Universal Credit and Council Tax Benefit localisation

In an article in The Guardian on the 10th September Frank Field MP raised serious concerns about both the principle and the viability of ‘Universal Credit’ ( – we use quotation marks because it is far from universal and it is a benefit and not a credit). His criticisms relate to monthly rather than weekly or fortnightly payments, and to a marginal deduction rate still at 65%. A major concern, expressed both by Field and by the computer industry, is that for ‘Universal Credit’ payments to be accurate, the computer systems of employers, Her Majesty’s Revenue and Customs, and the Department for Work and Pensions, will all need to communicate with each other in an accurate and timely way, at least once a month, over every single ‘Universal Credit’ claimant. This would be a tall order for a simple benefits and tax system, but for our complex tax and benefits system the plan could be called heroic. Just to mention one major complexity: We are taxed as individuals, but ‘Universal Credit’ claims are assessed on the household. If all of the necessary computer systems work together accurately, all of the time, then this IT project will be a most spectacular technological achievement.

What Field did not mention was that at the same time as ‘Universal Credit’ is being implemented, Council Tax Benefit is being localised. Different Local Authorities will be able to apply different taper rates, thus making it impossible for the Government to keep the overall taper rate to 65%, impossible for national policy on taper rates to be either formulated or implemented, and impossible for individuals and households to predict how much of every extra £1 earned they will be able to keep. And which is it to be? Will income post-‘Universal Credit’ be used to calculate Council Tax Benefit, or will income post-Council Tax Benefit be used to calculate ‘Universal Credit’? If the former, because ‘Universal Credit’ will now be calculated and paid separately and potentially at different amounts every single month using real-time earnings data, Local Authorities will be puzzling over how to calculate a household’s Council Tax Benefit; and if the latter, then every Local Authority’s computer system will need to relate accurately to the Department for Work and Pensions’ system at the same time as HMRC’s system is trying to do so.

It is just possible that ‘Universal Credit’ could have worked, and we rather hoped that it would. It would have provided a little more coherence in a chaotic means-tested system, and it would have been a useful step along the way to a Citizen’s Income. With Council Tax Benefit being localised at the same time, we are as sure as anyone can be that the Government faces a perfect storm of tax and benefits chaos. David Cameron and George Osborne, having agreed to Council Tax Benefit localisation for political reasons, and to ‘Universal Credit’ for practical reasons, are now wondering how to extract themselves and their Government from the impending disaster. Moving Iain Duncan Smith from the Department for Work and Pensions so that they could drop ‘Universal Credit’ was all they could think of. This failed. Their only option now is to abandon Council Tax Benefit localisation. Otherwise they will be rabbits looking into a car’s headlamps.

The Government has decided that there is no Plan B in relation to reducing the annual public spending deficit. If they do not abandon Council Tax Benefit localisation then they will need to start thinking quite quickly about a plan B to implement when the tax and benefits system collapses.

A template for Plan B would be Child Benefit. No other elements of the tax and benefits system affect how much of it is paid; it never rises or falls with decreased or increased earnings; in proportional terms it benefits non-earners and low earners more than it benefits higher earners; it never contributes to marginal deduction rates and so is never a disincentive to employment; and its administration and computerisation have never been a problem. To extend the principle of Child Benefit to every UK citizen would provide the Government with precisely the policy mix for which it is looking. And an added bonus: to replace ‘Universal Credit’ with a genuinely universal Citizen’s Income would even enable Council Tax Benefit to be localised without too many problems.

We would be happy to advise.

Footnotes

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