THE OFFICE FOR BUDGET RESPONSIBILITY SCEPTICAL ABOUT DWP CLAIMS FOR LABOUR SUPPLY EFFECTS OF UNIVERSAL CREDIT

Jonathan Bradshaw

 The roll-out of Universal Credit may be running five years later than planned, having  wasted £40 million in botched IT, and been emasculated by austerity cuts since 2015, but its advocates in DWP still argue that it is all going to be worthwhile in the end because its labour supply effects will get people into work and onto higher earnings. Sir Robert Devereux the DWP Permanent Secretary claimed this in a retirement interview “the roll-out will see unemployment rates fall as disincentives are taken out of the system”. Esther McVey the new Secretary of State for Work and Pensions even seemed to claim that 3.1 million extra people were in work as a result of UC when at the time only 700,000 were on it.

The impact assessment[1] for UC in 2012 estimated that between 100,000 and 300,000 would enter work and between 1 million and 2.5 million more hours would be worked as a result of UC. A PQ[2] in 2017 reduced the entering work number to 150,000 and made no claim on extra hours. DWP presented estimates of the impact of UC in reports published in 2015 with an update  in 2017. The latter found that that UC claimants were 3 percentage points more likely to be in work after six months than matched jobseeker’s allowance claimants (56 per cent versus 53 per cent).

The Office for Budget Responsibility concentrated on UC in its latest Welfare Trends report and was clearly not convinced enough by this evidence to take it into account. They concluded “we have not yet incorporated these (findings) into our forecasts, as it is not yet clear that the impact found for the simple cases migrated so far will be replicated for the more complex ones to come or if the resources devoted to the early cases will be sustained (para 7). They point out that simple cases are unlikely to be representative of the overall caseload; that operational choices and resources available per case may not be representative of the policy when scaled up; and that the generosity of the UC system has been significantly reduced since the trials, with large cuts to work allowances taking effect in 2016-17.  They reproduce with implicit hilarity the onerous job description for the 13,000 work coaches being recruited for UC at £24,000 to £26,000 per year, commenting these “stretching roles are modestly remunerated”.  They conclude “that we will consider the updated estimates that are due to be published in the full UC business case later this year, but do not expect to make any new forecast judgements until UC is operating at greater scale across all types of claimant and for a sufficiently long period for robust evidence of any labour market effects to emerge.”

So the jury is still out on whether, what is effectively the sole remaining claim for Universal Credit, will be realised.

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[1] Impact Assessment: Universal Credit, Department for Work and Pensions, December 2012.

[2] 16 October 2017, Department for Work and Pensions, Universal Credit, House of Lords written Parliamentary Question HL2020.