The row over Universal Credit is a reminder that reforming welfare is the toughest job in politics. The question, right now, is whether it’s too tough – and whether the government, distracted by Brexit and unable to defend its own successes, might give up on – or ‘pause’ – its flagship welfare reform.
The UK benefits system governs the lives of millions, and its failures meant that a million people were out of work for every one of the Labour boom years. We ended up with a system where those trying to move from welfare to work, or escape low pay, were keeping just 10p of every extra £1 they earned. And they were forgotten, written off as the ‘hard to reach’.
The history of UC is already been rewritten by the Corbynites, who have long wanted to portray it as the Tory Death Star. And if the shields of that Death Star are down, with no one defending UC and the flustered Esther McVey going to ground, then it’s time to attack. I just debated this on Radio 2’s Jeremy Vine Show with Grace Blakeley from the IPPR, the Corbynite think tank, who said UC is a response to the banking crisis and a means of cutting the welfare bill. A means for the Tories to punish poor people for the sins of bankers. So it is, perhaps, worth remembering how we got here.
UC is a response not to the crash but to a system where, at the peak of the Labour boom there were three million on out-of-work benefits, of whom a million didn’t work a day of the Labour years. Not because they were lazy, but because they were caught in a welfare trap – and written off as people whom it would be too much political trouble to help. A great many were on incapacity benefit, written off as never being able to work again. The economy would be grown by importing workers, and those on edge-of-town estates could be kept in the most expensive poverty in the world. Economically, this was viable. Morally, it was not.
But this was not a case of Labour being cruel: it was just a kind of negligence and a willingness to look the other way. The web of welfare is so tangled that policymakers cannot see, at the top, what life’s like at the bottom for those caught in the web. They see lots of schemes that are supposed to offer help and support. Towards the end of the Labour years, I met a No. 10 official who was coming close to devising a system that would show what the welfare system was like for people in various scenarios: lone working mother, couple on housing support etc. At the end of 13 years in power, they’d only just started to assemble the picture of welfare as seen by those for whom it was intended.
The second reason: reforming welfare is a political suicide mission. Any reform is likely to go wrong in parts, but with five million people affected then even a 0.1 per cent failure rate means tens of thousands of outrageous cases. Any one of which could be a massive political headache. Safer to leave it alone. The UK problem was people on ‘incapacity benefit’ judged to be unable to work, even though at least two-thirds of them could. But to address this problem meant assessing millions to see if they really were disabled: get that wrong, and then you get a Ken Loach film portraying you as heartless villains. Who’d risk that? When Tony Blair tried to reform welfare, he found disabled people chaining themselves to railings in protest. The visuals were toxic for him. It was a bigger battle than he had realised, and he retreated.
Then along came Gordon Brown with his new idea. From that moment, he’d reduce it to a spreadsheet exercise. He’d pay the Institute for Fiscal Studies to audit lots of survey data, then ask it to decide how many people were below an arbitrary poverty line (60 per cent of average income). So The IFS would be a major government contractor, giving its ‘independent’ verdict on the government. This was the new poverty game: announcing, every year, how many had been ‘lifted out of poverty’. And you could win this game by precision-bombing tax credits on those just below the poverty line, to move them just above it. Brown started with good intentions and a genuine desire to tackle poverty, became fixated with this metric.
This ignored the issue of in-work poverty, where someone working 16 hours finds that if they move up to 25 then they keep 10p of every £1 they earn because so many other benefits are means-tested. But Labour didn’t talk about this. Millions of people were caught in the trap and left there because no one cared. It’s a dull topic, the poverty of millions. I once ran a cover article about the welfare trap and newsstand sales bombed.
This poverty fatigue explains the poverty. Not many people want to read (or write) about it. No one campaigns about the welfare trap. It's an easily ignorable problem, and those caught inside it are also ignorable. So Theresa May will be tempted to think that just needs to ‘pause’ UC to make this all go away.
UC came about because of freak circumstances. In opposition, David Cameron did not propose it. Only in coalition, with his giving so much to Lib Dems, did he feel the political need to allow Tory radicalism: in welfare, and in education. In Iain Duncan Smith he had someone who knew it was a suicide mission, but volunteered for it. He wanted to reform welfare or die trying. He knew the high chances of failure and of institutional fatigue. He found in David Freud someone willing to make it happen in the Lords. So the Tories decided to grasp the third rail. The result of these various welfare reforms isthe fastest job creation that this country has ever known.
But the aim of Universal Credit was to take the 90 per cent tax (or marginal withdrawal) rate, and reduce it to 55 per cent. So people would keep at least 55 per cent of what they earned: a figure others can understand. But even when UC was in its infancy, George Osborne kept on raiding its budget. The in-work allowance was systematically raided. The 55 per cent withdrawal rate rose to 70 per cent and in some cases 80 per cent. By the time the Treasury had finished, UC had lost almost all of its economic purpose. A system designed to save lives was – is – reduced to saving money. And worse, UC will get the reputation of delivering welfare cuts.
The Treasury's constant undermining of welfare reforms - trying to turn them into a ever-sharper tool of austerity - led to the resignation of IDS. And just as no one really spoke about welfare reform before he came along, no one’s really defending it after he left. If McVey quits over Brexit then we’ll be on to our fifth welfare minister in two-and-a-half years. The average tenure of IDS’s successors will have been just eight months: not enough time to understand UC let alone explain and defend it.
But calls to scrap Universal Credit show the Westminster kneejerk response at its worse. The engine needs fuel, but it the machine works. And it's remarkable. With the right money it could be a huge tool of poverty reduction. But without the cash, UC will hurt the people it’s supposed to be helping - and will get the reputation as something that hurts. It needs £2 billion to £3 billion, and for Philip Hammond to promise that no one will be worse off as a result moving to UC. He can do it in his Budget at the end of this month. With the extra cash, UC would be demonstrably an improvement that hugely incentivises people to escape low pay.
Universal Credit is the most important domestic reform attempted since 2010, and a staggering technical achievement given the scale of the IT project and how many millions of people are involved. Its test-and-learn system is designed to self-correct. Properly funded it could be a welfare template for the world to follow. Badly funded, it will become a self-inflicted wound – one that John Major is already comparing to the poll tax. Do the Tories have the wit to avoid this fate? We’ll find out in next month’s Budget.