Universal Credit (EAC Report)

Lord Forsyth of Drumlean Excerpts

Wednesday 23rd March 2022 Grand Committee

Moved by

[Lord Forsyth of Drumlean]

That the Grand Committee takes note of the Report from the Economic Affairs Committee Universal Credit isn’t working: proposals for reform (2nd Report, Session 2019–21, HL Paper 105).

[Lord Forsyth of Drumlean (Con)]

My Lords, I rise to introduce the Economic Affairs Committee report Universal Credit isn’t working. In the first paragraph of their response to the report, the Government say that they are

“surprised by several of the Committee’s observations with regard to Universal Credit … In particular, in contrast to the title of the report, the effectiveness of UC as a comprehensive benefits system has been admirably demonstrated in response to the pandemic.”

I pay tribute to the department for the way in which it dealt with the Covid outbreak and the speed with which it was able to put people on universal credit, but I have to say that the rest of the response from the Government shows that they are remarkably tin-eared.

In introducing the report, I begin by thanking our outstanding clerk Adrian Hitchins and our policy analyst Will Harvey for the splendid support that they gave to the committee to enable us to produce this report, which at long last has been given time to be debated. So much time has passed that I am no longer the chairman of the committee, but we have an excellent new chairman in the noble Lord, Lord Bridges, from whom I am looking forward to hearing later in the debate.

When the Government announced plans to introduce universal credit in 2010, the scale of their ambition was largely greeted with approval in Parliament and among commentators. However, support seeped away as universal credit was rolled out. The way that universal credit has been designed and implemented appears to be based around a kind of idealised claimant and it has features that are harming many of the most vulnerable people in our country. It is certainly linked to the exponential growth in food banks and it is probably also linked—although rent rises are a feature—to the dramatic increase in rent arrears. Many claimants reported to our committee that they find the system incomprehensible. Overall, it is fair to say that universal credit’s reputation has nosedived.

The Government’s response indicated that they were surprised by the title of the report, as I said. A couple of recommendations were accepted, although one of them was actually rejected and has now been accepted. Indeed, this very afternoon, the Government have been taking credit for reducing the taper for universal credit, which is a welcome measure. Nevertheless, during our inquiry, which was completed in July 2021, most witnesses thought that universal credit should not be abolished because of the severe disruption that this would cause for millions of people and thought instead that substantial reform was required in order to make it fit for purpose.

Change cannot come soon enough as far as I am concerned. The country is facing a major assault on living standards as a result of soaring inflation, tax increases, rising mortgage costs and savage fuel and energy price increases. The Chancellor’s decision to cut universal credit by £20 a week at this moment is simply indefensible. Conservatives believe in securing a safety net below which no one can fall and it is hard to see how millions of families in this country will manage in the months ahead. The conflict in Ukraine is forecast to put up energy and food prices substantially. Inflation is expected to rise to 8% this spring and perhaps even higher later in the year according to the Bank of England, which has consistently underestimated the rate of inflation and the impact of its policies of quantitative easing.

Of course, the basket of items used to calibrate CPI inflation does not begin to measure the actual inflation that many of the poorest families in the country experience. Scandalously, many of these very poor families have higher electricity charges through pre-paid meters. Benefits are due to rise by 3%, resulting in a substantial real-terms cut to income as essential bills escalate. Since our report was published, the Government have increased the work allowance and reduced the taper rate, as I have alluded to, to ensure that working universal credit claimants can keep more of their earnings. This is very welcome, especially since it supports the original purpose of universal credit to incentivise work. It still means that some of the lowest-paid people in the land are facing an effective marginal rate of tax of 55%—I note that the Chancellor has started to call the reduction of the taper rate a “tax cut” but, if it is a tax cut, it is an effective marginal rate of tax of 55%. That is 10% higher than people earning over £150,000 in taxable income. As if things were not tough enough, deductions from universal credit awards have left some claimants with an income that is substantially lower than their essential needs. Surely the DWP should be required to conduct affordability assessments before making deductions from awards.

Scandalously, universal credit is being used by the Government as a vehicle through which to recover debt. Most of this is comprised of around £6 billion of historic tax credit debt. Many people who owe this money are unaware of it. Certainly, the original receipt of an overpayment may have been outside of their control. The recovery of the money is leaving many households with an income that is well below what is needed to get by on, even before the current cost of living crisis. We called on the Government to write off historic tax credit debt that is owed by universal credit claimants. It should be treated as a sunk cost. Who really believes that this money is ever going to be repaid? Why create so much misery and anxiety among people who are extremely vulnerable in many cases?

