No 15: Universal Credit, means-testing and social security

The roll-out of Universal Credit means more people must rely on foodbanks to survive.
Cpl. Santiago G. Colon Jr./Wikimedia Commons

by Jane Millar

Fifty years ago, in 1967, means-testing was just a small part of our social security system. Supplementary Benefit had been introduced in 1966 (replacing National Assistance) but was as much, if not more, about topping up pensioner incomes as it was about working-age people. It was a back-up, a safety net, for people without access to national insurance benefits. There was no housing benefit, no council tax benefits, and no in-work benefits. This was still the Beveridge vision of a system of ‘benefits in return for contributions’, in which means-testing was a residual element.

Fifty years on, things could hardly be more different. Means-tested benefits are now the mainstream for people of working age while insurance benefits are the residual. And Universal Credit is one huge means-tested monster, bringing together six major benefits — income-based Jobseekers Allowance, income-based Employment Support Allowance, Income Support, Housing Benefit, Working Tax Credit, and Child Tax Credit. There are currently just about half a million recipients of Universal Credit, but once fully in place, there will be about seven million households in receipt. This is indeed means-testing on a massive scale, no longer a safety net to catch those in need and without access to contributory benefits, more a first port of call for as up to one in three of the UK’s 20.7 million working-age households.

Universal Credit is one of the most challenging and increasingly controversial social security policy developments of recent years. Many organisations say they support the principle of Universal Credit but are concerned about the implementation and design. Indeed, there is a growing list of those seeking to understand the implications of this huge change and, as a result, very often raising concerns. With apologies to those I have missed, this includes the Chartered Institute of Housing, Child Poverty Action Group, Citizen’s Advice, Gingerbread, Institute for Fiscal Studies, Local Government Association, National Audit OfficeNational Federation of ALMOs and the Association of Retained Council Housing, Resolution Foundation, Social Security Advisory Committee, Trussell Trust, Women’s Budget Group, USDAW, and the TUC.

Pressure to ‘pause and fix’ the rollout has thus been increasing, with an Opposition Day motion to that effect passed in the House of Commons in October 2017 (the Conservatives did not vote). The Work and Pensions Select Committee is continuing to review not just the rollout but also some of the design features. However, the government currently shows no signs of making any major changes, beyond reducing the six-week wait and removing charges for telephoning the advice line. Scotland is taking more notice and using devolved powers to pay Universal Credit fortnightly rather than monthly and to give tenants the choice for housing costs to be paid directly to landlords.

Maybe this is all just teething problems and Universal Credit will work out as the rollout proceeds. But that is not guaranteed and there will be a lot of disruption, distress and hardship for many people for a long time. So is there a better way?

One of the main issues that Universal Credit was intended to address was the rise of the insecure, short-term, part-time labour and low-paid labour market. This is indeed a policy challenge and one which is, of course, beyond the social security system to address by itself. But social security could play the role its name implies, i.e. seek to increase income security for individuals in the context of labour market insecurity. What might that look like? I would argue that we already have some of what is needed in place, although not, it must be said, at the level or the coverage that is needed. There are three main areas to target.

Enhance child benefit

Child Benefit is an exceptionally well-directed way of helping families and all the old arguments — contribution of society to the future, supports children regardless of parental employment status, provides a source of income direct to the mother, relieves child poverty — are still good. A significantly higher rate of Child Benefit would mean that adult benefits (insurance and means-tested) would not need child additions, maintaining the principle of individual benefits for adults. All families, in and out of paid work, would benefit.

Do more for young people

Young people need some direct support of their own. In the years when I taught a course on social security benefits, we would look at the gaps in the Beveridge scheme to identify the groups left out of coverage. Young people were a gap then (not yet able to build up their insurance contributions) but they are a positive chasm now. And actually, something like Universal Credit might work well for this group, many of whom are indeed at the mercy of the insecure labour market.

How about converting Universal Credit into something more like a young person’s (up to age 25) income? This should be individually based. It could be means-tested on wages, using the ‘real-time information’ (RTI) system that has been developed for Universal Credit. Or, preferably, it could be flat rate and so more like a basic income for this group. And it could have participation requirements: for example, working, studying, training and apprenticeships, volunteering, parenting care for young children, or combinations of these. Let’s call it the Youth Universal Participation Income or YUPI.

Focus on income security

What of the others also in need of wage supplementation because of low and erratic earnings? One of the main problems with Universal Credit that many have identified so far is the waiting period at the start of a claim. This is leaving many people with no income through that period and has meant increasing debts and use of food banks, and the reductions in waiting time announced in the 2017 budget are unlikely to be enough to prevent this. But there are also other design issues.

Somewhat ironically, this includes the fact that Universal Credit is likely to be too responsive to changes in wages and other circumstances. The RTI system (in theory) provides information directly from employers to DWP so that Universal Credit can be immediately adjusted. So every up and down of wages leads to an up or down in Universal Credit. Other changes must be reported and will lead to a readjustment of the amount of Universal Credit for the whole month (regardless of when the change happened). This means that, for many people, there are now two unstable sources of income (wages and Universal Credit), not entirely in step with each other.

Managing a low and unstable income is doubly difficult. To really help families to manage, something needs to be fixed, preferably a fixed amount of money for a fixed period of time. The first modern wage supplement in the UK (Family Income Supplement in the 1970s) was assessed by reference to the level of wages over a five-week (or two-month period) and then remained the same for six months. If we can’t have Family Income Supplement back (even though I like that idea) can we make Universal Credit more fixed in amount and time? For example, by ignoring most changes in circumstances except perhaps those that lead to a significant fall in income (e.g. a partner leaving) or to a significant increase in needs (e.g. birth of a child). Or, by making Universal Credit fixed for six months, rather than altering payments every month.

Pause and reflect – do we want a means-tested future?

Reform in the above three areas would do much to bring some income stability to those who have to live with low and fluctuating wages. This does not solve the problem of housing benefit, but that is a big enough issue to require a separate system, with redesign, but not rolled into Universal Credit. And childcare costs likewise require a solution more bespoke to the nature of the help needed by working families. Both could provide an opportunity for devolved systems, including the city mayors, to try out different approaches to suit local needs and circumstances. 

Fighting the 1966 election, Harold Wilson, leader of the Labour Party, said that under the Conservatives, ‘the welfare state would become the means-tested state’. He wasn’t wrong, although it took some years and Labour had a part to play in this too. But before we go any further down this road, now is a good time to pause and reflect on how much we want to rely on a means-tested approach to deliver the important goal of ‘social security’.

Jane Millar, FBA is Professor of Social Policy in the Institute for Policy Research at the University of Bath. She is Chair of the Social Policy Association. She tweets @millar_jane.

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