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Universal credit isn’t about saving money – it’s about disciplining unemployed people

The scheme has cost a fortune and done nothing but cause suffering. So why does it exist at all? Tom Walker digs into universal credit’s origins in Tory ideology

October 18, 2017
14 min read

Iain Duncan Smith. Photo: Cabinet Office, Flickr

The message is starting to get through about universal credit. The Tories’ flagship benefit ‘reform’ – despite a cost of £15 billion and rising – simply doesn’t work. Chronic understaffing and broken computer systems only exacerbate the usual woes of any attempt to roll out a big new government policy.

But the disastrous roll-out of universal credit is not simply a crisis of implementation. Even if everything had gone according to plan, claimaints would still be facing misery, hunger and eviction. Because this is, quite simply, what the scheme is designed to do: to re-draw the entire welfare benefits system in order to change unemployed people’s behaviour in ways amenable to the Tory party, using the need to ‘simplify’ the system as a smokescreen for attempts to discipline claimants.

The scheme is five years behind its own schedule, and the policy was over a decade in the making – making an arduous journey from think-tank ‘blue-sky thinking’ to government white paper to trial roll-outs, before hitting today’s crunch point. Back before Brexit was even a twinkle in Boris Johnson’s eye, before Nick Clegg stood in that rose garden with David Cameron, even before Cameron hugged either a husky or a hoodie, the policy was formed by the Conservative Party in opposition at the tail end of the Blair and Brown years.

We could pick two possible kick-off dates. The first is when Iain Duncan Smith, as Tory leader, visited Glasgow’s Easterhouse estate in 2002. He came, he saw, he blubbered – and he had the so-called ‘Easterhouse epiphany’, which convinced him that the Conservative Party needed to come up with its own, right-wing solutions to ‘solve’ poverty, instead of leaving the issue to Labour. This is the oft-told origin story of ‘compassionate Conservatism’ in Britain, a baton Cameron picked up and ran with after taking over the party in 2005.  

The second is in 2004, a year after being ousted as Tory leader, when Duncan Smith founded a think tank he named the Centre for Social Justice. Shortly after its formation, the think tank was brought into the Conservative Party’s policy review process and worked for several years on trying to explain ‘the causes of poverty’ from an ideologically conservative point of view. From then until the Tories took office in 2010, its policies laid much of the groundwork for Cameron’s policies in government – and none more so than universal credit.

Confusion upon confusion

Universal credit rolls together six different benefits into one payment: jobseeker’s allowance, housing benefit, tax credits, child tax credit, income support, and employment and support allowance (itself a roll-up of different disability benefits). Instead of a range of confusing forms and adjustments, the theory goes, you have a ‘simplified’ one-stop shop for your claim.

The big idea is that, instead of some benefits needing to account for other benefits in calculating your overall income, everything becomes a ‘credit’, dynamically adjusting to your circumstances. You are no longer ‘in work’ or ‘out of work’, but your income from work is assessed each month, with benefits ‘tapering off’ depending on how much it was. The result is anything but simple. Try to follow this government example:

‘You have a child and get money for housing costs in your Universal Credit payment. You’re working and earn £500 during your assessment period.

Your work allowance is £192. This means you can earn £192 without any money being deducted.

For every £1 of the remaining £308 you get, 63p is taken from your Universal Credit payment. So £308 x £0.63 = £194.04.

This means you earn £500 and £194.04 is deducted from your Universal Credit.’

Notice that this calculation has only worked out a deduction, not what your universal credit payment would be to begin with – which is a whole other world of confusion, especially once housing costs are included. Universal credit inherits all the strange rules from each of the benefits it encompasses, including whether you are under or over the age of 25, how many children you have, when they were born, how many bedrooms you have, and so on. Both the bedroom tax and the benefit cap, for example, remain active as part of universal credit.

Rolling the benefits together also allows an expansion of the sanctions regime, for those who violate some minor detail of the ‘claimant commitment’ written for them by their ‘work coach’. And the huge complexity and individual calculations involved in the formula makes it far easier for the government to gradually cut payouts – as it already plans to do in the next few years – without either claimants or the media being able to figure out exactly what is going on.

