During the Coalition, the Liberal Democrats and I supported the concept of Universal Credit (UC) because, at its heart, was the fundamental principle of making work pay. There were concerns around other elements but the UC’s original focus on employment, described by the OECD as being better than a basic income, as it “would consistently improve work incentives” was a clincher for me.
And a crucial part of this incentive was the Work Allowance. This is the maximum amount a UC claimant can earn through employment, before their benefit payments are reduced. However in the Summer 2015 budget, with the Lib Dems no longer in Government and unable to keep the Tories in check, the then Chancellor George Osborne tore the Work Allowance to shreds – to the tune of £3billion a year.
These savage reductions in the amount of money a UC claimant can earn before their benefits are reduced has adversely affected almost all in-work UC households. Research from the House of Commons Library has shown for instance that some families have been made worse off by as much as £4,849 per year, a staggering amount if you are on a low income
To put that into perspective, the tax-free Personal Allowance threshold is £11,800, above which the income tax rate is 20%, rising to 40% and eventually a maximum of 45% at the very top end. Meanwhile a UC claimant earning just £2,376 (if UC includes housing costs) will lose 63% of their earnings above that amount, or put another way, they’ll pay back almost two thirds of their salary!
This means that someone with a job earning £100,000 per annum - a junior minister in the government perhaps - will pay 40% in income tax, while a UC claimant pays over half as much again on top. Research by the Resolution Foundation shows that a single parent could increase their hours from ten to twenty-two per week and yet retain less than £40 extra. Why would anyone be attracted to doubling their work hours for an increase of just over £3 per hour?
This absurd situation has ensured that the core aim of UC to encourage people off benefits into paid work – by allowing them to retain enough of their benefits so that it makes sense to work - has disappeared. The Coalition objective of introducing a policy which would break, once and for all, the cycle of welfare dependency and poverty was destroyed at a stroke. If we were still in government, Liberal Democrats would never have allowed such a crass, short-sighted decision to be taken, which in effect actually punishes the poorest for getting a job. This isn’t just bad policy, it’s downright stupid.
That is why I have submitted an Early Day Motion to Parliament calling on the Government to restore the Work Allowance to its original levels. I am aware that some Tories have begun to publicly acknowledge the dreadful consequences of the cuts to UC made in 2015, so this is an opportunity for them to clear their consciences before Philip Hammond presents his Autumn Budget. He must right this wrong before it’s too late and the rollout of UC accelerates next year.
If he does so then one of the truly revolutionary aspirations of the Coalition Government will finally take off. If not, Universal Credit will continue to cause nothing but grief, pain and anger for our poorest citizens. Without restoring the Work Allowance to its original levels, the government will be stating a clear intention to tax these families back into benefit dependency.
And if that happens my question to the Tories is simple - what’s the point of Universal Credit?
Stephen Lloyd is the Lib Dem MP for Eastbourne & Willingdon