Universal Credit Work Allowance

Eilidh Whiteford Excerpts

Wednesday 6th January 2016 Commons Chamber

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

Thank you, Madam Deputy Speaker, for calling me, and may I wish you and other Members of the House a good new year?

I begin by thanking the Opposition and the hon. Member for Pontypridd (Owen Smith) for tabling today’s motion, which the Scottish National party will be happy to support. However, today feels a wee bit like groundhog day, because, once again, we are here debating the adverse impact of the Government’s social security changes on people in low-paid work. Once again, SNP Members are asking why low-income families are being asked to pay the heaviest price for austerity. Why are low-paid workers, in particular, once again finding themselves on the front line?

A few weeks ago, when the Government were forced into their tax credits U-turn, I described it as a “stay of execution”, because it was quickly apparent that the sword of Damocles was still hanging over many of the low-paid households that were set to be hammered by tax credit cuts. It has been a short reprieve, because in April this year the reductions to the work allowance in universal credit are set to come into effect. They will hit many of the same low-income families who would have lost out under tax credits.

When universal credit was first introduced, early in the last Parliament, some lofty and rather extravagant claims were made for it, some of which we have heard reiterated today: universal credit was going to simplify and streamline our benefits system; it was going to be much more flexible, making it easier for people to move in and out of work, reflecting the reality of the modern labour market; and, above all, it was going to remove the benefit trap, by tackling the financial disincentives to entering the workforce. Instead, it was going not only to create better work incentives and make work pay, but to improve the incentives to move into better-paid work over time. Oh, it was a grand plan! The reality has been very different. I need not dwell too long today on the technical and management problems that have beset the universal credit project from its beginning, except to say that it has been subject to repeated and prolonged delays. It has had to be rebooted several times, and, even now, it is unlikely to be fully implemented until 2021 at the earliest.

Far more telling is how far the whole project of universal credit has strayed from its original objectives. The cornerstone of this ailing policy initiative was that it would improve work incentives and help tackle poverty, but that cornerstone has crumbled under the weight of a misconceived, ideologically driven and quite unnecessary austerity agenda, through which this Government have consistently chosen to penalise low-income families and make them pay a disproportionate price for the economic failures of past and present Governments. The thing is that by cutting the work allowance, the Government are cutting the very aspect of universal credit that creates a work incentive, so all the good progress that has been made is going to be undone very quickly after April.

[Angela Rayner]

Does the hon. Lady appreciate that one reason why I get so passionate about this issue, as do Members such as my hon. Friend the Member for Birmingham, Yardley (Jess Phillips), is that we have previously been recipients of benefits, we have aspired to be able to do better things, and we now pay our taxes and are not on benefits? That is fantastic, but it happened because of a Labour Government. This Government are pulling that ladder up from under people who need and deserve that help.

[Dr Whiteford]

I am conscious of the fact that the hon. Lady represents one of the areas that has been at the forefront of the pilot scheme and I hope that I will have the opportunity later to address some of the issues raised there. She makes a valid point that the economic recession hit people very hard indeed, and the people who were hit the hardest were those already in vulnerable employment—those in the most insecure jobs. Unfortunately, recovery just has not given them the job security that they might have hoped for.

[Peter Heaton-Jones (North Devon) (Con)]

The hon. Lady is making interesting points, but the facts do not quite support some of what she is saying. Is it not a fact that the universal credit system is incentivising people to get into work? The figures speak for themselves: 71% of universal credit claimants in the first nine months moved from welfare into work. It is working.

[Dr Whiteford]

The whole point that I am trying to make is that any progress that has been made will be undone if the Government remove the work incentive, which is the work allowance. It is the aspect of universal credit that makes it possible to earn more when they work. By cutting the work allowance, the Government are going to impose an eye-watering level of marginal taxation on people in low-paid jobs and make it harder than ever for those in low-income households to break out of the poverty trap. If the Government were serious about making work pay, if they were serious about boosting the UK’s productivity and if they actually wanted to help people get on, they would be increasing the work allowance, not reducing it. That would be a genuinely progressive measure, and it would actively help those in low-paid work.

[Chris Stephens]

Are not my hon. Friend’s arguments also supported by the Institute for Fiscal Studies, which said in a report after the Budget that the cut to the work allowance

“weakens incentives for families to have someone in work”?

[Dr Whiteford]

Lots of think-tanks and non-governmental organisations have been queuing up to point out that this measure removes work incentives. It strikes me that increasing the work allowance would be a far more progressive measure than, for example, raising the personal tax allowance, which benefits higher-rate taxpayers such as ourselves far more than anyone in low-paid work.

The cuts to the universal credit work allowances are being introduced via the Universal Credit (Work Allowance) Amendment Regulations, which a Delegated Legislation Committee considered last November under the negative resolution procedure. My hon. Friend the Member for Glasgow South West (Chris Stephens) opposed the cuts at the time, because it was clear to him, as it was to me, that reducing the amount that a household can earn before universal credit starts to be reduced would hurt low-income families in certain circumstances very badly indeed, and would remove work incentives for those households.

