The introduction of a universal credit system lies at the heart of the substantial overhaul and reform of the benefits system by the Coalition. The Coalition’s initial White Paper 21st Century Welfare focused on ‘structural reform’ of the system and broadly speaking, the objective of Iain Duncan Smith’s aim is one that was once shared by New Labour in 1997 of aiming to ‘make work pay’ (making having a job financially worthwhile). Despite this consensual goal, the Coalition have argued that the welfare reforms put forward and implemented by New Labour created a complex system of welfare payments and fiscal transfers (tax credits). This meant that the overall system of claiming became deeply problematic which, in turn, led to financial incentives to work being undermined and an abundance of under payments and over payments. Iain Duncan Smith’s answer to these problems is that of ‘Universal Credit’, a scheme that vastly simplifies the tax and benefit system. Instead of having a conglomeration of individual payments given to claimants, the universal credit is a single set of entitlements made up of a merger between out-of-work benefits and tax credits (such as Job Seeker’s Allowance, Housing Benefits, Child Benefits and Child Tax Credits).
As well as a predominant simplification of the system, the universal credit alternative further provides financial incentives for employment as a way to ensure that ‘work pays’. Such incentives are seen in the withdrawal of income support at a ‘single, reasonable rate’ as a person finds work and begins to earn more, which ultimately leads claimants to be able to keep their allowances up until their employment stage is a better financial alternative. Moreover, the credit system implements tougher rules on claiming in order to incentivise employment; claimants will be sanctioned if they refuse work three times by losing their benefits for a correlative period of three months.
In conjunction to the impact of the system on social welfare, Iain Duncan Smith has argued that the credit system will save money in the long term by ‘reducing fraud and administrative costs’, claiming that system can reduce the £5m yearly sum paid out in fraud and error. As well as this, the universal credit will put forward a cap on credit for workless households where weekly credit will not be permitted to exceed the relevant cap (£350 for single person and £500 for all others).
Despite arguably commendable and thorough analysis of social welfare problems suffered under the previous government, it has been argued that Iain Duncan Smith’s proposed ‘solution’ of the universal credit will not work. Currently, many critics argue that the system is too great a simplification for a process that is highly varied and diverse. The universal credit system will be encapsulated in a large-scale computer system that will have the sole job of calculating a colossal number of benefits into single entitlements, leading many to question the capability of such a system and to criticise the ‘codification’ of eligibility for millions of claimants. In some ways the idea of a simplified benefits system is symptomatic of a Conservative ideological motive to shrink the state – exemplified in the criticism that ‘a service [such as the benefits system] that is based on knowledge will fail because the design is based on ideology’.
Moreover, as with most of the Coalition’s proposals in a range of departments, many have levied criticism against the creation of the universal credit system as simply being representative of an obsession with cost cutting. The effect of such cost cutting is significantly seen in the effects of the cap on credit for workless households in areas of London, who are currently experiencing large numbers of people moving into different areas due to lack of affordable housing following the cap. What’s more, the effect of these pre-emptive moves has caused many schools to experience great losses in student population.
There have also been queries raised as to how far the universal credit system actually goes in reducing complexity – its main selling point. Although the system simplifies numerous individual entitlements into single conglomerates, it also introduces different rates for single people, couples and varying age brackets as well as an increase in conditionality for claiming.The Labour party called on the Coalition, before the proposals were narrowly passed in 2011, to allow for universal credit payments to be more flexible for claimants. As well as this, Polly Toynbee criticised the Conservative notion of a universal credit system as illusive, arguing that its rhetoric is greater than its application and does not get to the root of social welfare problems. The Liberal Democrats, however, have supported the policy as it echoes the long running Lib Dem desire to integrate the tax and benefit system.
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