Universal Credit Work Allowance

Stephen Timms Excerpts

Wednesday 6th January 2016 Commons Chamber

[The Parliamentary Under-Secretary of State for Disabled People (Justin Tomlinson)]

I join the shadow Secretary of State in wishing everybody a happy new year. I am sorry that I am not the person with whom he wished to have this exchange, but this is a real area of passion for me. My background, my school, my work and starting my own business mean that I understand opportunity, which all too often is not a given in society. The changes that have helped shape my journey into politics are integral to why we need to reform the welfare state. That is absolutely key.

[Stephen Timms (East Ham) (Lab)]

Given the background that the Minister has set out, he will well understand why it would have been a mistake to go ahead with the tax credit cuts that were U-turned before Christmas. Why then are the Government going ahead with precisely those cuts for people whose only mistake is to have the misfortune of receiving universal credit instead of tax credits?

[Justin Tomlinson]

That was a very early intervention and, to be fair, I need a little time to expand my argument, which will address those points. An element of patience is needed; I know that we all needed it last night with the late sitting and the reshuffle news. A key point about tax credits was that people argued that all the changes needed to be phased in, and I will set that out.

The welfare system we inherited was simply not working. It was not supporting people to get into work, to stay in work and to progress in work. People were left with unfulfilled potential, languishing on benefits, with little or no incentive to work or to progress in work, and opportunity was stifled. Opportunity should be a given; it should not be stifled.

The truth is that our welfare system had become distorted and complex, as we all know from our casework with residents. Too often, residents were missing out on the benefits they were entitled to because they could not navigate something so complex. All too often, the system firmly shut the door on opportunity, because it paid more to be on benefits than to be in work. We all know that, and the electorate—hard-working families—were quick to remind us of it.

Let me be clear that I say that with no disapproval for those who claim benefits. The system itself was to blame, which is why we undertook to reform it. Our aim was and continues to be to create a system that extends opportunity and ensures that work always pays, moving Britain from a low wage, high welfare, high tax society to a higher wage, lower welfare, lower tax society. It is a common-sense approach, creating a system that is fairer to the taxpayers who face an ever-increasing bill and delivering a welfare system that is sustainable for our country but that, crucially, protects the most vulnerable.

Let me remind the House that welfare spending on people in work rose from £6 billion in 1998 to almost £28 billion in 2010.

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[Stephen Timms]

The Minister said in response to my earlier intervention that there were to be transitional arrangements, but the trouble is that people receiving universal credit will get the full cut in April this year. They are going to be clobbered.

[Justin Tomlinson]

I gently remind the right hon. Gentleman that I shall be going into those details later, so he needs to have just a little more patience.

Crucially and uniquely, universal credit stays with claimants when they enter work until their earnings reach a certain level or until they can support themselves. That gives them the confidence to start a job without having to go through the bureaucracy of changing their benefit claim. Universal credit is not just about IT or streamlining bureaucracy, as it is often portrayed. It is about people having a single point of contact with a work coach who provides personalised support, advice and guidance. This is where universal credit comes into its own, and this is the bit that I am really passionate about.

In life, we are all confident individuals and when we are faced with challenges it is a given that we can normally take them on, but that is not the case for everybody. We are now giving people a named personal contact to help them to deal with their individual case when they are navigating complicated benefit systems. That work coach will be by their side helping them to develop their role when they first get their foot in the door. They will not simply say, “We wish you all the best now you’ve got a job”. They will help them to make progress and develop their role. They will help them to seek and secure more hours, and to develop the skills and confidence to progress through the grades. In other words, universal credit will not only support people to move into a job; it will also help them to build a career. It will break the cycle of dependency and create opportunities.

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[Owen Smith]

rose—

[Stephen Timms]

rose—

[Justin Tomlinson]

The hon. Member for Pontypridd has had his turn. I give way to the right hon. Gentleman.

[Stephen Timms]

I think we have now got to the appropriate point in the Minister’s speech. Does he acknowledge that the 50,000-plus working people who are today receiving universal credit will see their benefits sharply cut in April?

[Justin Tomlinson]

I will come on to those specific people—[Interruption.] In the overall numbers, it is the vast majority—[Interruption.] I am going to make some progress.

