Universal credit causes Theresa May’s latest defeat in Parliament

SINCE the general election in June, when the Conservatives lost their majority, Parliament has become a perilous place for the government. In September the Tories were defeated on two motions, one related to the 1% cap on pay rises for staff in the National Health Service, the other on a proposed increase in university tuition fees. The motions were non-binding, yet the government’s hand was forced in both instances. The NHS pay cap is to be lifted and tuition fees have been frozen.

On October 18th Theresa May suffered her third big defeat in little more than a month, when MPs passed a motion proposed by Labour to pause the roll-out of “universal credit”, a reform of the welfare system. Like the motions on NHS pay and tuition fees, it is non-binding. Yet it too may force the government to rethink its approach. If it did, it would be a victory for economic logic and common sense.

Universal credit is the biggest shake-up of welfare in decades, replacing six working-age benefits with one. The government has been rolling it out since 2013 but lately the pace has quickened, from five job centres a month adopting the full service to over 50. Eventually one in four households will receive the credit. After being cut repeatedly, it is a hard-nosed scheme—more so than the benefits it replaces. Dianne (not her real name), a graphic designer, has been on universal credit for six months. After paying the rent, she has just over £200 ($265) a month to live on.

Yet the recent furore over universal credit is not driven by opposition to the scheme itself. Most MPs support the idea of simplifying the benefits system, and of removing some of the perverse incentives that existed under the old one. Instead the worry is about its woeful administration.

New claimants must wait at least five weeks before the first chunk of cash lands in their account. (A smidgen of transitional help, in the form of a loan from the state, is available.) Usually the benefit is then paid monthly. People on legacy benefits typically wait for a shorter time for their first payment and receive subsequent ones more frequently. The idea behind paying at longer intervals is to mimic the way in which most employees receive salaries.

But five weeks is a long time. The average household in the bottom wealth quintile has gross financial assets of perhaps £2,000. Many have nothing, and so nothing to live on during the waiting period. And many wait for longer than five weeks. The administrative complexity of the new system means payments are often delayed. About one in 20 people has not received payment even after ten weeks.

The delays wreck families’ finances. Dianne, the graphic designer, claimed universal credit in February but did not receive it until May. When she told her adviser that she would be unable to cope, she was given a pamphlet on how to budget. She may sell her car, which would improve her immediate position but make it harder to get to job interviews. Analysis from the Trussell Trust, which runs a network of food banks, suggests that in areas where universal credit has been fully rolled out, referrals for emergency food have risen much faster than in areas where it has not.

Paying universal credit monthly, meanwhile, is not good economics. About a tenth of employees are paid weekly. Those on low incomes struggle to budget over long periods. New claimants, indeed, appear to have become more likely to fall into arrears on their rent, as they run out of money before the month is over. In one Glasgow suburb, where the full service was rolled out about a year ago, a one-bedroom house is available to let—but not to universal-credit claimants. “The landlord has experienced problems with people on UC,” the estate agent apologises.

Universal credit is designed to allow the government to make improvements as it goes along, points out Rory Mair of Citizens Advice Scotland, a charity. But it has merely tinkered. It has streamlined the system by which social-housing landlords are paid rent. Under pressure from Labour, ministers announced this week that the helpline, which had cost up to 55p a minute, would be made free (as the “hotline” for reporting benefit cheats already was).

Scotland’s devolved government has been bolder. Scottish councils offer more generous support while claimants await their first payment. Such largesse is more feasible north of the border: because of the financial settlement between Westminster and Holyrood, per-person public spending in Scotland is a tenth higher than in Britain overall. But Scotland is also giving people the option of being paid twice-monthly, which should cost nothing.

After the latest defeat, the Tories are under pressure to act. Some want them to make universal credit more generous in the budget next month by reducing the rate at which benefits are withdrawn as people earn more. A version of the Scottish government’s tweaks is another option. Such changes would not destroy the principle of universal credit, but simply make it work better, says Nicholas Timmins of the Institute for Government, a think-tank. To fix the scheme may require pausing it, which would be embarrassing. Better, though, than pressing on with a failure.