“There will be no losers”
Work and Pensions Secretary Iain Duncan Smith, House of Commons, 11 November 2010

The background
Today was a big day for the Work and Pensions Secretary. He put forward his plans for Universal Credits in a White Paper, a policy he has designed and advocated since his time at the Centre for Social Justice.

It will benefit all those people who “play by the rules”, the former party leader said. He committed to “financially protect” those people switching to the new system. “There will be no losers” he promised. We took that as a challenge.

The analysis
When Iain Duncan Smith stepped up to the dispatch box for the second time – to answer questions from his opposite number on the Labour benches, Douglas Alexander – he waved about the impact assessment in his White Paper. “There is absolutely no question that this measure will support and improve the quality of life for those who are actually likely to be affected,” he said.

And Mr Duncan Smith is right, but only to some extent.

The White Paper states that: “This simplification means that, in the long term, some households will be entitled to less under Universal Credit than they would have been had the current benefits and Tax Credits system continued.”

The graph in the White Paper which Mr Duncan Smith specifically referred to does indeed show that the bottom earners would be better off. At the very bottom of the scale the document says people will be around 1.5 per cent better off, or £2.40 per week. People in the next income decile will gain around 1 per cent – more than £3.60 per week, the document says.

That’s not the end of the story though – it’s not just the poor who are affected by today’s announcement. The graph also shows that the top 40 per cent of earners will be worse off, but by fairly small amounts – to the tune of 15p a week for those in top income deciles 8 to 10. But those in the more moderate 7th decile will be the biggest losers, dropping 50p a week of their income, or £26 a year.

This loss, the document says, comes from removing the 30 hour premium of Working Tax Credit for higher earners, hitting the 7th decile more because more people will be getting Working Tax Credit in this income range.

Chart from the White Paper "Universal Credit: welfare that works" (Department for Work and Pensions)

We should also point out that Mr Duncan Smith’s proposals do include higher penalties so that those who don’t “play by the rules” lose out – those who turn down a job offer, refuse to apply for appropriate jobs or fail to turn up for mandatory community service. They will lose their Job Seekers Allowance of £65 a week for three months for the first breach, six months the second time, and three years on the third time.

Dishing out theses sanctions will be the role of JobCentre advisers and there will be no right of appeal.

Of course all of this is to encourage people back to work, so that “work always pays”. The plans, the Secretary of State says, will reduce the number of workless households by around 300,000.

But there were 2.45 million people unemployed in the quarter to August 2010, and 1.47 million people claiming Job Seekers Allowance over the same period. And the number of vacancies for the three months to September 2010 was 459,000 – down 30,000 over the quarter – according to the Office for National Statistics.

So the success of all of this, ultimately, relies on the success of their plans to grow the economy to create more jobs.

The verdict
So while it is true that those with the lowest incomes would gain from Universal Credit, Mr Duncan Smith’s own White Paper contradicts his claim there will be “no losers”. Yes, in the transition period he has promised “financial protection”, but in the longer term higher earners will suffer small losses.

This balance between rich and poor will, we are sure, be a selling point as the Bill travels through parliament as the Coalition brands their changes “progressive”, but at this time we have to quibble with Mr Duncan Smith’s use of language.