This week, MPs voted on whether the £20 uplift to Universal Credit and Working Tax Credit should be extended, and the answer was a resounding yes – albeit a non-binding vote, with abstentions from the majority of Conservative MPs. The vote was vital, but it was nowhere near enough.
Roughly six million people are currently claiming Universal Credit, around 40 percent of whom are in work. Removing this uplift would make them poorer to the tune of £1,040 a year, following the worst recession on record, and at a time when forecasts predict a double-dip recession.
This is a significant sum. The Institute for Fiscal Studies (IFS) estimates that the uplift accounts for 13 percent of the average entitlement for someone on UC, and up to 21 percent for some. Work at the Resolution Foundation has shown that taking it away, combined with expected rising unemployment, would be enough to tip 1.2 million people—including 400,000 children—into poverty in 2021/22.
The Trussell Trust estimates that removing the uplift will increase foodbank usage by 10 percent, and our own work at the New Economics Foundation (NEF) has shown that removing the uplift would see the total number of people living on incomes below a socially acceptable level rise by 2.5 million compared to last summer, to 22.5 million in total.
The Treasury is still said to be considering its options, and is under pressure from both Labour and a significant minority of MPs on their own benches – particularly those newly elected MPs in the so-called ‘red wall’ seats that make up the Northern Research Group, and the former Work and Pensions Minister Stephen Crabb. These alliances also stretch outside Parliament to include a coalition of anti-poverty campaigners and organisations across the country, including Child Poverty Action Group (CPAG), the Citizen’s Advice Bureau (CAB), the Trussell Trust, and the Joseph Rowntree Foundation (JRF).
It is right that at a time of unprecedented crisis the focus has been on the vital need for the uplift among families in immediate abject poverty. But we must also look further ahead, and not lose sight of how we reached this position in the first place.
Over the last decade, there has been a hollowing-out of the safety net. The cuts since 2010 are estimated to be worth £35 billion a year once Universal Credit is fully rolled out. The £20 uplift to Universal Credit and Working Tax Credits, as well as increased entitlement for the self-employed, only reversed around a fifth of this, adding £7 billion back.
Over this time, the cost of living has been rising too. Removing the uplift would mean returning the main rate of adult unemployment benefit to the lowest real terms value since 1991. Crucially, the uplift also doesn’t apply to all those on so-called legacy benefits (roughly 40 percent of households claiming benefits), many of whom are long-term sick or disabled. NEF’s modelling has shown that even with the £20 uplift, a total of 21.7 million people will be living below the JRF’s minimum income standard, with 12.3 million at especially high risk of deprivation.
The UK’s safety net also remains threadbare compared to other countries. In fact, at the start of the pandemic, the UK still had a far weaker safety net than the majority of advanced economies, where, in the short-term at least, out-of-work income support is much more comparable to in-work earnings.
In the majority of OECD countries, those out of work could expect to initially receive at least two thirds of their previous in work earnings, with some countries such as Belgium providing a replacement rate of up to 90 percent. Prior to the pandemic, the UK equivalent was 48 percent; that is, those losing work would suddenly have to live on less than half their income on average. That is lower than even the USA (at 57 percent), a country notorious for its poor unemployment benefits.
As a result, our hollowed-out system is insufficient to provide a basic and reasonable standard of living for the majority of the people who end up needing it. It’s not even available to all who need it – for example, migrants with no recourse to public funds cannot access it.
The New Economics Foundation is therefore calling for a living income: a social security system that raises living standards and provides economic security for all, ensuring no one has to choose between buying the basics or heating their homes. This must be significantly more generous than the current main Universal Credit amount, even with the uplift, and it must be available to all who need it. This is crucial if we want a system that treats people with dignity and respect, and meets collective need.
Not only is there a strong moral case for the living income – there is a strong economic case for it too. Social security is meant to act as a stabiliser to the economy, shoring up demand when the economy dips. As sections of the economy are rightly locked down in order to protect public health and long-term economic resilience, many areas of demand are suppressed.
But people will always need to buy the basics like food. On average, consumption and spending in lower income households has gone up due to additional costs associated with the pandemic, while spending in higher income households has fallen, with additional costs offset by reduced leisure spending. One of the easiest ways to boost demand is to target people who are still spending their money: those on lower incomes. With significantly fewer job vacancies than there are people available to work, our social security system is the most sensible way to do this.
In the short term, one method would be a Minimum Income Guarantee—a weekly payment available to anyone who needs it, equal to the amount people actually need—which we suggest should bring people up to the level of JRF’s minimum income standard. Anyone in current receipt of benefits, whether Universal Credit or legacy, should have the main element automatically raised. Sick pay should also be raised to this level.
Anyone else not in receipt of benefits currently should be able to apply for it and receive it immediately, with any income that brings them over the excess of the minimum income standard clawed back through income tax for higher earners once the economy has recovered. This would represent a crude short-term fix in an emergency, but it is also a practical and relatively simple way to ensure both families and the economy are protected through this pandemic.
Ultimately, however, we need to stop papering over the cracks in our social security system with emergency solutions, and deliver much deeper reform to ensure the UK’s safety net is fit for purpose, whether in a recession or in normal times. Everybody in the UK, one of the richest countries in the world, should be able to access a living income.