Work should pay

Following interviews broadcast on Radio 4, the BBC has published an article, ‘Theresa May urged to halt Universal Credit rollout’:

Families could be left homeless and destitute if Theresa May insists on pressing ahead with Universal Credit, a former top adviser has warned. Dame Louise Casey urged the prime minister to pause the rollout of the new benefit system so it can be fixed … [and] twelve Conservative MPs have written to work and pensions secretary David Gauke to call for the same thing.

Dame Louise, who has advised four prime ministers on social policy over the past 18 years, including Mrs May, said it had to be paused to get ‘the implementation completely right’. ‘I completely agree that we all should be wedded to the principle, and therefore the overall policy, that work should pay,’ she told the PM. But she added: ‘If it means that we are looking at more and more people that are ending up homeless, or ending up having their kids taken away, or ending up in more dire circumstances, that cannot be the intention. It can’t be and it won’t be the intention of Theresa May or [First Secretary of State] Damian Green or any of those people. I just don’t believe that they would want that to happen.’ She suggested ministers were blindly ‘pressing on’ with the policy because they did not want to be accused of doing a U-turn. But she said: ‘It’s like jumping over a cliff – once you have jumped, people end up at the bottom and we don’t want that to happen.’ Figures published by the Department for Work and Pensions show that about one in four new Universal Credit claimants waited longer than six weeks to be paid. That could make a big difference to families who were ‘close to the edge,’ Dame Louise said. They ‘will end up in dire circumstances, more dire than I think we have seen in this country for years’.

Conservative MP Stephen McPartland said his concern with Universal Credit was that for ‘every pound these people earn extra, the government’s taking 63p back off them. To me that is an effective tax rate of 63%, which is ridiculous. So the lowest paid are effectively having to pay some of the highest taxes,’ he told the World at One.

It is difficult to see how anyone could disagree with anything in this article, whatever their political opinions.

An effective tax rate of 63% has to be a significant disincentive to seeking additional employment income. What the article doesn’t mention is that anyone paying Income Tax and National Insurance Contributions at the same time as their Universal Credit is being withdrawn is paying an effective tax rate of 76%. Admittedly this is lower than the effective tax rates of 85% and over that many households are paying if they are on Working Tax Credits and Child Tax Credits, but it is still more than one and a half times higher than the rate paid by the highest earners. It is of course true that no immediately feasible Citizen’s Basic Income would enable such means-tested benefits as Working Tax Credits, Child Tax Credits and Universal Credit to be abolished completely: but a small Citizen’s Basic Income of £61 per week for every working age adult could be implemented almost overnight, and would take large numbers of households off means-tested benefits, reducing their effective tax rate to the combination of the Income Tax and National Insurance Contribution rates. For all of those households, work would pay, as it should. Also, many other households would find it much easier to come off means-tested benefits, and for every household that did that, again work would pay.

As for the errors and delays that households claiming Universal Credit are experiencing: these should not be blamed on the staff working for the Department for Work and Pensions. They are intrinsic to Universal Credit. If a Citizen’s Basic Income were to be implemented then nobody would ever have to wait for it to be paid. It would just keep on coming, whatever an individual’s employment status, household status, earnings, assets … whatever. It would provide a totally secure platform on which to build, which Universal Credit certainly doesn’t.

A Citizen’s Basic Income could go a long way towards avoiding the destitution that Dame Louise Casey is warning about; and such a Citizen’s Basic Income would be entirely feasible to implement. It would make work pay; it would enable the Government to fulfil all of the aims of Universal Credit; and it would enable the Government to withdraw gracefully from the Universal Credit rollout. If the Government decided to turn Universal Credit into a genuine Citizen’s Basic Income – unconditional, nonwithdrawal, and individual – and to continue to call it ‘Universal Credit’, then at last ‘universal’ would mean what it says.

If the Secretary of State takes Dame Louise’s advice and agrees to a pause in Universal Credit’s rollout, then a good use of that pause would be a careful examination of the desirability and feasibility of a Citizen’s Basic Income.