Fisking Frank Field – what’s the problem with Universal Credit?

Universal Credit’s been in the news this week. The thing that caught my eye was Frank Field’s broadside again in the Guardian, just before Labour’s Opposition Day debate. It’s worth noting what he says, as he’s previously supported many Coalition reforms. But is he right?

To look at the arguments here, I’ll fisk the main claims of his article. 

"It is clear that there are fundamental problems with universal credit. The new payment, due to be fully delivered by 2017 and initially set to cost £2bn more in benefits annually, aims to sweep together the main means-tested benefits and tax credits into one "universal" benefit. Instead of having a number of Gordon Brown's different tax credits, there will be one benefit – at least, that was the idea. The government has had to admit defeat on this front, as only six benefits and tax credits are now being merged. The universal credit will also taper gradually, thus supposedly overcoming the disincentive to work embedded in the current benefits system."

I know this is written sarcastically, but it actually sums up much that is theoretically good about UC. Making many benefits into one is a good idea – who would intentionally design a system with overlapping, confusing, contradictory benefit regimes? Ditto the work incentives point – making work pay is a good principle. Criticism of the Government should not be leveled at its intentions but on what the credit will actually do in practice, whether those principles can be realised, and if the £2bn is worth it.

"I disagree. Means-testing only encourages dependency, and the universal credit is, in one sense, the ultimate form of means-testing. It obviously gets extra money to hard-working families who earn low wages… "

On the latter, JRF research suggests UC will mean 900,000 or so people would no longer be in relative poverty. Its overall distributional affect is pro-poor, with the highest gain in disposable income being seen in the bottom income decile (according to the IFS). That’s what ‘extra money’ refers to, I think, and this beneficial impact shouldn’t be underestimated.

"… but in doing so it rots the soul. Recipients have to be saints not to take the loss of credit payments into account when deciding whether to work longer or to train for a more highly paid job. At present, claimants can lose more than 90p for every extra pound in earnings. Under universal credit people can still lose about 65p of every extra, hard-earned pound – 20p more than the highest rate of tax."

This is where it gets tricky. It might indeed seem shocking that people losing 65p in every extra pound earnt – and if you pay national insurance, then it’s actually 76p. For some people, this will be an increase from the current rate: levelling the taper rate at 65% means that there are winners and losers, with some people having a higher rate than before. 

There’s also something rather important to note in this context.  Council tax benefit is being devolved, and depending on how councils structure it, this might shoot UC’s work incentives to pieces, and push the marginal tax rate up into the 90% level – this blog explains why. Ironically, by showing the fallout when you further complicate things, this move shows how correct simplification is. 

But – and this is the big thing – overall UC represents an improvement on the current system. Losing 65p isn’t great, but it’s better than losing 90p. To demonstrate the point, have a look at this graph below, from the IFS’ initial assessment of UC.  I’ve chosen this one because it shows just how nuts the current system is. It shows the participation tax rate (how much p in a £ you lose when you enter work – ie your incentive to enter work at all) for a lone parent with two children. 

The light blue shows how under the current system, if the parent works less than 30 hours work a week their tax rate varies widly. The purple is the planned rate under UC. 

Which one looks more soul-rotting to you? This is just one example, and as I say, there are winners and losers. But the overall effect should be that the people who currently have the least incentive to work have a bit more reason to do so. 

"I am, therefore, against universal credit in principle, but also fear the programme is practically unachievable. Rumour has it that the prime minister does too, hence the attempt to move IDS to the justice department in the reshuffle so that the plans could be shelved. The project has already been delayed owing to IT problems. Last year a leaked report highlighted concerns from the IT industry itself that the timescales involved were unrealistic. I fear the department is burying its head in the sand because the risks are so great…My understanding is that problems are continuing to mount up. Can HMRC collect real-time information from PAYE records? Leading civil servants working on the project have left their posts and HMRC is, apparently, refusing to share the pilot results with the DWP, despite claiming that all is well. Can anyone remember – with the exception of the pension credit – a satisfactory introduction of a new state IT project?" 

"It was brave of IDS to insist on occupying the command on the bridge, but it was the prime minister's wish to avert a catastrophe that drove him to try to move his work and pensions secretary so that the government could quietly shut down the whole reform. His failure to act leaves the disaster on course."

I’m in no position to comment on government computer systems. This certainly seems like a fairly daunting picture: dodgy IT might be a reason rethink some of the back-end or technical details, or ways that HMRC and DWP will work alongside each other, or some of the details around frequency of payment.

Is it really a reason to stop the whole thing though? I don’t think it is. Delay, maybe – cancel, no. That would just leave us with the current system, and nobody – as far as I’m aware – would welcome that, for all the reasons above. Whether you do probably depends on your instincts, and if you feel the perfect is the enemy of the good. I’d chose the latter every time. 

Universal Credit certainly has its problems. The one thing worse than resolving those problems would be sticking with the status quo.