We have to see the bigger picture. A lot of the analysis that has gone on is static. Even the Institute for Fiscal Studies, which I know a lot of hon. Members will refer to, acknowledges that it is a static analysis. Universal credit is not a stand-alone measure. It is part of our wider, dynamic package of reforms to support families in work and to make sure work pays. We are raising the personal allowance to £11,000 for the next tax year, saving the typical taxpayer over £900 a year, and we have pledged to raise it to £12,500 by the end of this Parliament. The national living wage will come into effect from April. That will directly benefit 2.75 million people and it is forecast to reach over £9 an hour by 2020. That might upset Opposition Members who campaigned for £8 an hour, but we felt that that did not go far enough.

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[Stephen Timms (East Ham) (Lab)]

I think that universal credit is a sensible idea. It has potential to make the system simpler and in particular to make it clearer to people what their financial position will be if they move from unemployment into work. We have always said that the idea is sensible. It is not a panacea—Ministers frequently tell us it is a solution to the problems, even though it is not—but it is a helpful step.

The delivery of universal credit, however, has been a shambles. It went very badly wrong right at the start. Ministers accepted terrible advice about how long it was going to take. Page 34 of the July 2010 Green Paper, “21st Century Welfare”, stated:

“The IT changes that would be necessary to deliver”

universal credit

“would not constitute a major IT project”.

How anybody persuaded themselves that replacing the entire benefits system was not going to constitute a major IT project is beyond me, but that was the naivety that underpinned the leadership of the project at the outset.

Warnings from Labour Members and others were cheerily waived aside and it was not until September 2013, when the National Audit Office first reported on the issue, that some shafts of light were trained on what was really going on. The NAO said that

“the programme suffered from weak management, ineffective control and poor governance”,

and it was absolutely right.

[John Glen]

Does not the right hon. Gentleman agree that, during his distinguished spell in government, a considerable amount of taxpayers’ money was wasted on IT projects and that, as of now, those lessons have been applied and significant, incremental progress is being made in the delivery of this important reform?

[Stephen Timms]

Unfortunately, we were told in 2010 that the lessons from all those problems had been learned and that things were going to be different, and that is true, because now we have not one, but two major IT projects for universal credit—the live service and the digital service—both under way in parallel. No one has yet told us when those two different systems will be brought together, and undoubtedly large sums of money are being wasted.

I want to spend a couple of minutes addressing the question of just how far behind schedule universal credit is now. If the Secretary of State had spoken at the beginning of this debate—as he should have done, as my hon. Friend the Member for Pontypridd (Owen Smith) correctly pointed out—he would have told us that it was on track, because that is what he always says. The Office for Budget Responsibility, however, pointed out at the time of the autumn statement that the project has been

“substantively delayed on at least three separate occasions”,

so just how far behind is it?

When the project started, we were told that transition to universal credit would be complete by 2017—an absurd claim, but that is what was said. Back in 2012, the belief was that transition would take five years from that point. Having failed to deliver on that date, Ministers have refused to announce a revised date; it is a question, I think, of once bitten, twice shy. The autumn statement, however, indicated that the Government now expect—the hon. Member for Banff and Buchan (Dr Whiteford) was correct to make this point in her speech—the roll-out to be completed by 2021. Therefore, exactly as in 2012, the Government in 2016 now expect the roll-out of universal credit to take another five years from that date. The completion date has gone back four years in the last four years.

Is it unfair to allege, therefore, that universal credit is running four years late? Let us look at a couple of other milestones, not just the completion date. On 1 November 2011, the Secretary of State published a press release that said:

“Over one million people will be claiming Universal Credit by April 2014 Work and Pensions Secretary…announced today”.

April 2014 was nearly two years ago and 1 million people are not receiving universal credit; the latest figure is 155,000. The OBR now expects that the figure will be 1 million by April 2018, so that milestone is also four years late.

Let us look at another example. On 24 May 2012, the Secretary of State announced in another press release— I always used to read them avidly—that

“all new claims to the current benefits and credits will be entirely phased out”

by April 2014. Again, the Department has not been willing to announce when it now expects all new claims to the existing benefits and credits to be phased out, but in a very helpful note, to which my hon. Friend the Member for Pontypridd referred in his opening speech, the House of Commons Library has worked out, by reading between the lines of opaque statements by Ministers, that new claims for legacy benefits are expected to be closed down by June 2018. That milestone is a bit more than four years late compared with what we were originally told. We can confidently say, therefore, that universal credit is at least four years late. It will undoubtedly slip further and I am equally certain that the Secretary of State will continue to tell us that it is on track.

The management has been a shambles and we have still not been told about key outstanding policy issues. Which recipients and claimants of universal credit will be entitled to free school meals for their children? We have been waiting for an answer to that question for more than five years, but we still have not been told. It makes an enormous difference, because the answer we expect the Government to give will introduce a huge new cliff edge to the social security system. It will be far worse than anything in the prior system, even though the whole point of universal credit was to get rid of such disincentives.

