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The Black Sheep of Fiscal Policy - Universal Credit

Universal Credit (USC) was an attempt by the coalition government to simplify the complex benefits system that was the standard in the UK before 2013. It rolled six different systems into one and would provide a family who qualified for all or just one of them a single monthly payment. However, it’s history extends much further back all the way to Brown’s government in 2009. During this time the Centre for Social Justice, a think tank, first outlined the concept of a single payment benefits system under Ian Duncan Smith. From there it was announced at the 2010 Conservative Party Conference and would be put into place three years after the election the same year.

Just More Cuts

When the scheme was first set out by the government, it received a torrent of criticism from members of the opposition and the public alike. UC was just seen as another of Cameron’s efforts to balance the books amid a staunch policy of cuts. Social security and tax credits are one of the governments big expenditures and once UC is fully rolled out by 2022, it will deliver payments worth around £60 billion a year. In comparison, this is around a quarter of total welfare spending and is only second to the state pension.

However, even with the policy of austerity, UC may not be the fiscal conservatives dream that the Conservative party wanted. In an article published in January of 2018, the Guardian newspaper revealed that The Office for Budget Responsibility (OBR) calculated that UC would only save the taxpayer 2% every year- equating to £1 billion in savings. These savings have come out of the pockets of those who would have used the old system of benefits and instead of a potential of 6 different payments, one lump sum is provided. This also generated issues surrounding the financial savvy of those who receive the payments and what they do with them.

Credit Where Credit is Due

However, despite the constant attacks on UC, in a time of crisis, it has performed remarkably well. An article by the New Statesman published just last month revealed that in the space of a fortnight one million people but in claims for UC. To put this into context, this a 78% rise in applications compared to the increase seen after the 2008 financial crash, according to numbers crunched by the Guardian. This is partly because of layoffs due to the financial strife produced by Covid-19 and partly because some people simply cannot live with the money received from their furlough scheme. UC has been the go-to for many in this time, and it has performed much better than expected.

This has shown the process for application to UC as being fast enough to keep up with demand and efficient enough despite the obvious lack of staffing. And despite UC being planned to only be fully operational from 2022, this is a real test for UC and one that it has passed well. Together with the other schemes that Rishi Sunak has implemented, it has made for an effective response to the economic implications of the pandemic.

Keeping up with the Joneses

The UC system has shown startling success when compared to other nations as well. Of course, it should be noted that the American system has to contend with much more people and in late March of this year, 3.3 million people filed for unemployment benefits. In New York, for example, the computer system could not handle the sheer volume of people sending applications for unemployment insurance. This has been similar for states all across the US and many have not received payments- even the federally funded $600 weekly top-up is not smooth.

In 2019 the average payout from the American system was about 40% of previous earnings and only those who are seen to be actively looking for work actually qualify for benefits- a relic of the workfare system of the Richard Nixon. Although many of these restrictions have been lifted, and rightly so, it is unknown in what capacity they will return later on.

A Resounding Success?

As with any benefits system, UC has flaws and times of crisis will reveal the flaws of any system. Many of these benefits systems have also needed large inputs of money from the government to deal with the scale of the problem. However, unlike other Western benefits system, people are receiving their money on time and in sufficient quantities so that people can live on it.

However, there can be things to make the system better. A common issue with UC is the fact that it comes in a single payment. By teaching financial responsibility in schools and making this information far more public, recipients of UC can make use of benefits in the best way possible.

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© 2020 by James Thomas Consulting.