17 June 2021

The Chancellor should stick to his guns and end the Universal Credit uplift

By Caroline ffiske

In his interview with GB News anchor Andrew Neil, Rishi Sunak was keen to stress that, despite appearances, he is a fiscal conservative. With the deadline for extending the £20 weekly uplift for Universal Credit (UC) approaching, the Chancellor will soon have a chance to prove it.

When the Chancellor originally decided to extend UC for six more months in early March, he did the right thing, but stored up trouble for the future. A year earlier, at the height of a global pandemic, increasing UC by £20 a week made sense. Then, a year on, with unemployment way up and job vacancies still far below pre-pandemic levels, the temporary extension was a simple decision.

But now what? Sunak has just passed his extended-time halfway mark – and a tough decision looms. With the Government highly, visibly, committed to ‘levelling up’, the pressure will be on Sunak to make the uplift permanent. This would be a mistake: it was a blunt instrument, applied unfairly, and it reversed a decade of hard work by the Conservatives on benefits reform. The Government needs to remain committed to encouraging people into work, while minimising the tax burden so that businesses are incentivised to create desperately needed jobs.

When Sunak introduced the £20 weekly top-up in March 2020, he claimed ‘over 4m vulnerable households’ would benefit. By February 2021, the number of households on UC had surged to 5 million. Citizens Advice warned Sunak that reversing the uplift would mean millions of households across the UK would be unable to afford ‘basic necessities’. Red Wall Tory MPs were active in lobbying Sunak to defer removal of the uplift. If 5 million households are in receipt of UC, that’s a staggering near 18% of all households. With the average constituency having something like 43,000 households, that makes up to perhaps 8,000 recipient households per ‘Red Wall’ constituency: not a small number to be wondering about a new Tory MP’s commitment to levelling up.

However, while maintaining the uplift would be the easy thing to do and good ‘headline’ PR for the levelling-up Tories, it would still be a mistake, mainly because of the blunt and unfair way that it was implemented in the first place.

Firstly, people on Universal Credit got the uplift, but most of the 3 million people on legacy benefits did not. (The exception being those in receipt of Working Tax Credits). Indeed, as we speak, there is a High Court challenge to the legality of 2 million disability benefit recipients not receiving the uplift. Imagine being a Red Wall MP trying to explain this elementary unfairness to a non-recipient household.

Secondly, the flat £20 meant that households receiving different amounts of UC received wildly different uplifts. The standard rate of UC for someone single and under 25 is £344 per month. These, surely the most ‘agile’ of UC recipients, received a 23% uplift to their income. A couple who are over 25 receive £596 per month – a 13% uplift to their income, while those with children got an even smaller percentage increase. This can’t be defended as a long-term measure. It is also worth noting that a full 48% of UC recipients are single with no children. This is the very group we need to be encouraging into work; not doing the opposite by giving them the most generous UC uplift.

Making the £20 increase permanent would cost £6.6bn per annum, adding 10% to the annual cost of UC. This at a time when the public finances are in their worst state since the end of World War Two. Meanwhile the Government has also announced the intention of spending billions on meeting Net Zero targets. The pipeline of public enterprise and householder goodwill to pay for all of this is not infinite, and somewhere along the line the Tories need to do some painful prioritising.

And then there are incentives – according to the Institute for Fiscal Studies, the uplift amounted to more than the entire cumulative real-terms rise in benefits over the last 45 years for out-of-work childless claimants. It’s hard to argue that this doesn’t amount to the undoing of the years of difficult work the Tories have put into making the case for restraining the generosity of benefits to incentivise everyone into work, who can work.

Nevertheless, the Tories are in a bind. It is hard to take back what has been given – especially to the least well-off in society. So the Tories would be wise to push through a ‘packaged’ approach when they do take action. The positive case should be made that its better in the long-run for the young and childless to be encouraged to seek work and contribute to society – so the uplift must end, with due warning.

But consideration should be given to retaining some or all of the uplift for the least well off in society and the least able to work, particularly if they have children. Then there is the ‘taper rate’. A full two-fifths of the recipients of UC are in some kind of work. Well done to them, because the financial incentive for their doing so is blunt. They lose £0.63p in the pound as UC is phased out as they earn. When UC was designed, the intention was for a much shallower taper to encourage people into work. Something below 50% would be good so that people take home the benefits of working and are encouraged into any additional hour of work and enterprise they can find.

A bundled package like this won’t claw back all of the £6.6bn. But it would demonstrate the Conservative commitment to protecting the most vulnerable, at the same time as incentivising all who can work to do so. Even better to push this reform through with other policies that really do encourage enterprise and really do ‘level-up’. The excessive burdens on childminders – which have driven so many working class women out of their jobs – could be swept away. The need for police recruits to have expensive and unnecessary degrees could go. Small businesses could have all tax deferred till they have proved their business model with significant turnover. In our over-regulated and over-taxed world there are plenty of good options to sweeten the pill of Universal Credit reform.

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Caroline ffiske is an economist and served as a Conservative councillor for eight years.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.