Labour policy to reform and replace Universal Credit

It has been announced that Jeremy Corbyn MP, Labour Party Leader, will today outline a Labour policy to introduce “emergency” reforms to Universal Credit with the intention of developing a new social security system to replace it altogether.

Robert Joyce (IFS) and Tom Waters (IFS) provide comment and analysis below.

They find that:

· The proposals specified today would, compared to current policy plans, top up the incomes of a significant number of low-income households – in some cases by £1000s per year. They do not, however, amount to anything close to a scrapping of universal credit. If that is ultimately the intention then we have yet to hear anything about what that would mean.

· The part of the package announced today that would have the largest direct impacts on household incomes are in fact nothing to do with the universal credit reform per se. The two-child limit and overall benefits cap are benefit cuts that took effect under the old benefits system and are simply being carried over into universal credit. Irrespective of whether universal credit continues, those cuts could be maintained or reversed.

· Reversing the two-child limit in means-tested benefits would mean that, in the long run, about 700,000 households with children would be better off than they would otherwise have been, by an average of £3,000 per year – implying a cost of about £2bn per year. This is not to say that all those households would “immediately” benefit. It is a cut that is being phased in gradually as families have additional children. Hence, many of those 700,000 families gain in the sense that they will in future have an additional child and at that point will have more money under Labour’s plan than under the current government’s plan.

· Abolishing the benefits cap would benefit approximately 100,000 working-age families by an average of roughly £2,000 per year, costing around £200 million per year. The winners would be mostly people with several children or high housing costs, or both.

Labour has also announced changes specific to universal credit. These include an additional payment at the beginning of people's claims, to counter concerns that people are waiting for too long to receive their first payment; a switch to fortnightly rather than monthly payment frequency; paying the housing component directly to landlords; and splitting payments to couples between bank accounts rather than paying it all in to one bank account per family. These would make a real difference to some families. Nevertheless, while they constitute (potentially important) tweaks to the system, they are nothing remotely akin to scrapping it.

If the longer term intention is really to scrap universal credit entirely, this would effectively be a commitment to re-design the entire working-age means-tested benefits system for the second time in a decade. There are so many ways to design a benefits system that it is impossible to appraise this idea properly until we know something about it. Even before that, two points are important to appreciate.

First, the upheaval involved would be huge. 2.4 million people are already on universal credit, and this number is increasing every month as the old system is already unavailable to new claimants across the whole country. The complexity of replacing universal credit with something else is likely to be more similar to the complexity of introducing universal credit itself than to any other benefit reform in living memory.

Second, it would be important to know not only how Labour would address the concerns with how universal credit has been designed and implemented, but also whether - and how - it plans to pursue the laudable goals that were behind universal credit's introduction in the first place. There remain very good reasons to want a more integrated benefits system to replace the complex, confusing and disjointed patchwork of support that we have had up until now.

Tom Waters, IFS Research Economist, said:

"The proposals announced by Labour today would, compared to current policy plans, top up the incomes of a significant number of low-income households – in some cases by thousands of pounds per year. They do not, however, amount to anything close to a scrapping of universal credit. The more substantial changes announced are benefit giveaways not related to universal credit per se, while the changes which are specific to universal credit are - potentially important - tweaks to the system, rather than anything approaching its abolition. If the longer term intention is really to scrap universal credit entirely, this would effectively be a commitment to re-design the entire working-age means-tested benefits system for the second time in a decade. There are so many ways to design a benefits system that it is impossible to appraise this idea properly until we know something about it."

Notes to editors

1. The Labour announcement on these policies can be found here: https://labour.org.uk/press/corbyn-labour-will-scrap-universal-credit-immediately-lift-300000-children-poverty/
2. IFS researchers and Director Paul Johnson are available to comment and for interview. Please contact Bonnie Brimstone 07730 667013 / @email if you have queries.