Last week we covered unemployment benefits, and looked at the extent of Job Seeker’s Allowance (JSA). We also looked at the existence of in-work benefits, and discussed how they are an attempt to avoid a poverty trap – where people can end up worse off when taking a job relative to their position out of work with JSA.
The last government, driven in particular by Iain Duncan Smith, announced plans to replace six benefits with one single payment, called the Universal Credit (UC). Those six benefits are “income-based jobseeker’s allowance, income-related employment and support allowance, income support, child tax credit, working tax credit and housing benefit“.
We discussed in Monday’s Economics Conversations the impact of complex systems administered by governments – they tend to create loopholes and confused incentives, and likely discourage use of them as was originally intended (i.e. to help those out of work to get back into work). Hence simplifying such a range of different payments – which in general are in-work benefits in addition to JSA – ought to, in principle, be a good idea.
However, big changes are being made, and to big complicated systems. Different people will be affected differently by the changes, and what matters most to people is whether they’ll be made better or worse off as a result. We care, by and large, as a people, if those seeking to better themselves and work hard find themselves worse off by changes like these – it makes little sense to discourage people from trying to do better.
But how can we know what the impact will be? Can we trust the government’s own figures on the matter? Can we trust other attempts to understand the impact of changes? Doesn’t everybody have an axe to grind, some bias in their analysis? By and large, over the years, the Institute for Fiscal Studies (IFS) has established a reputation for being as thorough and objective as possible in its analyses of the things governments get up to (and the proposals made by oppositions around election time). As a result, their intervention today on Universal Credit is important.
The title of the press release is informative: “Universal credit cuts support for working families, but helps make work pay where current system creates worst problems”. The UC will be effective in reducing the overall spend on benefits by £2.7bn, the report finds, hence it’s clearly effective in that regard, and further it will “make work pay where current system creates worst problems”: so it will address some cases of the poverty trap. However, the report states that 3.1 million households will be worse off as a result of UC, and 2.3m will be better off, hence the BBC leads with the assertion that “The introduction of Universal Credit (UC) will leave working families worse off on average, the Institute for Fiscal Studies has said”.
It’s well worth a read of the IFS’s actual report, to get a sense of how we go about evaluating public policy as thoroughly and objectively as possible. Not least, it will help you to determine whether indeed, as the government asserts, the IFS “ignored other benefits such as extra childcare”. Usually a quick CTRL+F to search the document is informative. I did a search for the term “childcare”, and found five references to the term in its entirety. On page 9 of the linked PDF document (only 28 pages), the report states “One area where the UC system has been made more generous relative to the legacy system is in the level of subsidy given to childcare costs”.