Wednesday, 24 July 2013

Examining the government's claims for universal credit

I present what I will presently call 'Case 0':-

This is the government's poster child for universal credit. On the face of it, it apparently shows that universal credit will meet the government's stated aims of 'making work pay' by removing some of the cliff edges in the current benefits system at 16 and 30 hours work.

The red and blue lines show the family's net income, including wages and benefits, after housing costs and child care are paid for. In effect, their disposable income.

Variations of this graph have been bandies around ever since IDS announced universal credit, and it does appear to be fairer and more generous than the current system, as it irons out the period of limbo for work under 16 hours a week where working more hours leads to no gain in income.

The problem is, this scenario is only correct for the poster child family of 2 adults, 2 children, where everyone is healthy and 'normal'. It also hasn't been made clear enough that it only applies to families in rented housing.

So I tried plugging in some other scenarios, and producing equivalent graphs.

Here's a single person who is disabled and entitled to ESA, as he goes into work:-

 Case 1: A single claimant with limited capability for work, moving into a moderately paying job, renting.

Immediately, it's obvious that Case 0 was misleading. Universal credit for someone coming off the future equivalent of ESA/incapacity benefit into work is far less generous, and also includes a similar cliff edge at 16 hours. This is because universal credit contains no equivalent of the disability element of working tax credit in the current system, and because the  equivalent of the incapacity benefit is still lost at 16 hours work.

Case 2: a couple with one child, paying a mortgage, where one person moves into work from the equivalent of ESA/incapacity benefit.

Here we can see one of the most troubling parts of universal credit. For people with mortgages, the cliff edge where help with it is lost has been moved from 16 hours work to 1 hour. In other words, help with the mortgage is lost with the first hour's work. The loss of the disability element of working tax credit then compounds with this to leave a far less generous new system for someone starting work. At 16 hours work, under universal credit, the person is scarcely any better off in work. The person has to work 52 hours a week to be as well off as in the present system.

Case 3: a couple, renting, with three children, where one is a carer for the other, moving into work.

Admittedly, the present system does not excel at rewarding work here. The effective withdrawal rate for a carer moving into work is harsh, and universal credit does mitigate this after 16 hours work. But it's also considerably less generous overall, it leaves the carer irredeemably worse off than now, and it still contains a cliff edge where the carer's addition is lost at £150 earnings.

Case 4:  A lone parent, renting, paying £1.50 per hour child care costs for two children.

Lone parents have been mentioned a lot in criticism of the current system, but haven't so far featured in the government's own graphs. This is why. Universal credit is disastrous for people paying child care costs. This is because the current system disregards most of those costs from a person's earnings, but universal credit does not. The marginal % taper is now steeper than in the current system, and UC is less generous overall as well after 16 hours work.

Case 5: As above, but £4.80 per hour child care costs.

Once the child care costs go above £1.50 per hour, universal credit is now not just a disaster, but is actually so cataclysmic that work for a lone parent  above the disregarded amount of income is basically impossible. Net income plummets as more hours are worked.

Case 6: Single person with no children, renting, low paid work.

The objection could be made that Cases 1-5 are untypical. Perhaps they are, but they're not especially rare. Here we go back to a simpler situation, but this time a single person with no children. Again, it is very different from the poster child of Case 0.  Universal credit does reward work better than the present system for small amounts of work, but this gain is cancelled out by the loss of the 30-hour element of working tax credit. The marginal withdrawal rate is no better overall than the present system. As I observed in an earlier post, before looking at exact figures, this was inevitable because of the failure to integrate council tax benefit into the single taper. Typical marginal rates in UC remain at around 85%+.

Another thing that is notable is that UC officially uses monthly, rather than weekly rates. A cynic might think that this is to disguise how relatively ungenerous the rates are in many cases. The above graphs show it converted into weekly amounts.

Universal credit was a reasonable idea, but the way that's it's been designed in practice to act as a smokescreen for severe cuts, means it's is a disastrous system, built on a foundation of lies and spin, and the sooner it gets dropped, the better.