Universal Credit

Lord Freud Excerpts

Wednesday 21st December 2016 Lords Chamber

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, I start by congratulating my noble friend Lord Farmer on getting this debate. I do not know what Houdini-like skills he has to secure this timing, but it clearly shows that he knows how to operate the House systems. I also congratulate the noble Lord, Lord Macpherson of Earl’s Court, on his maiden speech. He has a lot of knowledge of this area which he will be able to contribute to the House. Lastly, I add my condolences to my noble friend Lady Jenkin of Kennington.

My private office tells me that I have made 3,331 spoken contributions in my time as the Minister for Welfare Reform, and this is the last time that I will speak in that capacity. I thought that it would be most valuable if I concentrated on two things: the lessons we have learned from the process and what we can see for the future of welfare reform. Universal credit marks a fundamental change in the relationship between the state and citizens who are claimants. I think that it is more than a Darwinian process. This is quite a substantial change in approach that puts progression into work at its heart. The original systems were often designed to protect people from work when it was industrial and hard, so that was what we wanted to do. It never proved possible to move the whole system away from that approach, so it is universal credit which is introducing that real dislocation.

It has been much harder than I thought it would be and it has taken longer. However, I remain utterly convinced that putting this machinery in place is the right thing to do. The purpose is simple. One wants a system where those who are in it can see the benefit of taking control of their own lives rather than be constrained from doing things simply by the shape of the benefits system. Let me talk briefly about an element referred to by my noble friend Lord Shinkwin, which is the flexibility of the system and how it can be used to improve the productivity of the country. That is being done by removing the hours rules in the existing system as well as simplifying the system so that people are able to understand it. Picking up on the point made by the noble Lord, Lord McKenzie, there are various incentives to work, one of which is the work allowance, but the level of the taper is another. It is, I hope, interesting to noble Lords to see that at a time of full employment, which on the figures is virtually where we are, one can play with the taper to try and bring progression into the system rather than look at encouraging people to get into work in the first place. One will be able to play those changes in the years to come a bit like the tax system is manipulated when one wants to achieve particular things.

The area into which the noble Baroness, Lady Donaghy, has been particularly successful at putting her probe is that of self-employment. She has genuinely got me going back and worrying about making sure that our self-employment support is right. We started off with a fairly mechanical approach, but now in part as a result of the probing and warnings of the noble Baroness, we are looking at how to support people who are self-employed. I have had a cadre of work coaches trained up who understand small business and can begin a dialogue with people. We have also pulled the new enterprise allowance into the system. What we are looking at is not only how to have people who are self-employed, but how to help them be successful in their self-employment. I thank the noble Baroness, Lady Donaghy, for that. The fact is that the structure of universal credit works far better with what we are all calling the gig economy because it is more flexible, and that includes self-employment.

I turn to the lessons learned. Noble Lords will remember, some vividly, the reset in 2013. I can remember probably more vividly than most noble Lords the difference between the way that my colleague the right honourable Iain Duncan Smith was treated in the Commons at the time and how noble Lords in this House treated me. Two debates were held and the Hansard reports would make a reader think that they were conducted on different planets. There was real generosity in this House and an understanding of what we were facing, as well as cross-party support for what we are trying to do with this machinery. We differ on levels, but I think that we all agree on the machinery. At that point I felt very well supported.

However, there are real lessons in this. What I now think is that the change that government as a whole went through in outsourcing their IT, which happened in the 1990s and early 2000s, was a fundamental mistake right across the whole of government. I know that from the one example of the DWP. What it meant was that we lost control of our systems. People had been thinking about IT as a separate entity but it is not, it is part of the operation: lose control and an understanding of IT and one loses control of what one is trying to do. What we had to do was take our IT back in-house and to rebuild it, and the change has been quite dramatic. We have an integrated team of people on operations, coders, data architects and so on. It is one team; everybody has to be part of our team. I give your Lordships one of the most dramatic facts: for the first version of universal credit we used to have a release once every half year. We are now doing releases weekly. That is the difference.

The other thing—I was very conscious of this from my time as an adviser under the Labour Government—was that the operations people did not like to talk even to the policy people, let alone to the Ministers. I remember trying when I first came in to get the operations people to come back and complain when we stuck some structure down their throats. They would not. It has taken an awfully long time just to get the operations team to be the people who say what is working and what is not, and to turn it round.

The other thing that is really interesting—this is across government—is that an organisation of that size finds it impossible to deal with an abstract, conceptual notion. It cannot do it. Too many people have to have the same vision: you cannot get it when it is complicated. You have to get something on the ground that an organisation can shape itself round. It was an accident that we did it twin-track, but having that first track out so the organisation can get round something and start to get the lessons was, in practice, vital. This is the origin of what we have dubbed the test and learn approach: get something out, find out how it works and iterate the whole time. I am pleased the Government have now announced, somewhat retrospectively, that this is government policy. I can take pride in that one.

Universal credit is going ahead. I will not go into the detail; we have all discussed some of the figures. I will talk about the future a little. We now have a nice shiny system in the heart of our welfare system. There are a lot of things we can then put round it and make better. I have, in my last few weeks, set in train quite a lot of those. Some of them have just been locked down. I give your Lordships as an example how the supported accommodation system works. There is a system in train now for that. How do we get the disabled to really take the potential advantage and benefits of universal credit for them when, for instance, they have fluctuating conditions? That is what the Green Paper we discussed is all about.

Finally and almost most interestingly is the universal support system. We have never had a system of coherent support for vulnerable people. We have put in a system of universal support where we are in partnerships with local authorities for a couple of barriers: the digital barrier and their budgeting barriers. We discovered that that is a system we could expand and put more barriers in, so we can put people who are in debt, people with addictions and people with housing problems into that envelope, the point of which is that we can then share data within it so we start to have a coherent approach. That is a nascent structure that I think spells a way for us as a country, for the first time, to really help the most vulnerable people. The noble Lord, Lord Stevens, talked about that; the noble Baroness, Lady Thomas, is worried about it. My noble friend and co-conspirator Lady Stroud talked about it. Of all the things I hope grow out of the opportunity of universal credit, that is the one.

No one will mind if I go on a little longer. The other thing noble Lords did with me was to put in something that allowed us to pilot things and see what would work best. We have the opportunity to optimise universal credit in a way no other country can. We can take a sample of people and change financial parameters; try different work allowances and tapers; and ask what the Laffer curve, if you like, is for the taper rate. We can do all that with small numbers, draw them and really know what the effect is. We may get to 55% taper—who knows? We will find out. We can do so because we have this incredible instrument of the real-time information link. We can tag people and watch what happens when we do something with them. This will take decades. In the end it will be a combination of financial incentives and conditionality, which one will need to optimise. I am sure that that will change for different groups and for different economic conditions. That is an invaluable tool for the future. We can do all that for some of the things noble Lords are concerned about, such as for the noble Baroness, Lady Warwick, on how we improve social housing, and how we sort out APAs.

I will stop now. I feel comfortable about leaving. It is a wrench to leave. It has been a long time, but I am comfortable to leave. To answer the noble Lord, Lord Stevens, I am comfortable because the basic system is there and rolling out. The organisation is transformed and able to do it. I leave it in good hands for the House’s purposes. I congratulate my noble friend Lord Henley on taking the job. He needs to learn to be very polite to noble Lords round the House. I close by saying something I have always wanted to say. There have been a lot of questions I have not been able to answer today, but I will not write.