Universal Credit

Lord Livermore Excerpts

Thursday 16th November 2017 Lords Chamber

[Lord Livermore (Lab)]

My Lords, I thank my noble friend Lady Hollis for holding this debate today. She is a consistently powerful voice for those who too often have no voice of their own, and I admire her greatly for it.

During 10 years working in the Treasury, I was privileged to play a small part in the introduction of the tax credit system. The principles underpinning those reforms remain relevant and right: to ensure work always pays more than welfare, to prioritise support for children, and in so doing to reduce child poverty.

Tax credits boosted the incomes of the poorest families, lifted millions of children out of poverty and helped many, including many lone parents, into work. Originally, universal credit looked to build upon the principles of these reforms. One benefit rather than six should help improve the visibility of rewards for work, boost take-up, and ensure claimants receive the money they are entitled to. Most importantly, the single taper is the embodiment of the “making work pay” goal, which should in theory greatly strengthen work incentives. Such a bold and far-reaching reform would, I think, have appealed to the Treasury I knew and the Chancellor I served. Unfortunately, under this Government a number of serious flaws now put the original aims at risk.

With relatively few working families currently on universal credit, the six-week lack of income is right now the most visible problem. But, in time, the consequences of the very significant cuts made to in-work support since the reforms were first announced will do even greater damage to the lives of the very families universal credit was created to help. The steady accumulation of cuts means universal credit will now be £3 billion a year less generous than the tax credit system it replaces. Some 3.2 million working families will be worse off, with an average loss of £48 a week. Some 600,000 of these will no longer be entitled to any support at all. Families with children will be hardest hit, with lone parents losing an average of £26 a week. Why, then, given the damage they will do, have these cuts been made?

The first reason is the previous Chancellor’s decision not just to reduce the deficit, which was of course a necessity after the financial crisis, but to tighten his fiscal rules still further, aiming to run a surplus. He made this not just an economic priority but an ideological goal, claiming that not doing so would be more than an economic failing: it would be a moral failing. Yet the Government have failed to meet a single one of the fiscal targets, and Britain now faces a third consecutive Parliament of austerity.

The second reason for these cuts is the choices the Government made about how to allocate resources within this fiscal straitjacket. At the same time as the previous Chancellor chose to cut working-age benefits in 2015, the Government also chose to cut £8 billion from inheritance tax. Indeed, since David Cameron introduced what he called “the age of austerity” in 2010, a cumulative total of £78 billion will have been spent by this Government cutting inheritance tax, all the while cutting £3 billion a year from low-income and middle-income families.

The IFS has calculated the distributional impact of changes to tax and benefits since 2015. The entire bottom half of the income distribution will see their incomes fall. The second-poorest decile will lose over £1,600 a year, while the second-richest will gain £400 a year. While the second decile will see an 8% fall in their income, the ninth decile will see a 2% rise. These are quite some choices the Government have made. They are not the inevitable consequences of reducing the deficit, nor the necessary result of living within our means, but deliberate policy choices reflecting their values: the choice to cut ever deeper into working families’ incomes, not out of economic necessity but ideological determination; the choice to cut £3 billion a year from the very poorest in society, while finding nearly £80 billion for the very richest; and the choice to see not meeting deficit targets as a moral failure, while failing to even measure child poverty targets.

You can see why. By cutting support for working families with children, the introduction of universal credit, far from reducing child poverty, will now increase it by over 1 million to 5.2 million, the highest ever level since records began. With 68% of children in poverty living in working households, universal credit should be tackling the problem of low pay, yet in fact it now does almost nothing to improve financial incentives. Working 25 hours a week will now leave a lone parent only £2 better off than working 16 hours under tax credits. Second earners will now keep only 37% of their pay. A family paying for childcare for two pre-school-age children will now keep only 6p in the pound, an effective marginal tax rate of 94%.

These reforms break the Government’s promise that work would always pay more than benefits, they betray a generation of children, and they expose a Government systematically targeting the poorest in our society while handing billions back to the better-off.