The Chancellor, Rishi Sunak, is reportedly planning to ignore the will of Parliament and shell out £1,000 one-off payments to Universal Credit claimants and ditch the £20 a week uplift they’ve received since the start of lockdown. Right now, I’m going to stick my neck out and say this is a reckless idea. It shows how little the government has learnt from the current crisis about what it means to be poor.
The thousand-pound payment makes no sense. Apparently, the cash boost, which MPs last week voted to sustain, costs the exchequer £6.6 billion per annum. It was worth £1,000 a year to claimants, so there’s no immediate saving. There’s more of a saving if they carried on as is and waited until lockdown ends, (assuming that’s within a year… oh, god, what am I saying?), before ending or reducing the extra payment.
A lump sum doesn’t address the hardship caused by unemployment because it would be paid to people who go on to find work and come off UC within a year. But those who fall into the system later will miss out. Let’s face it, there are still plenty of employers on the brink right now whose employees are inevitably on the edge too.
Let’s also talk about windfalls and vulnerable people. I would usually be the last person to say we should worry how people will spend any unexpected boosts to their cash. When I worked at the Big Issue, I had to parry small-minded comments about magazine vendors in ‘better trainers than I can afford’. I would remind them that (a) when you’re homeless, you have to look after your feet, and (b) they earnt that money – does anyone tell you how to spend yours?
My initial plan was to write about how far £20 will stretch for someone in need so it might seem inconsistent to say £1,000 might not go as far as you’d think. My colleagues, and our peers in advice agencies across the UK, will all know people for whom they’ve won a big back-payment of benefits. They’ll also know that’s it’s not a done deal that the cash will all go on the thing it’s for, like rent arrears, outstanding debts or living costs. That doesn’t make claimants the wastrels some politicians believe them all to be, but less-than-ideal choices are a fact of life.
Psychologists are onto this and a brief description of ‘scarcity theory’ explains a lot of what we face when we’re offering financial guidance: “The financial and life worries associated with poverty, and the difficult trade-offs low-income individuals must make on a regular basis, all reduce their cognitive capacity. Limits on self-control or planning may lead some individuals to sacrifice future rewards in favour of short-term needs.” (See BehaviouralEconomics.com)
Maybe Rishi Sunak is banking on this. According to City AM, “The Sunday Telegraph reports that Sunak wants to offer the one-off £1,000 payment to those on Universal Credit as a way to stimulate the economy.” That’s bad enough if he hopes people will splurge the grand in one go, on TVs, maybe. But if it goes where it might work best, paying down debt, say, there’s little return to the economy as the money’s been spent already. And what will really worry my colleagues is when it comes to people with addictions. Such a windfall will literally kill some of them.
The Centre for Policy Studies (CPS) is not a fan of the blanket £20 payment, either. They point out that as a percentage, it’s a bigger uplift if you’re young and single and don’t claim much, but it’s not much extra for families. Instead, Yourmoney.com says, they’d like to see it gradually withdrawn in exchange for “a more generous one-off uprating of Universal Credit (currently set to rise by just 0.5%) of 2.5%, in line with the rate being applied to the State Pension” alongside “an 8p cut to the taper rate and increased work allowances”. The CPS may be trying to find some middle ground but with UC payments remaining so low, even a 2.5 per cent increase would only yield £100 a year – or £2 per week – for single claimants over 25.
The Joseph Rowntree Foundation (JRF) has launched a campaign, #KeepTheUplift, to make the £20 additional payment permanent. They calculate its withdrawal will suck half a million people, including 200,000 children, into poverty. They also add that it should be extended to people still on JSA, ESA and Income Support, who missed out when the uplift was only given to UC claimants.
If it were down to me, and if extra payments to claimants helps stimulate the economy, which even JRF agrees, I’d both keep the uplift and fiddle with the taper. UC payments need to meet the cost of essentials but an extra £2 a week is not going to achieve that. And yes, the incentives for people to work while still on UC should be enhanced because it pays directly back once jobseekers make the big step into work and get a sense of how much they can achieve and what independence will look like.
UC has put a big dent into the ‘benefit trap’, where people feel better off out of work, but there’s more to do and that includes lifting workers out of poverty. One thing is for sure, a one-off £1,000 windfall payment cannot achieve that.
