Universal Credit

Lord Farmer Excerpts

Wednesday 21st December 2016 Lords Chamber

Asked by

[Lord Farmer]

To ask Her Majesty’s Government what progress they are making in rolling out Universal Credit, and what assessment they have made of its impact.

[Lord Farmer (Con)]

My Lords, I am delighted and grateful that so many of you are here to participate in this debate, the final flourish not only of 2016 but also of the Minister’s tenure at the helm of welfare reform. Perhaps others with a longer history in this place than I have will be able to recall similar moments. Even if not unique, it is still historically momentous that a Minister of State, who was such an important architect of the reforms for which he guided through the enabling legislation, will close the book on his ministerial career by informing this House of what has been achieved and what remains to be done. To cap it all, the noble Lord, Lord Macpherson of Earl’s Court, is making his maiden speech, to which I very much look forward.

At its simplest, universal credit rolls six means-tested in-work and out-of-work benefits—child tax credit, housing benefit, income-related employment and support allowance, jobseeker’s allowance, income support and working tax credit—into one. Even a rudimentary understanding of the implications leaves no doubt that universal credit is a genuinely big idea, a far-reaching reform that has the potential to effect a massive shift in the social and economic landscape of our country.

We are all aware that big ideas and massive shifts rarely, if ever, come from a clear blue sky, or from the efforts of a single political party or Government. The thinking behind universal credit can be traced back to the 1960s, when politicians from all three main parties—Conservative, Labour and the-then Liberals—began to grapple with the complexity and unfairness of the benefits system.

Half a century ago, we knew that low-income families could be better off on benefits than in work, and thereby caught in a dispiriting and pernicious poverty trap. Various measures such as family income supplement, family credit and then an array of other tax credits were adopted to ameliorate this by a string of famous names in politics: Sir Keith Joseph, Kenneth Clarke, Peter Lilley and then of course Gordon Brown.

Although the financial circumstances of many low-earners were improved significantly through the incremental changes introduced, we eventually ended up with a highly complex system comprehensible to very few. One former stockbroker with several children who claimed tax credits described it as utterly impenetrable. The interaction of several benefits and different withdrawal rates for each meant that the marginal gains from work could be quite slight, not cover costs such as travel and be insufficient to de-risk the process of having one’s family’s benefits recalculated, with the pauses in payments that it entails.

Inadequately responsive annual assessments led to under and overpayments which could be of significant magnitude. The latter were to reach £9 billion by the time the coalition Government came to power. This did not just mean a huge dent in the public finances but thousands of families with worrying levels of debt that many had not knowingly incurred but were expected to repay.

Tackling this complexity was certainly on the “to think about” if not the to-do list of the previous Labour Government. A certain David Freud was asked to review their welfare-to-work programme, and his 2007 report included a chapter floating ideas for a single working-age benefit. The concept was revisited the following year in a Green Paper from the Work and Pensions Secretary, James Purnell, who was, according to the Institute for Government’s Nick Timmins, a single benefit advocate.

However the risks of change—the complexity and uncertainty that lives would be better as a result of making the shift—ultimately deterred the Labour Government from taking the plunge. It is far too easy to criticise those making decisions and carrying the very onerous daily responsibilities of government. However, there is an irony here that their inactivity mirrored on a macro scale the decision of many individuals who might have wanted to make a shift into work or increase their hours appreciably to refrain from doing so because they were not sure life would be better on the other side.

So it is very much to the credit of the coalition Government that they took up the concept of universal credit, rigorously argued in the Dynamic Benefits report from the Centre for Social Justice. I would here refer noble Lords to my entry in the register of Members’ interests. This was at a time when taking any risk with public finances would have seemed foolhardy, had it not been so desperately needed. Perhaps the profound economic shocks of 2008 were actually decisive in creating the appetite and conditions for change. It became impossible to pretend all was fundamentally well in our financial affairs. Universal credit was an idea whose time had finally come.

Social policy theorists Gyu-Jin Hwang and Hugh Heclo have explained how,

“‘new’ ideas can become influential in times of uncertainty when the dominant paradigm faces a crisis. … what is new is the heightened attention they receive within policy-making circles as decision makers search for new ideas that can help solve the crisis. … ‘politics finds its sources not only in power but also in uncertainty–men”—

and women—

“collectively wondering what to do”.

Simply put, hard times force you to innovate.

However, if dampening uncertainty is one of the underlying aims of universal credit, evaluating its impact on that, even though it is rather harder to measure than actual numbers in employment, is imperative. Can the Minister explain whether and how the psychological effects of universal credit are being studied? Do claimants feel more in control of their own and their families’ futures? Is there a greater sense of optimism? Crucially, is the stigma associated with being on welfare reduced under universal credit?

Obviously, behavioural changes are also very important to track: 86% of people on universal credit are actively looking to increase their hours, compared with just 38% of people on jobseeker’s allowance; and 77% of people on universal credit are actively looking to increase their earnings, compared with just 51% of people on JSA. This augurs well for the Government’s intention to move people up the scale in terms both of pay and hours worked, and out of needing universal credit at all. But how successful are job coaches at ensuring in-work progression actually happens?

Also, there is no doubt that one major challenge to starting afresh with the benefits, system which caused previous Ministers to baulk—and understandably so, given the short-termism that plagues our political system—was the length of time that design and full rollout would require. The Minister has often talked about the test and learn approach this Government have taken to welfare reform. I am encouraged, as a businessman who, like all of your Lordships, wants good government and sound management of the public finances, that an agile approach to this very large project was adopted, albeit eventually. My impression is that we have learned invaluable lessons for future large-scale projects by taking the time to get this right. However, this has also meant taking a damaging amount of political flak for the significant delays universal credit has encountered. Can the Minister explain to the House what contingencies and other factors are built into the latest timescales so that the public can have full confidence that they will be met?

Finally, I want to offer my sincere congratulations to my noble friend Lord Freud for defying the maxim that all political lives end in failure. He is leaving office after securing the future for the reforms he has spent more than a decade working—unpaid—to deliver. However, I cannot quite believe it really is the end of this exemplary public servant’s political life. Certainly he will not be leaving the House of Lords and he is entitled to remain on the Front Bench as a privy counsellor. So, I am choosing to believe it is the end of a successful chapter, with much of the book yet to be written. We wish him a very happy, healthy and productive retirement.