The scheme’s rollout for new claimants is now accelerating, being introduced at 50 new Jobcentres every month. People currently claiming one of the ‘legacy benefits’ that are now part of universal credit will be gradually moved over between now and 2021. Figures from the Resolution Foundation show that around 2.5 million low-income households will lose £1,000 a year by the time the change-over is finished, with some losing as much as £2,800.

Poverty and ‘welfare dependency’

‘The trouble with nets – even safety nets – is that people get tangled up in them.’
Breakdown Britain

The roots of this problem stretch far back into the annals of Tory policy thinking. The Centre for Social Justice’s initial work focused on diagnosing the problem: identifying what it thought were the causes of poverty. Its conclusions are set out in its multi-part 2006 report Breakdown Britain. The report identifies five ‘pathways to poverty’: family breakdown, educational failure, worklessness and economic dependence, addictions, and indebtedness. Each is seen as interrelated – a potential cause of the others.

In Iain Duncan Smith’s introduction, he particularly takes aim at the family breakdown for which the report is named. He claims there is a particular problem of what he calls ‘dadlessness’, supposedly leading to a life of crime. ‘In the absence of a structured and balanced family life, the street gang becomes an alternative “family”,’ Duncan Smith writes.

Much of the report is just a think-tankified version of conservative ‘family values’ ideology. ‘At the heart of stable families and communities lies marriage,’ says the report’s conclusion. ‘For too long this issue has been disparaged and ignored and its erosion has had a detrimental effect on us all.’ The decline in marriage since the 1970s is framed as a reduction in ‘family stability’, which creates ‘damaged’ individuals. Lone parenthood is blamed for everything from crime to even the housing crisis (because two-parent families wouldn’t need as many houses, see).

At heart, this is little more than window dressing on a typically Victorian attitude which casts poverty as a personal moral failing. If you are poor, it must somehow be your fault. This thinking underpins the entire report, including the sections on ‘worklessness’ which eventually evolved into universal credit. It talks about ‘welfare dependency’ not simply as an outcome of low wages or unemployment, but as a vice driven by both economic and social factors. The solution to this vice? A good dash of ‘hard work’, bringing with it ‘self-improvement and personal responsibility’ and protection against the other ‘pathways’. Conversely, being out of work for too long can cause poverty ‘that persists across the generations’.

The evidence offered for all this is paper thin, resting heavily on anecdote and opinion polling, and vigorous attempts to mistake the effects of poverty for its causes. Our think-tank friends never consider that perhaps struggling in school or alcohol addiction are more outcomes of poverty than its source.

In their model, poor people don’t need money, they need the reverse of the ‘pathways to poverty’: that is, they need forced work, marriage, school discipline, addiction treatment and, in the most Tory solution possible to debt problems, more ‘competition in the home credit market’. Overall, poverty is seen as the product of personal behaviour that needs to be changed, whether through incentive or punishment.

Work at all costs

‘The more we struggle to end poverty through the provision of benefits, the more we entrench it.’
– Dynamic Benefits

Starting from this ideological framework, the Centre for Social Justice moved on to design an ambitious scheme it called ‘universal credits’, in its 2009 report Dynamic Benefits: Towards Welfare That Works. Having argued that poverty is caused by a set of behavioural problems, universal credit sets out to change the claimant’s behaviour. Incidentally, members of Dynamic Benefits’ working group included Nicholas Boys Smith, then ‘wealth director’ in the international private banking division of Lloyds Banking Group, James Greenbury, ‘who has 20 years experience running private equity-backed businesses’, and Sara McKee, formerly of scandal-hit workfare company A4e.

The existing benefits system, it claims, penalises ‘positive behaviour such as couple formation, saving money and home ownership’. In contrast, their proposed ‘dynamic model’ – imported from consumer behaviour modelling in the private sector – allows policy-makers to tweak the system like scientists changing around a rats’ maze, and monitor the behavioural effects:

‘The Dynamic Benefits Model allows us to understand how the welfare system “looks” or “feels” to the claimant and – crucially – how they are likely to alter their behaviour in response to changes in the system.’