It causes me great concern that, instead of being fully debated here in the Chamber, the changes were enacted through delegated legislation without the scrutiny that their consequences merited. As far as I am aware, the Department for Work and Pensions has yet to produce a proper impact assessment of the changes to the work allowance, so we are very much dependent on external bodies for worked impact analyses. I would be grateful if Ministers said today that they will publish an impact assessment, particularly given that the Social Security Advisory Committee has expressed concerns about the adequacy of the evidence base for evaluating the changes. We can get up in this Chamber and spout as much hot air as we like, but if we lack the proper evidence or use the evidence so selectively to back up only our arguments, we really will fail the people who depend on the support of our social security system.

In late December, the Social Mobility and Child Poverty Commission said that

“the net impact of changes to universal credit...on work incentives is largely negative due to significant reductions in the generosity of work allowances.”

It pointed out that claimants who pay income tax will keep only 24 p in every extra pound they earn. They would need to earn an extra £210 a week to make up the losses from a reduced work allowance—a staggering rate of marginal taxation that makes a mockery of the notion that any work incentives will be left in universal credit. Incidentally, it is important to get away from the false idea, which has been creeping into today’s debate, that there are taxpayers and then there are people on benefit. Work allowances are for people who are working—the clue is in the name—in low-paid jobs.

[John Glen (Salisbury) (Con)]

I have been listening carefully to the hon. Lady. She says that it is very important that the full data and the alternatives are exposed. Will she set out the cost implications of going down the route she would prefer, and explain how it would be affordable?

[Dr Whiteford]

I will happily do that. Before the general election, the Scottish National party set out in some detail its fully costed alternative to austerity. We were keen to point out that austerity is a choice. We can balance the books without austerity and release £140 billion for investment in public services. That would be a much fairer and more economically sensible way of doing business. I refer the hon. Gentleman to our manifesto.

[John Glen]

rose—

[Dr Whiteford]

I will not give way again. The hon. Gentleman might be interested to know that in our manifesto we proposed increasing work allowances by 20% to create the exact incentive that the Government say that they want to create while, at the same time, pulling out the rug from underneath it.

[John Glen]

rose—

[Dr Whiteford]

No, I will not give way again, because I want to make some progress. I may give way again a little later in my speech, but I am conscious of time.

The Commission on Social Mobility and Child Poverty also pointed out that a single parent working full-time on the minimum wage and receiving no help with housing costs would lose £50 a week. In what fantasy world does that amount to making work pay? Many parents who are working hard, and struggling to support themselves and their families, will find themselves substantially worse off.

There is enormous complexity around the impact of the cuts to the work allowance. There is a range of factors, including the number of adults in the household and whether or not housing costs are included. As has already been said, single parents and the self- employed are likely to be among those worst hit, but it really will depend on individual circumstances. However, the IFS points out that there will be more losers than winners under these changes, and the Resolution Foundation estimates that working families with children on universal credit will be, on average, £1,300 a year worse off by 2020. The IFS estimates that, overall, 2.6 million families across the UK will be worse off by an average of £1,600 a year. Let us not pretend any more—either to ourselves or to the public—that universal credit will create work incentives and tackle in-work poverty. It will not. For most of the people affected, it will make things worse.

[Heidi Allen]

rose—

[Dr Whiteford]

I will give way to the hon. Lady.

[Heidi Allen]

The hon. Lady is very kind. I am interested to know why more people find employment under the universal credit system than they did under the traditional method of jobseeker’s allowance.

[Dr Whiteford]

I have made that point already. We are talking about a change that is due to come in in April that will undercut work incentives. It will take the work incentive out of universal credit. The work allowance helps universal credit make work pay. It is the cornerstone of the system. If we take out that allowance, all we will have is another benefit trap like the one that it is trying to replace.

I wish to pick up on an issue raised by the hon. Member for Pontypridd (Owen Smith) earlier in the debate. In the Government’s response to the Social Security Advisory Committee’s “Occasional Paper 15” on universal credit, they said that they expect claimants to respond to cuts in the work allowance by “actively seeking more work.” From what we have already heard about the disincentives caused by high marginal rates of taxation, that is simply wishful thinking. The Secretary of State and Members on the Government Benches seem to be labouring under the misapprehension that people in low-paid jobs do not work as hard as people in highly paid jobs, and that somehow it is easy to pick up extra work—whether that is in the form of another wee job, or of more hours—but the reality is that low-paid jobs are often the most physically demanding, the most insecure, and the most exhausting.

Early yesterday morning, at the crack of dawn, when I was leaving Aberdeenshire, I passed roadworks where men were already trauchlin in the cold and the dark and the pouring rain—it has been raining incessantly—setting up their temporary traffic lights. Although they will not be on the minimum wage, they are certainly not high earners, and, doubtlessly, some of them will be part of families receiving tax credits or universal credit. I could not help but think how lucky I was to be able to work indoors at this time of year. Those manual workers are exactly the sort of folk who will be asked to find an additional job, or work extra hours after a long day outside.

