Universal Credit

Some observations on policy and politics

Alex Marsh School for Policy Studies University of Bristol

June 2013

Universal Credit: some observations on policy and politics1 Few people who have given it much thought disagree with the principles underpinning Universal Credit (UC). The aspirations behind the policy are commendable. The big question is: will it deliver? I want to make some observations under four headings: policy design, policy implementation, policy context, and political context. I want to make some fairly broad points. And I want to make some pretty specific points.

Policy design The idea at the core of Universal Credit is sound. The Government refers to the changes as seeking to make work pay. Reducing the complexity of the tax/benefit system, reducing some of the perversely high marginal deduction rates (MDRs) associated with the current system, and smoothing transitions in and out of work are all highly desirable. UC clearly removes many of the oddities and discontinuities that are caused by the unplanned interaction of the various components of the current system. Judged in its own terms it creates a system under which, broadly speaking, net housing incomes rise in meaningful amounts as earned incomes rise. That has got to be positive from the perspectives of work incentives. The Government is to be congratulated for trying to break with the rather ramshackle path toward ever greater complexity that our tax/benefit system has been pursuing for many years. There is genuine ambition in trying to disentangle the elements that comprise Universal Credit from the rest of the welfare system. Of course, in terms of policy design the move to UC creates new interfaces with policies in other areas. A good example is passported benefits. Free school meals have attracted most attention. But there are other benefits such as free prescriptions, free eye tests, or dental treatment that are also important. The challenge here is that these policies lie outside of the DWPs area of responsibility. While the DWP has indicated a willingness to work with other departments on the issues, there is a sense of handing the problems over to others to sort out. There is a real danger that failure to integrate passported benefits effectively with UC will result in the recreation of so-called cliff edges for certain households. That is, regions of the income distribution over which, even though earned income rises, net household income effectively falls sharply. A significant area of policy change is the sanctions regime. Sanctions designed to incentivise compliance with prescribed regimes of job search exist in the current system. But these are going to be cranked up under UC. All applicants will be required to sign up to
This is the text to accompany my presentation to the seminar Universal Credit: Is it the answer? at the Office of National Statistics, Newport, 18/06/13.
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a claimant commitment. There will be several levels of sanctions for failing to comply with this commitment, calibrated to the nature of the offence up to and including suspension of core UC for three years for repeat offenders. Where the applicant household is a couple both partners are required to sign up to the claimant commitment. If one partner signs and the other refuses then the household is not going to receive UC. There has been plenty of debate over that proposal, but the Government hasnt really changed its position on the issue. The other major change around sanctions is the arrival of in-work conditionality. Benefit conditionality is something we typically associate with out-of-work benefits as the government tries to incentivize people back into active labour market participation. Under UC sanctions will for the first time be applied to working households who are deemed not to be working sufficient hours and not exerting themselves sufficiently to increase their earnings. Concerns have been expressed over households receiving benefit as a single payment. At the moment if the payment of one of your benefits fails, for whatever reason, it does not necessarily affect receipt of the others. You are not left destitute. However, with everything in one payment if the UC system fails then you are going to be left with no money. Other key areas of the new system that have generated major concerns include: benefits being paid monthly rather than more frequently; assistance intended to cover housing costs being paid to the tenant rather than directly to the landlord; and the presumption that the service will primarily be delivered digitally. The Work and Pensions Select Committee spend quite a lot of time discussing these issues towards the end of 2012. They are all features that make the system more challenging for vulnerable households. The Government has indicated that there will be measures to protect vulnerable households, such as mechanisms to trigger the switchback of housing payments direct to the landlord. But it has declined to define vulnerable and is working on the assumption that these mechanisms will be needed relatively rarely. The argument for using this delivery structure for UC is that as far as possible it mimics the sorts of structures households will encounter in the world of work. A more detailed issue of policy design is the way in which the Government is using legislation, regulation and guidance. UC was brought into being by the Welfare Reform Act 2012. But the legislation left plenty of detail to be filled in. Some of that detail is being filled in through issuing regulations. The Government is leaving some of the details to be filled in with guidance. There have been concerns among advice agencies or charities working with vulnerable people that this will be to the disadvantage of vulnerable people in terms of enforcing rights, because the legal status of guidance is rather different from that of regulation.

