Universal Credit and Welfare Reform

William Bain Excerpts

Tuesday 11th September 2012 Commons Chamber

[Mr William Bain (Glasgow North East) (Lab)]

Let me begin with a statement on which there should be agreement throughout the House: a strong welfare state benefits all of us in society.

A growing body of evidence, extending from the International Monetary Fund to the Obama White House, shows that if we want to lift the current trend rate of growth, we need a fairer distribution of wealth across our society. We need more people to participate in the labour market, particularly the estimated 700,000 to 1.4 million women who are missing from employment in Britain in comparison with the rates in better-performing OECD countries. Our system of child care is less generous and more expensive than those of many of our trading partners in the European Union, and claims an ever larger share of take-home pay for many families. During the past 30 years the link between rising productivity and wages has gone and they have become decoupled, and that trend has accelerated over the last 10 years.

It is clear that there must be a wage-led recovery in living standards, with a living wage in the areas of the economy where it will work, and that companies must be made aware of the benefits to the whole economy of paying higher wages to their staff rather than increasing their short-term profit-taking. However, the role of the tax and benefits system will remain critical to a reduction in poverty, because from 2005 onwards the modest uplift in the living standards experienced by low to middle earners in Britain was exclusively due to the tax credit system. Other countries with better early-years education, which invested heavily in vocational education and skills, such as Denmark, and those with stronger collective bargaining systems in the workplace, such as the Netherlands, had even lower levels of pre-distribution poverty.

In principle, simplifying the tax and in-work benefits system by uniting them in a single integrated payment may have beneficial effects, but there is evidence that the Government are failing to address potential weaknesses in several key areas.

First, the system becomes more complicated for the growing number of self-employed people, and depends on access to the internet. In my constituency, where the poverty level is drastically above the national average, more than eight in 10 people do not have access to the internet at home.

Secondly, the current design of universal credit appears to penalise lone parents. Gingerbread understands that up to 4 million of them, including 1 million who are in work, will lose out under universal credit. Estimates suggest that 150,000 of the poorest single parents could lose up to £68 per week, which would push 250,000 children deeper into poverty. The situation appears worse when we consider the increasing competition for part-time work in a weak labour market. The rate of under-employment among women aged between 16 and 24 has risen by nearly 5% in the last four years, and for women aged between 35 and 49 the figure is nearly 4%.

Thirdly, universal credit does not put right the harm that the Government have already done in regard to support for child care costs. According to Save the Children, 56% of mums say that the main issue preventing them from working, or making them consider giving up work, is the increase in child care costs. However, parents on low incomes are already paying more than they used to because of the 10% reduction in the child care tax credit. The Resolution Foundation found that last year child care costs rose by 50% for some of those families.

Fourthly, the much-trumpeted rise in the personal tax allowance will be counteracted by universal credit, because people on low incomes who receive the credit will no longer receive a reduction in their tax bills. A £1,000 increase in the personal tax allowance will give £200 per year to every basic rate taxpayer except those on universal credit, who will gain only £70. They will receive only a third as much from any increase in the personal tax allowance as the rest of the population.

Fifthly, there is a risk that the withdrawal of “passported” benefits such as free school meals, and the lack of a second-earner disregard in the design of the credit, will create new cliff edges in the benefits system.

Finally, those who take jobs after being unemployed for more than six months will not receive an extra four weeks on benefits to smooth their transition.

The benefits bill is rising by £9 billion because of higher unemployment. I think it is clear that the Government should be focusing on that, rather than taking money away from—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. The hon. Gentleman’s time is up.