As Iain Duncan Smith puts it, ‘At the heart of these solutions is recognition that the nature of the life you lead and the choices you make have a significant bearing on whether you live in poverty.’ Since poverty is a question of life choices, the report says, universal credit must work to change behaviour: ‘We must continually encourage the desire for a job; and we must also clearly determine that a life on benefits, no matter what their level, should not be a sensible choice for those able to work.’

The report is clear about what choices it wants to get people to make. It examines welfare approaches that attempt to ‘maximise happiness’ by increasing leisure time, but then dismisses them as always discouraging earned income, ‘because the time taken to earn that income eats into the individual’s leisure’. Increasing the personal welfare of the low paid ‘tends to accept and indeed induce a world of greater worklessness’, and so happiness cannot be the objective.

Instead, ‘the number of households in work is the most important factor’: the aim is to incentivise work at all costs, whatever the work might be, and – crucially – even if doing so costs the state far more than paying benefits to the equivalent level. Getting more people into work isn’t about the money, but about warding off the ‘social breakdown’ that they assert is the root cause of poverty.

The Centre for Social Justice’s work in this period was imported almost wholesale as government policy from 2010, as Catherine Haddon’s Institute for Government study Making policy in opposition: the development of Universal Credit 2005-2010 makes clear. After the surprise appointment of Iain Duncan Smith as work and pensions secretary in 2010, ‘copies of Dynamic Benefits were in great demand as Duncan Smith … entered the department’.

Though it was packaged in with George Osborne’s austerity reforms, universal credit was not part of a programme of cuts. In fact, the scheme accounted for a big chunk of new spending: ‘For Duncan Smith it was at the core of why he had come back into government, so the budget to undertake Universal Credit needed to be protected…  The Treasury provided the cash to fund the project.’

How the other half doesn’t live

Iain Duncan Smith, George Osborne and David Cameron have all now departed government, but the monster they unleashed on public policy still shambles on. For people who sought to change their behaviour, the architects of universal credit apparently had little idea how unemployed people and workers on low incomes live their lives.

Media reporting has focused on the need to wait six weeks (42 days) before receiving a universal credit payment, but less often explained is why the scheme was designed in such an odd way. The payment is intended to replace a monthly salary payment, and the delay is because it is paid ‘in arrears’ instead of in advance, so the ‘credit’ amount can be adjusted based on any income you had in the previous month.

Citizens Advice points out that low-paid workers are more likely than others to be paid weekly, not monthly. Yet weekly pay periods utterly break universal credit’s monthly ‘assessment periods’, as weeks and months don’t line up neatly in the calendar. As the government’s own guidance says, being paid weekly means that ‘four times a year, you’ll get 5 sets of wages in one assessment period’ – aka a month – and that ‘this means your earnings might be too high’ to qualify in those periods… and if that happens, you might have to re-apply from scratch!

To make matters worse, most existing benefit payments are made fortnightly, and claimants have got used to budgeting around this. The government’s universal credit whitepaper considers problems that might be caused by monthly payments, but says paying monthly is part of a focus ‘on encouraging personal responsibility’. (You get the feeling that its authors have never lived constantly scraping at the bottom of their overdrafts.) It reality, this leaves people building up rent arrears, unable to pay bills and turning to food banks – or loan sharks.

The government is also determined that universal credit will require you to set up an online account and fill in an internet job search ‘journal’ before receiving any money. Even though one in ten UK households do not have internet access, it’s now the only way to get the benefits you are entitled to. Universal credit was the only benefit claim line with a paid-for phone number, the DWP said, because it is intended as an internet-only system: ‘the expectation is that claims are made online’. The charge was not there to make money, but to try to stop most claimants calling them at all. It was just another part of the dynamic model: tweaking the system’s rules to change your behaviour.

Universal credit is fundamentally a policy designed by people who do not understand how benefit claimants live – but know how they want to force them to live. While campaigning victories on details can soften the blow somewhat, there is no set of tweaks that can ‘fix’ a scheme that serves no purpose apart from making poor people dance to the Tory tune.

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