The Universal Credit

The government’s plans for reforming social security benefits have been mis-sold. They have been presented as if the primary focus was getting unemployed people into work – along with people with serious physical and mental disabilities, who are most of the people identified as being long-term claimants of working age. The proposals for Universal Credit are about something different. They represent a unification of basic means-tested benefits – Jobseekers’s Allowance, Employment and Support Allowance and Income Support – with benefits in work, mainly Working Tax Credit, Child Tax Credit and Housing Benefit.

The crucial problem for any scheme that claims to simplify benefits is that they are liable to over-simplify. This scheme is no exception. Benefits cover a wide range of circumstances. They are not just about getting people into work: they are concerned with lots of other issues, including meeting needs, helping people whose incomes are interrupted, economic management. They are complicated because people’s lives are complicated.

This leads to the second key problem: the scheme is quite impractical. The government believes that a new computer programme will make it possible to respond to changes in “real time”, with implementation beginning in 2013. The computer programme does not yet exist – even on paper – but even if it did, it could not do want the government wants it to do. A computer programme, no matter how good it is, can only go as fast as the information that goes into it. People’s circumstances change with starting rapidity. They find it difficult to say what their situation is – whether they are now disabled, whether their partner has really left them, whether or not the prospect of employment means that they now have a job. Building a system on the hope of firm, confident answers cannot work.

There is no reason to believe that this scheme will increase incentives to work. There is no reason to suppose it will reduce fraud or error – quite the contrary. And there is no real basis for supposing it will make any difference in getting people to work instead. The government’s hopes for the new scheme look like wishful thinking.

The curious case of Child Benefit

6th October 2010

When the Chancellor announced, shortly before the Conservative party conference, that Child Benefit would be withdrawn to families with high earners, it was clear that no-one expected the storm of protest. Iain Duncan Smith had called the idea of paying benefits to richer people “bonkers”, and up to that point the newspapers had seemed to agree.

The government’s reasoning made some sense. Child Benefit is effective because it is simple, takeup is virtually universal and it has no discincentive implications. Means-testing Child Benefit would be self-defeating, and pointless – there is already a means-tested benefit for families with children, in the shape of Child Tax Credit. The government was looking, then, for a simple administrative trigger that could make a practical distinction, and they thought they had found it. The central argument for keeping Child Benefit, however, its its universality – a point the press have not, to this point, seemed to understand. We don’t means-test people using schools, hospitals or roads for many reasons, but the most obvious one is that it would be nightmarishly complicated if we tried to do it. Child Benefit is built on the same logic. Every alternative is more difficult, more complicated, and more burdensome.

Many of the complaints have focused on the unfairness of the proposal – the implication that two earners might retain the benefit when a single high earner cannot. There are two problems. One is that Child Benefit is still mainly received by women, and stopping benefits to women because of men’s earnings is not popular. The other is that every attempt to respond to changes in people’s circumstances comes with complications. People with fluctuating earnings will not know whether or not they are entitled; people who become unemployed will be entitled at some points and not at others. Some people will only know that they are in the higher tax bracket and the end of the tax year, and adjustments will have to be made. These issues have blighted the Tax Credits scheme and inevitably they will blight this change.

Welfare reform

The new Green Paper, No-one written off, looks depressingly familiar; nearly all the major measures have been announced already. There are three key elements. The first is the development of individualised labour market support for people who have been out of the labour market for a year or more. Most of the comment on this has focused on the private sector firms who are engaged in the process. The profit motive means they have a strong incentive to show themselves in the best light, but that apart, I do not have a problem with the principle. It is rather more important that the performance of such schemes to date has been exceptionally poor. Pathways to Work, the programme on which the current policy is based, was also based on private sector firms. It proved to be very expensive. The rate of engagement in the labour market was lower than might have been expected without the programme, and notably worse than the DWP’s own New Deal; there is some suggestion that the programme may actually have delayed people’s return to work, rather than speeding it. To evaluate whether a scheme is working or not, we need to ask what value it adds. The big problems of individualised support are deadweight – where people are included in the programme who were going to improve without it – and spillovers – where people receive support after they no longer need it. Most of the current arguments about effectiveness simply ignore these elements. It is hard to see why it is now being rolled out as a national programme – except for the lobbying by the firms who stand to gain by it.

The second element is the introduction of “conditionality”, mainly understood as the obligation to work or enter training as a condition of receiving benefits. The Freud review was delivered under the misapprehension that active labour market policies began in the 1980s. In fact, there is a long history of conditional rules and work requirements, and it’s not encouraging. Conditionality adds greatly to the complexity of benefit rules. It penalises people for the prevailing labour market conditions. And there is surprisingly little evidence to show that it has a positive effect on labour market participation, even if it has a clear effect on benefit receipt – cutting people off benefits is not the same thing as putting them into work. The figures for the US are heavily distorted by a prison population that is equivalent proportionately in size to Britain’s problem of long-term unemployment.

The third element is the revision of Incapacity Benefit, which is being changed into a new “Employment and Support Allowance”. I wrote about this reform last year in the Scotsman. Suffice it to say here that most of what you will have read or heard about IB through the news media is gibberish. IB is not given through sick-notes, and the numbers of claimants are falling not increasing. I do not think the reforms will work altogether, because the government is not addressing the use of IB as a route to early retirement through ill health.

Taken in all, this is a minor reform, not a major one. There ought to be a fine for politicians, like a swear-box, for claiming that the latest reform is the most important one since Beveridge. This is an incremental change based on a series of badly thought out measures which have been tried, tested and failed. There’ll be further reforms when the next minister comes along.