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Ditch tax cuts to fund universal credit, says Iain Duncan Smith’s thinktank

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Powered by Guardian.co.ukThis article titled “Ditch tax cuts to fund universal credit, says Iain Duncan Smith’s thinktank” was written by Anushka Asthana Political editor, for theguardian.com on Thursday 16th November 2017 17.00 UTC

Iain Duncan Smith’s thinktank is calling on the chancellor to renege on promised Tory tax cuts and instead plough billions of pounds into universal credit if he wants to help families that are just about managing.

The Centre for Social Justice (CSJ), founded and chaired by the former Conservative leader, said that Philip Hammond should cancel plans to raise the threshold for personal allowance to £12,500 by 2021.

Instead, the thinktank wants to see £3.4bn taken out of the system by George Osborne in 2015 reinvested, warning that the cuts will leave 3 million people facing a £1,000 reduction in their income as they move into work.

Duncan Smith has argued that the government’s flagship welfare overhaul is a much better way to target those in need because “every penny invested in universal credit will go to low-paid workers, yet this is true of just 25 pence of every £1 invested in the income tax personal allowance”.

Now the CSJ has published a report, shared exclusively with the Guardian, that says the universal credit cash injection would result in 300,000 more people gaining employment and taking the benefit “back to its original design”.

However, the group acknowledges that such a move would be expensive and so suggests the Conservatives row back on a manifesto promise, repeated by Hammond in this year’s spring budget, to keep raising the threshold at which people start paying income tax.

The call goes far beyond demands from a number of Tory MPs to reduce a waiting time of up to six weeks for initial benefit payments, which has led to warnings of rent arrears and people forced to turn to foodbanks. People who claim universal credit from today will not receive any benefits before Christmas, affecting an estimated 60,000 households.

The CSJ backs government plans, expected next week, to reduce the period to five weeks at the cost of £140m, but says much more is needed if the welfare system is to incentivise people back into work.

The CSJ proposal is being backed by one Tory MP who recently met Theresa May to demand action over universal credit.

Johnny Mercer said: “Universal credit has the potential to help people out of poverty by removing the disincentives to move into work in the previous system and allowing them to reach their full potential. A modern compassionate Conservative government simply must get it right though.

“This government can make the system better by smoothing the path from welfare into work with a fresh investment in universal credit in this budget.”

He argued that most people in his Plymouth constituency and around the country wanted to work.

What is universal credit?

Universal credit is the supposed flagship reform of the benefits system, rolling together six benefits (including unemployment benefit, tax credits and housing benefit) into one, online-only system. The theoretical aim, for which there was general support across the political divide, was to simplify the benefits system and increase the incentives for people to work, rather than stay on benefits.

How long has it been around?

The project was legislated for in 2011 under the auspices of its most vocal champion, Iain Duncan Smith. The plan was to roll it out by 2017. However, a series of management failures, expensive IT blunders and design faults have seen it fall at least five years behind schedule.

What is the biggest problem?

There is a minimum 42-day wait for a first payment endured by new claimants when they move to universal credit (in practice this is often up to 60 days). For many low-income claimants, who lack savings, this in effect leaves them without cash for six weeks. The well-documented consequences for claimants of this are rent arrears (leading in some cases to eviction), hunger (food banks in universal credit areas report striking increases in referrals), use of expensive credit, and mental distress.

Are there other problems?

Plenty. Landlords are worried about the level of rent arrears racked up by tenants on universal credit. Unchecked, this will lead to a spike in evictions. Claimants complain that universal credit is bafflingly complex, unreliable, and difficult to manage, particularly if you are without internet access. Multibillion-pound cuts to work allowances imposed by the former chancellor George Osborne mean universal credit is far less generous than originally envisaged. According to the Resolution Foundation thinktank, about 2.5m low-income working households will be more than £1,000 a year worse off when they move on to universal credit.

 

“They want a regular routine, an interaction with a community outside the home, a stake in society and a sense of purpose. Work gives this to them – and it is crucial that we make sure people are always better off because they are in work.”

Raising the personal threshold at which people begin paying income tax was a policy first started by the Tory-Lib Dem coalition in 2010, with David Cameron pledging further increases during the 2015 general election.

However, the Joseph Rowntree Foundation has suggested that only £1 out of £6 spent on further rises would go to households in the bottom half of the income distribution.

Now the CSJ report claims that universal credit is more urgent. It says that Osborne’s decision two years ago to take money out of the benefit undermined its original purpose: to incentivise people into work.

The group’s chief executive, Andy Cook, said: “Universal credit is the most radical reform to the British welfare system since Beveridge. As it rolls out, it is changing thousands of lives by stripping away the welfare trap imposed by the previous system and creating incentives for people to move into work.”

He said employment did not just provide income but improved people’s self-esteem and their physical and mental health.

“Universal credit is working as a poverty-fighting tool. But it could be made even more effective by restoring the work incentives built into its original design. Every pound invested in universal credit goes to the poorest. By contrast, increasing the personal tax allowances benefits higher earners most,” he added.

Cook argued that Hammond was right not to be “profligate” but said the Conservative government ought to be targeting taxpayers’ money at those at the bottom of the income ladder.

Carl Emmerson, deputy director of the Institute for Fiscal Studies, acknowledged that there was a large cohort of people on low wages who would not benefit from the Tory promise to raise the tax threshold to £12,500.

“It is certainly the case that many low-income households don’t benefit from an increase in the personal allowance. In part this is because so many have already been taken out of tax from the increases in the personal allowance since 2010,” he said.

Emmerson argued that universal credit had originally been designed to be more generous than the system it replaced, but was now – on average – less generous.

However, he questioned whether reversing the Tory commitment to raise personal allowance would give the government enough money, arguing that it would only raise half a billion a year.

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Tags : Anushka AsthanaArticleBenefitsBudget 2017 (November)ConservativesGovernmentIain Duncan SmithIncome taxMoneyNewsPhilip HammondPoliticsSocietyTaxTax and spendingToriesUK Home NewsUK newsUniversal CreditWelfareWelfare Reform