I want to pick up on the points so well made by my hon. Friend in his opening speech about the way in which the changes to universal credit since it was first announced are undermining so fatally its objectives. In the early debates, the Secretary of State used to make a lot of the fact that universal credit was going to cost more than £2 billion more than the previous system, but that is not true anymore—it is now going to cost £3.7 billion a year less. That has been done by eroding the work incentives that were supposed to be the whole point of doing it in the first place.

The whole House has accepted that it would have been wrong to go ahead with the tax credit cuts, which would have had a huge impact on and reduced the incomes of working families on modest incomes. There would have been a reduction of £1,000, £2,000 or £3,000 a year for those with a household income of £20,000 a year. The whole House accepts that that would have been wrong, and yet the Government are going ahead with precisely those cuts for the relatively small number of people—there are, I think, 50,000 of them at the moment—who are in work and claiming universal credit. If we have all accepted that it is wrong to impose such draconian cuts on the incomes of working families who are claiming tax credits, why is it right to go ahead with precisely the same cuts, which will have a huge impact, to the incomes of working families in receipt of universal credit? I intervened to ask the Minister that question three times. Each time he told us that he would come to it later in his speech. Unfortunately, he never got there. If he is able to explain to us how that can be right, I hope that he will do so.

My hon. Friend the Member for Pontypridd is right to say that all the way through the process of universal credit, we have been told that there would be transitional protection, yet this group of 50,000 working people, who are already receiving universal credit, will suffer enormous cuts in their incomes in April because of the changes to the universal credit work allowance. That cannot be right and the Government need to change their mind.

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[Mr Vara]

I will not give way, as I have limited time available and I am keen to address as many of the points raised as possible. We have turned that situation around. Our reforms, the centrepiece of which is universal credit, are working and are getting people back into work.

[Stephen Timms]

Will the Minister give way?

[Mr Vara]

I will make an exception for the right hon. Gentleman.

[Stephen Timms]

The Government are not going ahead with the tax credit cuts, so why is it right to go ahead with precisely the same cuts for the minority of people who have the misfortune to be claiming not tax credits but universal credit?

[Mr Vara]

It is important that the right hon. Gentleman and others take into account the need to consider the broader perspective: the raising of personal allowances; the introduction of the new living wage; the doubling of free childcare to 30 hours; tax-free childcare from early 2017; and, let us not forget, the fact that every time we fill up our tank with petrol there is a saving of £10 because of the freezing of the fuel duty. It is important to consider everything in a broader perspective, not the narrow perspective that we have heard from so many Opposition Members.

A number of speeches have been made today and, unfortunately, time simply does not allow me to address them all. I shall simply say that the right hon. Gentleman made a passionate contribution. I have huge respect for him and I am sorry that he is no longer on his party’s Front Bench. May I also pay tribute to my hon. Friend the Member for Hertsmere (Oliver Dowden), who made a learned contribution, clearly setting out the reasons why Labour’s proposals are simply not sustainable? My hon. Friend the Member for Lewes (Maria Caulfield) made a powerful contribution, telling us of her experiences growing up, which had the whole House in agreement with her.

This is an important subject and we need to recognise that the IFS has pointed out that no one on existing benefits or tax credits whose circumstances remain the same will lose out in cash terms as a direct result of being moved on to universal credit. These claimants will get transitional protection to avoid cash loss at the point of change. It is important to note that the only people who will be directly affected by the change to work allowances in April will be those already in work, the majority of whom will be single claimants without dependants. [Interruption.] The shadow Work and Pensions Secretary chunters away, but we have checked the Hansard record and found that he was wrong and we were right. Conservative Members await a withdrawal of his earlier comments, which we debated. We have checked Hansard and he should do likewise. For those people who are affected, we have been careful to put measures in place to ensure that they are fully supported. As well as the additional work coach support that these claimants will receive, we have increased the amount available through the flexible support fund to help people progress in work and increase their earnings.

Universal credit is a major reform of welfare that is designed to make sure that work always pays. Through the removal of the requirement to work 16 hours per week that exists in the tax credits system, people will see a financial benefit from every extra hour they work. The universal credit taper means that financial support is withdrawn at a consistent and predictable rate, helping claimants to understand clearly the advantages of work. The IFS has said that anyone being moved on to universal credit from tax credits will be protected—they will not be cash losers. Opposition Members need to take that on board—that comes from the IFS.