The five-week wait for the first universal credit payment is the main cause of insecurity for claimants. Many people have nothing on which to fall back during this period, when their needs are most acute. The wait entrenches debt, increases extreme poverty and harms vulnerable groups disproportionately. The Department for Work and Pensions has introduced some measures to mitigate the most harmful effects, but these fall well short of what is needed. In the view of the committee, the DWP should introduce a non-repayable, two-week initial grant for all claimants. This would provide some security to claimants, mitigating the timing problems in relation to housing costs, and would make repayments of advances more manageable.

The way in which universal credit payments are calculated is based on a monthly assessment period and is designed to mimic the world of work. I ask the Committee: on which planet are these people living? Most people about whom we are concerned here are not used to be being paid on a monthly basis with index-linked pension plans, like the civil servants who have produced this scheme. However, it can result in substantial fluctuations in income month to month, which makes it extremely difficult for claimants to budget. This is impractical and fundamentally unfair and it should be resolved. We recommend that the DWP fixes the level of awards at the same level for three months. If claimants experience significant falls in income or disadvantageous changes in circumstances during this time, a mechanism should be introduced to enable them to have an early reassessment.

Paying awards on a monthly basis does not reflect the lived experiences of many claimants. It forces them to fit the rigid requirements of the system and causes unnecessary budget and cash-flow problems, both for those out of work and for those who are used to receiving wages more frequently. All claimants should be able to choose whether to have universal credit paid monthly or twice monthly.

Moreover, the way universal credit is paid as a single household payment should be revisited. Access to an individual income is important for maintaining balanced and equal relationships and, in more distressing cases, for reducing the risk of financial coercion and even domestic abuse. The DWP should review the option of a separate payment by default, drawing on the review carried out, I am pleased to say, in Scotland.

The conditionality requirements on claimants who can look for or prepare for work should be rebalanced. The extent of conditionality has increased significantly over recent years, too often to the detriment of claimants. Less emphasis should be placed on obligations and sanctions. Instead, there should be more support to help coach and train claimants to find jobs or to progress in their current roles.

The UK has some of the most punitive sanctions in the world, but there is very little evidence that they have a positive effect. Removing people’s main source of support for extended periods risks pushing them into extreme poverty, indebtedness and reliance on food banks. Furthermore, there is a great deal of evidence that sanctions, and the threat of sanctions, are harmful to claimants’ mental health.

We recommend that the Government publish an evaluation of the impact of conditionality and sanctions on mental health and well-being. Furthermore, we recommend that the DWP evaluates how the current length and level of sanctions facilitate positive behaviour change and how they lead to sustainable work outcomes. The DWP should also expedite its work on introducing a written warning system before the application of a sanction. Sanctions should always be a last resort.

Our report was an appeal for the Government to act now. That was in July; it is now even more important. Universal credit needs an immediate increase in funding to match the cost of living crisis, reform in its design and implementation, and improved support for claimants to find and prepare for work.

In his Mais lecture last month, the Chancellor quoted the opening paragraph of Adam Smith’s Theory of Moral Sentiments, which I am sure everyone in the Committee will have read. I will remind them of what it says:

“How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it. Of this kind is pity or compassion, the emotion which we feel for the misery of others, when we either see it, or are made to conceive it in a very lively manner.”


In the difficult months ahead, may these words be his guiding light. I beg to move.

--- Later in debate ---

[Lord Forsyth of Drumlean (Con)]

My Lords, this is an unusual experience for me, because I have not found anyone to disagree with. On the fact that this committee is so much in agreement, on 9 March 2021, we did something rather unusual: we had a joint meeting of the Economic Affairs Committee and the House of Commons Select Committee concerned with these matters. We were unanimous in our view, and we took evidence from Mr Couling and the then Minister, Will Quince MP. There was universal agreement, except with Mr Couling, who thought that we were interfering with his perfect system. I think he said that making any changes would make it even more complicated and that he had devised a system which he thought would be around for generations to come. It is a classic example of coming up with a perfect system that everyone has to fit into and then ignoring the problems that occur.

I pay tribute to my noble friend the Minister. She does a fantastic job, and we all know that she is very well aware, from her own background, experience and the care with which she does her ministerial job, of the kinds of problems that arise. We know that the real problem here is the Treasury.

[Baroness Stedman-Scott (Con)]

I could not possibly comment.

[Lord Forsyth of Drumlean (Con)]

That reminds me of something from my noble friend Lord Dobbs: “You may say that, but I couldn’t possibly comment”.

I very much appreciate the way in which the Minister responded to the debate, but I know that the noble Baroness, Lady Taylor, has been very patiently waiting to get on with the debate on the excellent Constitution Committee report, so I just thank everyone who has participated. Let us hope that the urgency and severity of the situation means that Mr Couling, the Secretary of State and the Treasury will mend their ways. I beg to move.

Motion agreed.