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Coffee House

Universal uncertainty

5 October 2012

1:15 PM

5 October 2012

1:15 PM

Brushing aside recent criticism of his universal credit scheme, Iain Duncan Smith claimed that nothing now ‘demoralised’ him. After surviving two years of gruelling denigration as Conservative Party leader, he can perhaps be taken at his word. Yet the line between a thick skin and complacency is a thin one. For all the sniping from opponents, the Work and Pensions Secretary would be wrong to ignore the very real threats that confront his flagship scheme.

One of the more striking aspects of Universal Credit which has so far failed to make the headlines is that from April 2014, financial support for people already in work will become conditional rather than automatic, just as it is for jobseekers today. What this will mean is that anyone claiming Universal Credit and taking home earnings of less than a full-time working week on the minimum wage (around £210 a week) will be required to actively seek to increase the hours they work, negotiate a higher hourly wage with their employer or find one or more extra jobs to make up the shortfall.

A briefing published today shows, for the first time, how many people will be affected. It estimates that under Universal Credit around 1.2 million individuals who currently claim tax credits will be subject to this new ‘in-work conditionality’. These people – who are in work and do not think of themselves as benefit recipients – will suddenly have to prove that they are looking and preparing for extra work. If they can’t, they risk an (as yet unknown) range of penalties.

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The government is clear that some kind of conditionality system for working claimants is essential. The reason is that Universal Credit abolishes the current requirement for people to work a minimum of 16 hours per week to qualify for Working Tax Credit. Under Universal Credit claimants will be able to access financial support for working even a handful of hours. The laudable aim is to make work – of any amount – pay. Yet in doing so the new system introduces a clear incentive to work a small number of hours and claim large amounts of support; hence the need to actively compel claimants to take on extra work in order to reduce the costs to government.

Officials recognise that working claimants with earnings above a certain cut off should not face the stringent conditionality regime that will apply to the unemployed – not a difficult conclusion to arrive at when there is no sign of any extra funding to cope with an effective doubling of the JobCentre Plus caseload. But everything points to the fact that some form of regime will also need to apply to those working Universal Credit claimants earning above this cut off but below the new earnings threshold of around £210 per week. The problem is that the government – in fact everyone – have very little idea of what mix of carrots and sticks is appropriate for these individuals.

A light-touch conditionality regime seems like the obvious choice. Yet even if a less-stringent system is devised for the bulk of claimants already in work, it is far from obvious how it can be funded and, more importantly, whether it can be made to operate in a fair and consistent manner. A poorly resourced, watered-down conditionality regime – probably built around an online system of registration and checks – runs the risk of either failing to provide the quality of employment support and advice needed to help people progress or lacking robust enough penalties to ensure working claimants to take on extra work when available. Either deficiency, as officials are no doubt fully aware, could soon lead to escalating costs.

In-work conditionality was always going to be difficult. It has never before been tried and no evidence base exists that might provide the blueprint for effective system. It’s likely that DWP officials have a blank sheet of paper and a startling array of options before them. Yet with little over a year until the system goes live, the working people that will find their present automatic entitlement to financial support subject to new conditions deserve to receive a clearer idea of where they stand.

Matthew Pennycook is a senior research and policy analyst at the Resolution Foundation.

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