Will Universal Credit ever become universal and will the lowest paid still face an effective tax rate of a sometimes outrageous 76 per cent? Iain Duncan Smith took a grilling over his plans for welfare reform on the Sunday Politics today, but didn’t give a clear answer to either of these questions regarding his reforms.
Firstly, on the progress of implementing Universal Credit, the Work and Pensions Secretary claimed that ‘Universal Credit is already rolling out and the IT is working’, despite just 6,000 people currently on the ‘Pathfinder’ stage. In his initial plans, a million people claiming six existing working-age benefits were due to be on the Pathfinder stage by April 2014. IDS said it was his decision to slow down the roll out:
‘I changed the way we rolled it out over a year and a half ago. There was a reason for that. Under the advice from someone from the outside, he said you’re better off Pathfinding this out, make sure you learn the lessons, roll it out slower and gain momentum later on.’
He also sparred with Andrew Neil on how much money has been wasted on Universal Credit so far. The Public Accounts Committee reported £140 million has been written off, whereas IDS claimed this is only £40 million, plus general depreciation costs. In comparison to the private sector, IDS pointed out ‘IT programmes write off 30-40 per cent because that’s the nature of such projects’. He may be right but more scrutiny is to be expected with taxpayers’ money.
When will UC be finished? IDS said he expects everyone claiming the six existing benefits to be on Universal credit by 2016 — assuming the next government doesn’t abandon the project — but it will not entirely universal until 2018; eight years after the implementation of the project began. As UC will affect millions of people, this may not seem unreasonable but it’s a significant delay on the initial time scales.
But how much better off will claimants be under UC ? Noting that some people are paying an effective 96 per cent marginal tax rate, it was put to IDS that this would only be 76 per cent under Universal Credit. He claimed this was due to the ‘withdrawal’ rate’ set by the government:
‘For lone parents, it would be 76 per cent if they were in the tax bracket…Some of the poorest people in this land will pay over 100 per cent back in some cases under the present system. The 98 per cent is a specific area due to lone parents, but there are some compound processes inside the present benefits system that mean that people are worse off going into work than staying out of work. This will make a big difference, they will be better off and they will be able to identify how much better off they are without a maths degrees.’
So, IDS is right in saying that some of the poorest people will be better off but in some cases not significantly so. It’s fair to wonder whether the years of effort and millions spent are worth it, to see some paying a 76 per cent marginal tax rate. At the 2009 Tory conference, David Cameron was outraged at such tax rates, but not enough it seems to do anything about it in five years.
But the Welfare Secretary summed up his belief in the project; that the pathfinder stages have shown ‘people are going to work faster, they’re doing more job searches and they’re more likely to take work under Universal Credit’. Let’s keep our fingers crossed that he’s right.