Universal credit will sort out the muddle of our benefit system

Despite last year’s furore over proposed cuts to tax credits for the low-paid, plans for the most radical reorganisation of the working-age benefit system in decades roll on. They will affect more people than almost anything else this government does. Despite the apparent U-turn in the autumn statement, which saw immediate cuts to tax credits dispensed with, plans to cut in-work benefits in the longer run have not changed one jot since they were announced back in July.

But what the government is doing is not just a cut, it is a genuinely radical reform. It will create a lot of winners as well as losers. If the changes can be delivered they will clear up some of the most egregious complexities and disincentives that our benefit system has imposed for far too long.

The seven million families who would otherwise be entitled to a bewildering combination of six means-tested benefits will deal with only one. This integration should make life easier for claimants. They won’t have to move off one benefit on to another as circumstances change, and won’t have to deal with three government agencies to claim.

Imagine a world in which you tripled the forms you had to fill in to pay income tax, and started paying to a whole new authority with a new set of rules every time your income crept above a certain level. That’s what we impose on poorer families.

We also impose some remarkably perverse and damaging disincentives. More than two million people get to keep less than £3 in every £10 that they earn when they move into work, as benefits are withdrawn. More than half a million people who are in work get to keep less than 10p of any extra pound they earn as a result of a pay rise or finding a better-paid job.

Universal credit should cut by two thirds the numbers keeping so little as they move into work. Nobody should get to keep less than 23p in every extra pound earned. That doesn’t sound great, and there are groups such as lone parents whose work incentives will be weakened, but overall it should represent a real improvement.

The sheer scale of change has meant that the path to universal credit has been long and treacherous. But the prize is real, and this change goes well beyond saving money and creating winners and losers.

Those dependent on benefits deserve a system better than the one we have. There is no denying the risks and problems. But the introduction of universal credit, if managed properly, might just provide the basis for that better system.

This opinion piece was first published by The Times and it is reproduced here in full with permmission.