26 January 2021

The Universal Credit row is a chance to reset the welfare agenda


For some time now, the Conservatives have struggled to talk about welfare. After a decade of stories such as the bedroom tax, cuts to tax credits, controversies over disability benefits and the rollout of Universal Credit, it feels like many on the centre-right would like to quietly put welfare in a box and shove it under the bed.

The latest hot political potato is the question of what to do about the £20 a week the Government decided to add to benefit payments when the pandemic first struck, which is being treated as yet another welfare headache ministers would rather went away. I don’t think it needs to be. In fact, this could be an opportunity to reset the agenda on welfare.

When the £20 uplift was announced, it was intended as a 12-month increase to help support incomes during the impending crisis. We now find ourselves in a situation where the crisis has lasted much longer than intended and the Government is under pressure to maintain the £20, with an increasing number of voices demanding it be made permanent. Making the case for ending the uplift is proving a predictably difficult political challenge. Now that the extra money is in place, regardless of the intended temporary nature of it, it is very easy (if incredibly disingenuous) to accuse the Tories of slashing benefits and hammering the poor (which the Labour Party have duly done).

Keeping the extra £20 indefinitely would be a bad use of a very large amount of money. It would add more than £6 billion to the annual welfare bill, and a blanket cash uplift gives a much bigger percentage increase to younger, single claimants with no children than to older claimants with families to support.

At the same time, it’s clear that some support will need to stay in place after the £20 is due to expire in April. The pandemic will still be far from over by then, and claimants deserve to know in good time what their income is going to be for the coming year. 

So what should the Government do now?

In a recent paper, we at the Centre for Policy Studies (CPS) propose a three-pronged policy package which could both offer a way forward on the £20 uplift and give the Government a chance to signal its vision for a fairer welfare system.

First, we think the £20 uplift should be replaced with a separate ‘Coronavirus Hardship Payment’. The idea would be to effectively mirror the £20 support currently in place but through a separate scheme which has a clearly defined six-month lifespan, plus a further three months at £10 to phase it out. This might help to solve some of the political difficulty, since it is much harder to argue that an emergency hardship payment should be kept permanently than it is to campaign against cutting benefits. More importantly, however, it would prepare the ground for phasing out the extra money. Remember that many people on Universal Credit have come onto the system after the £20 was already in place – for them, this is their normal entitlement. If you’re going to withdraw a decent chunk of their weekly income, you can’t just pull the rug out from under them at short notice.

This move should be accompanied by a more generous uprating of the standard allowance in Universal Credit than currently planned. It’s currently only set to rise by 0.5% – increasing it by 2.5%, as a one-off, would mean it rose in line with the rate being applied to the State Pension, and would be worth roughly an extra £100 a year for a single claimant over 25. This would allow the Government to highlight that while the £20 cash injection will be phased out, the post-pandemic welfare system will be more generous across the board than it was pre-Covid.

Thirdly, and crucially, the Government should make clear its intention that once the £20 has been successfully withdrawn, some of that extra cash will be reinvested into the Universal Credit system, but in a more targeted way. Specifically, they should ensure that as and when claimants begin moving back into work, they can keep more of the money they earn.

At the moment, if you are on Universal Credit, every pound you earn in work reduces your benefit entitlement by 63p, once you’ve exceeded any ‘work allowance’ you might be entitled to. The Government could reduce that figure, known as the ‘taper rate’, to 55p. They could also introduce a new £1,000 work allowance for childless claimants. This group are set to lose out the most in percentage terms from ending the £20 uplift, and unlike disabled claimants or those with children, they are currently not entitled to any work allowance at all, meaning they lose 63% of everything they earn.

These changes would significantly improve the way the system rewards work, and if they were brought in to coincide with the £20 being phased out and the return to normality, they would complement the Government’s efforts to get people back into work post-Covid. They would mean a childless claimant working 16 hours a week on the National Living Wage would actually be better off than they currently are with the £20 uplift. This package of changes would cost less than half of what the £20 uplift would if it was retained permanently, but would still leave a welfare system that is much more generous than it was before the pandemic, but with the extra support targeted at making work pay.

This could send a powerful signal that the Government wants to build a welfare system which recognises and rewards work. In polling for the CPS by YouGov, the majority view amongst the public was that the Universal Credit system was not generous enough, but that the focus of policies on tax and welfare should be to provide people with the strongest incentives to work. That was the principle at the heart of the Universal Credit project in the first place, but it has been lost in the maelstrom of a decade of deficit reduction and political point-scoring. The £20 uplift should eventually go, but the Government should take this as an opportunity to set out a renewed vision for a welfare system which both adequately supports those in need and rewards those who go out and earn a living.

Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.

CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.

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

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