How the roll-out of Universal Credit turned toxic, and how to fix it

Tory rebel MP, Heidi Allen, likens the fiasco surrounding the roll-out of the government’s Universal Credit shake-up to a scene from the animated comedy show, Wallace and Gromit.

“It’s like Wallace with one of his inventions. He pulls one lever and another one falls off. That’s what keeps happening,” says the MP for South Cambridgeshire.

Allen just happened to be one of the first politicians to spot the first of the levers falling off more than three years after George Osborne, the then Chancellor, raided the welfare budget to cut the money available for the new scheme. It was these Osborne cuts which prompted the resignation of Iain Duncan Smith, the welfare minister behind the reforms, and which in turn prompted Allen into action.

As a new backbencher, Allen used her maiden speech to savage the Chancellor’s plans for going “too hard and too fast”, and warned that cutting tax credits “overnight” showed the Tories were “out of touch” with the public and lacked compassion.

Cutting credits would send a message “to the poorest and most vulnerable in our society that we do not care” she said at the time. How right she was.

Fast forward, and today more than 30 Tory MPs are now behind Allen’s revolt and hope to persuade the Chancellor, Philip Hammond, to fund the estimated £2bn shortfall in work allowance payments in the forthcoming Budget.

They now have the backing of former Prime Minister, Sir John Major, who warned recently that the cut-backs could prove as controversial as the poll tax in the 1980s.

Allen is hopeful that Hammond will make up the shortfall in the Budget, and that there is “generosity in the system.” As well as the £2bn, there is more money set aside to help people through with the transition period. “Its great news that the migration is going to be delayed so we can sort out the problems.”

The member of the Work and Pensions Select Committee is amazed with the way the rebellion has taken-off. It’s mainly thanks to pressure from Frank Field MP, chairman of the committee, and campaigners such as Allen that the government has given in and agreed to delay some of the roll-out. The delay came after Esther McVey, the welfare minister, finally admitted the reforms will leave some people worse off.  Some families may lose up to £2,400 a year, claim campaigners.

Yet Allen says the motives behind the introduction of the Universal Credit reform, which is designed to bring together six different allowances into one single payment for 3 million people, were well-intentioned. The new system brings together housing benefits, tax credits, child benefits and income support among other benefits.

Indeed, the main aim was to ensure that getting into work always pays. Along with the financial reforms, all those seeking work are now offered mentoring and proper help at Job Centres.

As Allen puts it, “Universal Credit is the single biggest IT project and the biggest shift in cultural behaviour ever to be undertaken by a British government. But that is why it must be done properly.”

Like most ambitious, bureaucratic projects, the introduction was always going to have teething problems, particularly with bringing in so many new IT systems. And like big government projects, it has been in the headlines ever since it was first announced in 2010, as the cost has risen many times more than originally predicted and has taken far longer than expected.

But it’s also had the impact of pushing some families – particularly single parents and two-earner families – into greater poverty because there is now a gap between coming off their old benefits, and being paid universal credit.

As always, the devil is in the detail. Under Universal Credit, payments now go to claimants every six weeks whereas before they were paid weekly. As Allen explains, this was a good idea aimed at getting people used to monthly earnings again – part of the psychology of getting people in work mode and managing their finances. However, it has backfired spectacularly as many people have had to wait so long for payments that they have had to take out loans to make ends meet.

This is because it’s been designed to be paid in arrears once a person’s monthly income has been assessed, meaning that new claimants have to wait 35 days before receive their first payment – four weeks to assess the last month’s earnings plus a further week to process the payment.

There are other problems: a new lower taper rate for people moving into work which has severely cut benefit payments for some. New claimants coming on to the new welfare payments are getting noticeably less than older claimants. In the new system, benefit payments are reduced at a steady rate as income and earnings increase. For every extra £1 you earn after tax, you will lose 63p in benefits.

There have also been troublesome issues over people paying rent: under the old system, people had housing benefits which would go direct to the landlord but now that the universal credit is being paid as a single payment, many people are finding it more difficult to budget so are falling into arrears.

Labour used an opposition day debate today to present a so-called “humble address,” requesting that parliament sees any recent briefings or analyses of how universal credit affects incomes and debt levels among those moved on to it.

The party has used this relatively obscure parliamentary procedure before to request the release of the Brexit impact assessments. The motion was defeated by 299 votes to 279.

Right now, though, it looks more than likely that the Chancellor will find the cash to make-up the shortfall in the Budget on October 29^th and confirm extra money to help ease the migration process. Some say he cannot afford not to with everything else going on: a new poll tax on top of Brexit would not be a good look.