Universal Credit and Welfare Reform

Luciana Berger Excerpts

Tuesday 11th September 2012 Commons Chamber

[Mr Duncan Smith]

The timetable is not slipping at all. We are on target. The right hon. Gentleman needs to be happy about that.

It is all very well for the Opposition to carp, while saying that they support universal credit, but let me be absolutely clear why I believe that we have to do this. First, we inherited a complex mess of 30 different benefits. There are seven additions relating to disability alone, which are complicated for people who are disabled. They are often confused about what to do. Some payments are available when a person works for 16 hours, some at 24 hours and some at 30. Some are withdrawn at 40%, some at 65% and some even at 100%. Some are net and some are gross. One needs to be a mathematician to figure them out.

My previous permanent secretary admitted that one day, when he was listening to a lone parent who had come in for guidance on what benefit she would receive and how it would work if she took extra hours beyond the 16 hours at which she was already being supported. It took the adviser about 40 minutes to figure out whether she would be better off, marginally in the same position or marginally worse off because of the dramatic rise in the deduction rates. How can we expect every lone parent who is worried about authority and may not come in for help to understand what these things mean? The complexity and confusion are a problem. The decision whether to go to work is often a marginal one, and many people do not feel that it is worth while.

It is small wonder, therefore, that even before the recession there were over 4 million people on out-of-work benefits and 1.4 million people who had never worked at all. Things then got a lot worse because of the recession. The inheritance that we received included 5 million people on out-of-work benefits, youth unemployment already high and more children in workless households in this country than in the rest of the EU—that is a staggering thought. And that came after years of growth and plenty, which the previous Government wasted.

Ending that failure is a monumental task, and we have undertaken it because it has to be done, whether there is a Labour Government, a Conservative one, a coalition one or even a Liberal one. Universal credit is one of the most fundamental reforms to the welfare system, and it deserves to be supported and helped.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

rose—

[Mr Duncan Smith]

I have given way quite a bit. If the hon. Lady will give me a little leeway I will give way again later, but I want to make some progress.

A single payment, withdrawn at a clear and consistent rate when people move into work, will make work pay at each and every hour and remove the stumbling block in the current system whereby, as I said earlier, some people lose out dramatically. They lose 96p in every pound that they earn, which cannot be an incentive to go to work. Nobody here would take work at that rate, and trying to get the deduction rate down has to be a good reason for our reform.

The Opposition say that they are concerned about work incentives under universal credit. I reassure them that, as I said earlier, the flat 65% withdrawal rate will mean reduced marginal deduction rates for 1.2 million households. What is more, 80% of those gainers are in the bottom 40% of the income distribution. Why am I, as a Conservative, having to stand here and tell the Opposition that that is positive? Surely they should have ensured that it happened during all the years when they were in power.

[Mr Duncan Smith]

I thank my hon. Friend for those comments.

[Luciana Berger]

I listened closely to what the Secretary of State said about 1.2 million people having better marginal deduction rates, but his Department’s own impact assessment shows that 2.1 million people will be worse off in work as a result of universal credit.

[Mr Duncan Smith]

The reality about marginal deduction rates, as I have just said, is that the massive majority of the money that we are investing will go to those in the lowest income groups, which has to benefit them. People who would otherwise not enter work because of the margins will now find that it is beneficial to do so. Despite what the hon. Lady and the right hon. Member for Birmingham, Hodge Hill, have said about marginal deduction rates, the median increase will be just about 4%. The truth is that there will be a massive improvement in the marginal deduction rate for vast numbers of households. As I said earlier, half a million people who struggled under the previous Government’s complicated taxes had marginal deduction rates of well over 80%. That will not happen under universal credit, which is a critical point.