Policy implementation Right from the start the timetable for implementing UC was recognised to be ambitious. Viewed from a different direction we might say that the whole process has been rushed. As a consequence, rather than the Government nailing down every aspect of the system before moving to implementation some of the key elements of the scheme are emerging as we go along. The DWP has established an infrastructure of learning. It has carried out various pieces of research on how the new system would be received by service users. It has set up pilots of various types in various areas. But the question is what it is learning from these pilots. Some of the pilots are testing policies and procedures that are not directly comparable with anything that is going to happen under UC. Some elements of the system appear nonnegotiable: even if the pilots suggest that these elements arent entirely wise that doesnt mean they are going to change. The Department regularly uses the mantra prove before we move to suggest that the process of development is intentionally incremental. The system is piloted first on a small number of simple cases. Then it is expanded to take in more, and more complex, cases. And so on. In the process issues and problems are identified and solutions developed. This process is contrary to the recommendation of the Work and Pensions Select Committee, who were concerned that it is difficult to raise awareness of the system among service users if were not yet entirely sure how the system will work. But, on the other hand, it is a legitimate way to go about development. The implementation of UC has some crucial dependencies. One is that it relies on the success of a prior IT project under development in HMRC. The new system is going to provide Real Time Information under PAYE and allow changes in earnings to be detected rapidly by the benefit system. This RTI feeds directly in to the calculation of UC. The HMRC project is already underway and is proceeding on an incremental basis similar to that used for UC itself. The RTI pilots are quite well advanced and the Government is confident more confident than some of the critics that it will be up and running on a comprehensive basis in time for the launch of UC. Then there is the ICT needed to run UC itself. There have been plenty of stories in the mainstream media about the problems with its development delays, staff departures, developers stopping work. It became known a month or so ago that the MPA rated the project red/amber at risk of not delivering. The Government responded by saying that this status referred to the situation in mid-2012 and that everything was now on track. One might observe that if you look back at what the DWP were saying publicly about the project in mid-2012 they were

insisting that it was fully on-track and rumours of problems were unfounded. So I think scepticism regarding current claims to satisfactory progress would be fully justified. For UC to calculate benefit entitlements correctly it will require timely information on a monthly basis from small business owners and self-employed households, as well as accurate notifications of change of circumstances from all claimant households. The information burden is quite significant. Given claims backdating will not be possible, there is a premium on getting it right first time. Non-compliance could result in chaos. How this will play out in practice is yet to be fully worked through. Different people will be expected to provide information. People will have to provide information in different ways. Successful implementation is going to require a considerable amount of communication, as well as the provision of advice and support services. Many major policy or organisational changes are under-communicated. As a result many people dont realise what is happening, even as it is happening to them. This matters a great deal. The impact of the new system on work incentives or labour market participation is going to be zero if people dont recognise that the system has changed or how the new system works. My feeling is that not enough effort has yet been put into explaining the changes that are coming. That may, in part, be because the parameters of the new system are yet to be finalised. The DWP points out that information is available on gov.uk. But that rather begs the question. There is now talk of toolkits for delivery partners. These are presumably so that others can do the DWPs work for it. Unless things change significantly in the near future, my feeling is that the move to UC is going to be under-communicated. And that way lies not just confusion but unfairness, as people miss out on what they are entitled to. One of the most important but perhaps under-explored - characteristics of UC is the role of what Lipsky referred to as street-level bureaucrats. The system will allocate a lot of discretion to those working on the frontline. There is not only a degree of discretion when a claimant commitment is drawn up, but also over whether or not it has been breached. That is perhaps no different in nature from existing systems, but that discretion will feed through in new ways to the sanctions to be applied. There is also discretion over, among other things, assessing when someone is too ill to be expected to comply with an agreed claimant commitment. And there is discretion over whether, for example, lone parents are considered to be exerting themselves sufficiently in pursuit of work. The credibility of this system will hinge on how these discretions are exercised. Many commentators, including the relevant Select Committee, are concerned that the system opens up the scope for unfairness. And because some key features are laid down in 4

guidance, rather than legislation or regulation, the chance of challenging unfairness is more limited.

