Universal Credit and Welfare Reform

Denis MacShane Excerpts

Tuesday 11th September 2012 Commons Chamber

[Mr Byrne]

It is unclear how I might respond to that. I hope I will be able to set out for the hon. Gentleman this afternoon what I think will be a shared set of concerns about how to get this vital project back on track. I hope we have a degree of clarity, honesty and openness from those on the Treasury Bench.

[Mr Denis MacShane (Rotherham) (Lab)]

My right hon. Friend is starting at a macro level, but last Friday I had meetings with the people who have to apply the universal credit scheme in Rotherham. I also met the voluntary groups that deal with the people who rely on it and there are genuine fears. People want reform and they are not necessarily anti the Government for political reasons, but they do not think that the scheme will work as it is devised. The computer crashes for which our Governments are so famous—both those of whom he was a member and this Government—are a legend in the computer industry.

[Mr Byrne]

Let me start with precisely that risk. We were told when universal credit was first proposed that the IT costs would be in the order of £2 billion. Some £200 million was taken off for subsidies for another problem with child care created by the Secretary of State’s friend, the Chancellor. The former Minister responsible for unemployment, the right hon. Member for Epsom and Ewell (Chris Grayling), before he departed for the Ministry of Justice, said that the cost had spiralled to £2.1 billion. Already, two years in, the project is £100 million over budget and we learned yesterday that universal credit, when it is introduced and fully rolled out in 2017, will demand an extra £3.1 billion in welfare payments each year. That was the figure that the Department for Work and Pensions gave to the Office for Budget Responsibility in July last year.

Yesterday, however, the Secretary of State told the House that he had agreed to a Treasury target of £2.5 billion, wiping £600 million off tax credits by so-called policy designs. Where on earth is that money going to come from? It is, I am afraid, a mystery. It is a mystery shrouded in further questions about whether people will be better off in work when universal credit is introduced. What on earth is going to happen to free school meals, which are worth £410 million a year to families in many of our constituencies and are a vital lifeline every week? The Children’s Society says that if universal credit integrates free school meals in the wrong way, that will wipe out incentives to work for 120,000 families. What is going to happen to that budget?

Then there is the question of council tax benefit, which is worth £5 billion for 6 million households in Britain. As it turns out, we are going to get not a national scheme but a local scheme, because the Secretary of State lost his battle with the Secretary of State for Communities and Local Government. He was sat on by the right hon. Member for Brentwood and Ongar (Mr Pickles), which is a fate we would not wish on anyone. The result is that whether someone is better off in work or on benefits will depend on where they live. The Institute for Fiscal Studies says that universal credit “severely undermines” the simplification.

Then there is the question of how universal credit will interact with increases in personal allowances, which were introduced with such a great fanfare over the past year or two. Last week, Gingerbread said that because universal credit is calculated on post-tax income, the lowest paid would see most of the increase in personal allowances wiped out. In fact, when universal credit is introduced, the low paid will lose two thirds of the increase in personal allowances. Somehow the Chancellor of the Exchequer forgot to tell us that when he unveiled the proposal in his last Budget.

Then there is the question of how universal credit will lock in the cuts to tax credits that hit so many of our constituents this April. Those cuts now mean, according to answers given to my hon. Friend the Member for Stockport (Ann Coffey), that a couple with kids working part time—and goodness me, there are more people working part time these days—will now be more than £700 better off on benefits than in work. How on earth can that send the right signal?