[Owen Smith]

The hon. Lady is making an excellent speech. Does she agree that it is fundamentally offensive to those workers, and to all workers on a low wage, for the Secretary of State and his Ministers constantly to refer to the “dynamic” effects that will be introduced by this new system? Are these people who are working full time in the pouring rain undynamic?

[Dr Whiteford]

They were certainly showing a fair bit of dynamism yesterday morning. I was really glad that I did not have to work with them. I partly agree with the hon. Gentleman. The insecurity of the modern labour market means that people move in and out of part-time work more often that they did in the past. It is important that we create a system that responds to that. My problem is that the Government are undermining their own process with their transitional arrangements, but I will say more about that in a second or two.

There are people all over my constituency—and in everybody’s constituency—who work extremely hard already in low-paid, tiring and not exactly pleasant jobs that are neither interesting nor glamorous. They are often doing that while they are juggling family responsibilities, looking after children or, increasingly, elderly and infirm relatives. For many of them, taking on extra hours depends on that work not just being available, but being available at a time when they have access to childcare. Let us face it, young children cannot get themselves out to school in the morning. They may not be able to walk there safely on their own. They cannot just be left unattended at home for several hours after school or get their own tea. Many working parents have to juggle work and family commitments. Indeed, one reason why so many women are trapped in low-paid, low-skilled jobs, even when they have high-level skills and qualifications, is that they are the primary carer in their household and they are trying to fit work around their family responsibilities. The Catch-22, of course, is that it is a lot easier to do that juggling if they are in a well-paid job.

I have a very serious question for the Government that echoes the question posed by my hon. Friend the Member for Glasgow South West. Many of those who work in low-paid jobs in Government Departments, including in the DWP, receive tax credits or universal credit. Will their employer offer them a few wee extra hours to compensate them for the loss of their work allowance? Will the DWP specifically—I hope that Ministers can answer this one—offer extra hours to its own staff who are set to lose out, or will it impose in-work conditionality on them instead? If the Government cannot or will not commit today to supporting their own staff, they have no business putting the onus on other employers to miraculously conjure up extra work for people.

[James Cleverly (Braintree) (Con)]

Will the hon. Lady give way?

[Dr Whiteford]

No—I have moved on, so I am going to keep making progress.

It is important that we understand that new claimants for universal credit will be significantly disadvantaged compared with those still claiming under the old tax credits regime. We have been told that there will be transitional protections for those being migrated from the old system to the new, but my understanding is that the transitional protections for existing claimants will evaporate if there is a significant change to their circumstances such as a new job, having a baby, or the breakdown of a relationship. The difference will be enormous. In the coming financial year, a one-earner couple with two children will take home nearly £800 a year more on the old tax credit system than they will if they have been moved on to universal credit. That is a huge disincentive to change one’s circumstances. People who are already on very tight budgets will be very reluctant to increase their hours or take a promotion if it might leave them worse off. Once again, this undermines work incentives, and it will make people reluctant to take promotion, change their hours, or move to a different employer. To come back to the point raised earlier, it will erode the dynamism of the system by which the Government have set such store today.

I think these disparities are going to cause real ill feeling in our communities. Co-workers who are doing the same job alongside each other, earning the same salary and living in similar family circumstances, could be receiving wildly differing levels of support. I do not know how the Government plan to sell that to people in low-paid work. I certainly would not want to have to try to justify it to my constituents; it is manifestly unfair. What is also deeply problematic is that some parts of the UK have been transitioning to universal credit before others, so there will inevitably be regional disparities in the areas where a higher proportion of claimants have been migrated. Why should people living in Hammersmith, Rugby, Inverness, Harrogate, Bath and Shotton—the areas where universal credit has been rolled out first—receive less support, on average, than those in the towns and cities that are last in the queue? The Government admit that at least 700,000 people will still be on the old system by the end of next year. That is a recipe for discontent among those who have served as the guinea pigs.

Cutting work allowances will not achieve the outcomes the Government claim. The way to reduce social security spending is to fix the economy—to create jobs and boost productivity. That reduces the need for spending on social security and raises tax receipts. We need to name the cuts to the work allowance as what they are—an assault on people in low-paid work as part of a failed, needless, ideologically driven austerity programme that has held back economic recovery and stifled productivity. The Government have made the wrong choice. They have a chance today to rethink these cuts, which will reduce work incentives and trap low-paid families in poverty. There is an alternative to austerity. Their short-sighted, counter-productive cutting of work allowances will hurt working people. I hope that the Conservative Members who expressed reservations about the tax credit proposals will understand that this cut will hit many of the same people in much the same way as they move on to universal credit, and that they will join us in the Lobby this afternoon.

[Several hon. Members rose—]