Policy context The switch to UC is an ambitious move in itself. But, of course, it is happening during a period of turbulence and change across all policy sectors. The broad context is one of attempted fiscal consolidation. Local authorities are taking a significant hit in terms of front-loaded cuts. These cuts are impacting upon the resources available for benefit administration. But they also impact upon resources available for support, advice and information giving. And they are having important impacts elsewhere: for example, more public libraries are starting to charge for use of the internet, just when DWP is expecting more poor people to be accessing services online. The drive under UC to responsibilize tenants over issues like payment of rent is potentially in tension with other policy goals. Social landlords need a steady and predictable stream of income in order to meet their loan repayments and conform to their loan covenants to private lenders. For the last twenty years housing benefit has played a key role in giving lenders assurance that those income streams are reasonably secure. If UC leads to ballooning arrears then it could lead to the flow of development funding drying up. When the bigger picture is a chronic shortfall in housing supply this is not good news. The Direct Payments Demonstration Projects have shown that arrears increase after a move to UC, but that damage limitation is possible if a lot of extra resource is put into arrears management and supporting tenants. This level of support is unlikely to be available everywhere. So arrears are likely to grow. This potentially has all sorts of ramifications. Housing benefit is being absorbed into UC. In contrast, not only the administration but also the design of systems for council tax benefit are being localised. This opens up the possibility that some of the work done under UC to remove cliff-edges and high MDRs is undone through the interaction with local council tax benefit systems. Similarly the successor to the Social Fund is being localised, but not ring-fenced. Access to support for cases of severe hardship is being reduced. If something goes wrong with UC in a major way local authorities will have limited scope to assist households who are potentially left destitute. The broader economic context tends to be rather neglected in the discussion of UC. Changing the benefit system may remove the supply side disincentives to labour market participation, but that is not the same thing as saying that labour market participation will increase. We need to keep the issue of labour demand in view also. The DWP may refer to the fact that sanctions can move people off benefit, but that is not necessarily the same as 5

moving people into work. Or, rather, it is not the same as moving them into work in the formal economy. Also, there is not, to the best of my knowledge, good evidence that sanctions alone however severe are an effective mechanism for getting people to re-engage with the labour market. Sanctions can work as part of a broader package which is geared towards supporting people to be work ready, for when there are jobs available. But without the broader package sanctions are just a means of punishment. A real concern is that, for all the policy statements that make positive noises about support and advice being really important, when it comes to the crunch the resources will simply not be there, or not be sufficient, to provide the necessary support.

Political context The major dimension of UC that has yet to attract sufficient attention is, in my view, the issue of in-work conditionality. As Ive said previously on my blog, this could turn out to be a major political problem. There are many households who are unable to secure full time work. They are doing the best they can by taking on part-time work, which is all that is available to them. As far as they are concerned they are strivers seeking to do the right thing for their family. It is those other people on benefit sitting at home all day doing nothing who are the skivers. Yet, under UC these strivers will discover that they have been relabelled by the Government as skivers. Theyre not trying hard enough. They should be doing better. They deserve sanctioning if they dont put in more effort to improve their circumstances. There is something of the order of a million households in this situation. If UC is administered in such a way as to lead such households to reject the prevailing political narrative of welfare failure then that could change the political dynamic considerably. But that outcome turns on an if. It turns on how the UC system will be administered. And that is a bigger and my final point. The key to whether UC delivers - to whether it is seen as an improvement on our existing, very imperfect, systems - is the spirit that animates the system. One can imagine a future involving an under-funded, punitive welfare system in which poorly-trained Job Centre Plus staff are driven by targets to minimise the time spent with each service user and the little time available is not used particularly effectively. They sanction as many people as possible in order to save public money. Services users are not

treated supportively or with respect; few people are assisted to re-engage long-term with the labour market. But plenty of people disappear from the system into the informal economy. Or one can imagine a future, based on the same set of regulations and guidance, that delivers a supportive system staffed by well-trained advisors who recognise the complexities of peoples lives and start from the premise that the vast majority of people are trying to do the best they can in difficult circumstances. Such a system is respectful of service users as individuals. It is willing to be compassionate and take full account of the challenges households face. It sanctions sparingly and as a last resort. It is successful in supporting as many people as possible to return to active labour market participation. Ill leave it to you to decide which of those futures you think IDS and his gang are most likely to deliver.

About the author Alex Marsh is Professor of Public Policy at the University of Bristol. He has been Head of the School for Policy Studies since 2007. Alexs research and writing has encompassed a wide range of topics in the fields of housing studies, public policy and regulation. Between 2005 and 2009 Alex has been managing editor of Housing Studies, the leading international academic journal in the field. He continues as a member of the journals Management Board. Alex worked part-time as a Visiting Academic Consultant to the Public Law team at the Law Commission between 2006 and 2010. His work with the Commission addressed compliance issues in the private rented sector and systems of redress against public bodies. From 2004 until 2012 Alex was a trustee of Brunelcare, a Bristol-based charity providing housing, care and support for older people. For six years he chaired Brunelcare's Audit and Scrutiny Committee.

www.alex-marsh.net

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