • some large gains and losses in the short term, which are not always reflected in the long-term outcomes.

The report is concerned with entitlement, rather than the actual amounts of benefit received – the serious problems there have been in practical delivery, and the impact of conditionality and sanctions, are going to mean that many more people are worse off than they ought to be on paper. Short term losses matter, too. For people on very low incoimes, a short-term loss means, in practice, that people have periods of severe privation, often going without food and accumulating debts.