28 October 2021

Rishi’s rabbit was making Universal Credit do what it was always supposed to – make work pay

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Universal Credit has been a colossal undertaking for the state. Already a decade in the making, the system is still not fully rolled out. Once complete, it will account for roughly £80 billion of public spending. In the Budget yesterday, the Chancellor finally set out a plan to achieve what Universal Credit was always designed to do: make work pay.

Rishi Sunak chose to make a further reduction in the taper rate – that is the amount by which a claimant’s benefits are reduced for each £1 they earn above their ‘work allowance’ – his proverbial Budget ‘rabbit’. After a 3p cut was trailed for months in the papers, the Chancellor surprised everyone by announcing that the taper rate would actually fall to 55p. This is exactly the rate which we at the Centre for Policy Studies had called for in two reports published this year (and it was nice to get a shoutout from the Chancellor in his speech). It is also the rate which was originally envisioned for the system when it was first conceived, many years ago now, by the Centre for Social Justice. 

While the CPS is not the only organisation which has supported these reforms, it is worth noting that many others, including the Labour Party, spent the summer campaigning to keep the £20 uplift. If they had been successful, the changes announced yesterday would have been out of the question. It is only because the Government stuck to its guns, in the face of widespread criticism and, in some cases, highly disingenuous cries of ‘cuts’, that Therese Coffey was in a position to lobby for a taper rate cut and the Chancellor was in a position to listen. 

Overall, the changes announced yesterday are eventually expected to add around £3bn to the annual welfare bill – half of the £6bn cost of the £20 uplift. Instead of maintaining a measure which would have given a blanket £20 a week to every household on Universal Credit, regardless of whether a claimant was a youngster living with mum and dad, or a couple with kids and rent to pay, these reforms target extra support at those in work. In many cases, these claimants will actually be better off than if they had simply been given the £20 uplift. 

It’s also worth taking a step back to consider the journey the Conservatives have been on when it comes to welfare. Back in 2015 the emphasis was on cutting the welfare bill by £12bn, as promised in David Cameron’s manifesto, but the axe fell particularly heavily on in-work claimants in ways which made it less worthwhile for claimants to work.

Over the following years, there was a gradual shift. I think a big part of this was the change over to Universal Credit itself. People in the Conservative Party and in government started to grasp that Universal Credit was an in-work benefit as much as an unemployment benefit, and that if reforms were targeted effectively it could actually be a powerful tool for advancing an intrinsically conservative agenda – the importance of work and effort, and a fair reward for doing the right thing.

There started to be some tinkering to reverse some of the cuts made in 2015. In 2016 in his first fiscal event as Chancellor, Philip Hammond cut the taper rate by 2p. A few years later, £1,000 a year was put back into the work allowances. Yesterday’s announcements are the culmination of this shift in attitude, and will do more than those two changes combined. Universal Credit will now do a much better job at rewarding work even than it was due to before the 2015 cuts. 

The Chancellor wanted to send a message yesterday that the Government believes in the importance of hard work for a fair reward. With these reforms, he succeeded.

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James Heywood is Head of Welfare and Opportunity at the Centre for Policy Studies.