Leading article

Universal Credit and the future of the welfare state

13 February 2021

9:00 AM

13 February 2021

9:00 AM

Amid the many failures of public policy during the Covid crisis, one success has gone largely unnoticed. The Universal Credit system coped with a huge uplift in applications without breaking down. In February last year 2.6 million households were signed up; six months later that had swelled to 4.6 million. Some 554,000 people made new claims in the first week of lockdown, ten times the normal levels. For a benefit which not so long ago was being damned for the poor execution of its rollout, it is remarkable that the system coped.

Its unexpected success offers plenty of lessons for the future of the welfare state. The digitisation of the system, controversial at the time, enabled the service to be delivered to those in urgent need of help. Combined with the furlough scheme, the massive expansion in Universal Credit has succeeded in staving off an explosion in poverty which otherwise could all too easily have occurred. There are few thanks when it comes to welfare, however. The Work and Pensions Secretary’s job is usually to apologise when things go wrong. The near invisibility of Thérèse Coffey during the pandemic is testimony to her achievement.

Ministers are under pressure to extend a £20-a-week temporary boost to payments introduced at the beginning of the crisis. As things stand, that bonus is due to expire in April. When the pandemic struck, it was right that state benefits be made generous and the barriers to claiming them lowered. A well-functioning welfare system works on the principle that it helps people to help themselves, namely by supporting their efforts to find work. When large parts of the economy were forced to close it was unrealistic to expect people to find employment or to generate their own income. However, at some point, as the economy reopens, Universal Credit needs to be returned to its original function: supporting the return to work rather than simply alleviating acute problems with household budgets.


Instead of spending billions on a universal boost for Universal Credit, it would be better if the government lowered the taper, which operates like a tax rate. At present, those who move from welfare to work keep 37p in every extra pound they earn: a taper rate of 63 per cent. Why not lower this rate so they keep 55p as originally intended, or maybe 50p? The justification for the coalition government’s welfare reforms was that they would stop penalising people who found part-time work, as previous versions of the benefits system had done. This aspect of Universal Credit needs to be bolstered, particularly as there will be more part-time work in the months ahead as employers edge back towards normal operations.

There needs to be a recognition that once lockdown ends, a great number of people will not be returning to the jobs they held at the beginning of the crisis. The furlough scheme, in particular, has created the cruel illusion that the economy can simply pick up where it left off.

In reality the hiatus caused by Covid-19 has triggered long-term structural changes in the economy. The shift from high street to online shopping has been accelerated, as has the expansion in working from home. The likelihood of much longer-lasting constraints in sectors with a high degree of social mixing means that while some industries expand, others will shrink.

The government’s emphasis, then, needs to be on generating the right economic conditions in which new jobs can be created rather than preserving particular jobs. Over much of the past decade Britain’s jobs market has been a remarkable success, confounding the many critics of ‘austerity’ policies. Before the Covid crisis Britain had nearly its highest ever employment rate. Unemployment was at its lowest in 45 years. The flexible employment policies which led to this success need to be expanded. We need tax breaks to reduce the National Insurance bill for employers taking on new staff. We need more incentives for companies to take on apprenticeships, and we need a huge effort to build up the skills of those who have missed out on sixth-form and college education — especially in vocational disciplines, which are especially difficult (if not impossible) to teach online.

At the other end of the jobs market, a big effort needs to be made to retrain people in their fifties. It is not good enough to force this group into early retirement or to do as Mrs Thatcher’s government lamentably did in the 1980s: disguise their unemployment by pushing them on to long-term disability benefits. An ageing population has made it unrealistic for all but a few to retire in their fifties; this group needs to be seen as having ten or even 20 more years in the workplace.

Government ministers have used the term ‘build back better’ to describe how they want a greener Britain to emerge from the Covid crisis. They need to approach the welfare system in much the same way. Welfare policy was going in the right direction before the pandemic, but it now needs to be recast to get people back to work, offer training and minimise the damage inflicted by the pandemic and the policies used to contain it.

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