Before I start, I acknowledge my appreciation for what Peers are saying. This is not an attack on universal credit. They are some of its greatest fans and it is in that context that they speak. I absolutely get that and I appreciate it. It has reminded me that
I owe regular updates about progress of universal credit and has jogged me to get going on that as soon as this Bill is over.
The amendment in the name of the noble Baroness, Lady Manzoor, seeks to repeal the work allowance regulations. I am going to sound like the noble Baroness, Lady Sherlock. This measure has been debated and voted on twice in the other place, and both times these regulations have been retained. Therefore, this House should think carefully about using a Bill such as this to introduce opposition to a financial measure that has seen that kind of support in another place.
On the amendment, let me remind noble Lords of the context of those changes. The previous welfare system was not working. Spending went up from £6 billion in 1998 to £28 billion in 2010, when we reached the stage where nine in 10 families with children were eligible for tax credits. Some families could earn £60,000 a year and still receive benefits. Yet, at the same time, the number of people in in-work poverty increased by about 20%. It also did not do enough to support people to get into work, stay in work, and progress in work. People were left with unfulfilled potential and did not have an incentive to progress. Even if we forget the money, it undermined opportunity and aspiration due to the distortions and complexities of the system.
The Government have stated their intention to move from a low-wage, high-tax, high-welfare society to a high-wage, low-tax, low-welfare economy and have set out a package of measures. Let me remind noble Lords that the national living wage is set to reach over £9 an hour by 2020 and the personal tax allowance is set to rise to £11,000 in 2016-17, taking 570,000 more people out of income tax. I remember some debates about increasing support for childcare and we have moved it up to a rate of 85% of eligible costs. We have doubled the early years’ provision, which is free for the working parents of three to four year-olds. When one looks at the whole of childcare, we now spend £5 billion in total across all the schemes, including UC, tax credits and the early years’ provisions, which is more than any previous Administration. Since 2010, there has been an increase of £1 billion.
To respond to the noble Baroness, Lady Manzoor, the measure is different from the tax credit cuts. Universal credit provides an incentive to making work pay and helps to move people off a life on benefits. They get personalised support through a dedicated work coach which helps them through the barriers. It is a different structure. It is not the same thing as the reduction in tax credits. Clearly, we have two elements; namely, the work allowance and the taper rate. We have already got evidence that it works and gets people into work much more effectively than jobseeker’s allowance. Apart from the savings we will achieve on taxpayers’ money, it will generate—partly by focusing the money more efficiently on the people who need it most—gross economic benefits of £7 billion every year once it is fully in.
7.30 pm
I remind noble Lords that if Amendment 45 were to go through it would mean, once universal credit is fully rolled out, significant costs of the order of £3 billion
a year having to be found from elsewhere. The debate we had in the House around this was that tax credits were coming in abruptly in April when the countervailing factors had not come in—the living wage, tax allowances and childcare. A large number of noble Lords talked about that mismatch. The Chancellor’s response was to delay: he took away the tax credits cuts and smoothed the transition in two ways. First, he moved it to the timing of universal credit, where we had these large changes happening and large moves across in 2018, 2019 and 2020, when some of these changes come through. Of course, there is also transitional relief for people moving straight across. I will come to some of the issues raised by the noble Baroness, Lady Hollis, on that.
There will not be tax losers. I say to the noble Lord, Lord Kirkwood, who I know is the greatest fan and has a spy network that should be dismantled, that his figures showing that 96,000 people would be worse off in April 2016 are not accurate in the context of these universal credit changes. The vast majority of the current universal credit caseload will not lose. It affects only people in work, most of whom are single or childless couples with no limited capability for work.
We will have additional support for those directly impacted. They have fewer barriers limiting their ability to respond positively to increase their hours and earnings. We will provide additional work coach support and increasing the amount available through flexible support to help people progress in work and increase their earnings.
Concerns about natural migration have been raised in the media and, indeed, inside the House, in particular just now by the noble Baroness, Lady Hollis. Significant changes of circumstance have always caused changes in entitlements in the benefit system. The impact of moving to universal credit needs to be assessed on a case-by-case basis and depends on a large number of factors. The changes that would cause a new claim are the same as in the current system. As the noble Baroness, Lady Hollis, asked a large number of specific questions, I will write to her spelling out the answers. However, universal credit continues to have its core architecture and incentives: the single taper rate remains set at 65% and claimants no longer need to move between different systems just because their hours and earnings change. It continues to provide real support.
Amendment 46A would introduce a requirement for the Government to produce a report assessing the impact of these regulations on work incentives. As I said earlier, the work allowances are just one element of a system designed to produce incentives to move people into work and then progress in work. It is one element of a wider package of measures introduced in the summer Budget designed to move us from the low-pay, high-welfare, high-tax economy to the opposite.
When someone moves to universal credit as a result of a change of circumstances, they will not experience the impact of the work allowances in isolation. They will see all the impacts of the universal credit design, which is already helping people move into work faster. They will have better support from their work coach, clear incentives to increase their hours and more generous support for childcare. It is worth reiterating the point
that those claimants who are moved by the DWP from tax credits to universal credit will be transitionally protected.
While it may be technically possible to evaluate the impacts on different claimant groups in the way Amendment 46A sets out, it is not practically possible. It is extremely difficult to single out the effect of any one measure when many other things have been changed at the same time. To do so would be resource and time intensive—and, bluntly, ludicrously expensive—but the department is committed to evaluating the impacts of introducing universal credit as a whole and I am happy to repeat that commitment. I think many noble Lords know how intensely I require the department to get this kind of evidence.
We published plans for evaluating universal credit in 2012. We have already started publishing evaluation reports. Indeed, they show very positive impacts. In 2015, we published the latest results from our analysis of UC impact on employment and earnings, which showed that universal credit claimants are eight percentage points more likely to have been employed in the first nine months than their JSA equivalents. If noble Lords do not like percentage points, that is the equivalent of it being 13% more likely: for every 100 JSA claimants who found work in that period, 113 UC claimants did the same. This is very dramatic for the early introduction of a new benefit where one does not quite know what one is doing. We expect it to go on. We will be able to monitor in the same way in the years to come.
Are we seeing the disincentive that the noble Baroness, Lady Hollis, is so concerned about? I am so concerned. We will see it. If you see some deterioration there and understand it, it is valuable information. As noble Lords know, I introduced a measure to allow us to do some really sophisticated econometric assessments: what is the dynamic effect, for instance, of tapers, of work allowances, of second work allowances and all the things we are interested in? We can test all that for the first time. That is the context in which this amendment is coming in. We will publish further research and update our formal evaluation on labour market outcomes later this year, and we will go on doing that in future years. That will cover a widening group of claimant types.
As your Lordships know, we need to learn from all the evidence that we get to find out the best operational delivery and the best future policy development. This is what we have dubbed the “test and learn” approach, which I am proud to say has been adopted almost as government policy. That is how we are going to do things.
I ask noble Lords to accept that this is the right way to do these assessments. One will see from that all the information that it is possible to find. One does not need something that, frankly, I cannot ask people to do, because it is just not practical. It is not realistic to do what has been asked for in Amendment 46A. It is for that reason, and not because I am against information, that I ask the noble Baronesses not to press that amendment.