24.8.21
Welfare

Universal Credit and welfare innovation

Reforming Universal Credit. Following last month's pledge to strengthen employment rights for self-employed workers, the Labour Party has proposed reform of the marginal withdrawal rate of Universal Credit in order to alleviate in-work poverty. Shadow Secretary of State for Work and Pensions Jonathan Reynolds argued that increasing the level of earnings Universal Credit claimants can retain when they increase their working hours would give people a financial incentive to work more and make that work pay. Reynolds explained the rationale behind the policy change in a BBC interview.

  • Explainer. NEF have helpfully explained how the withdrawal rate works. See also this video by their CEO, Miatta Fahnbulleh.
  • Background: a living standards crisis. Research by NEF’s Living Income Campaign found that without a change in government policy, by 2022 32% of the UK population (21.4 million people) will be living below a needs-based ‘minimum income standard’. This figure includes 45% (7 million) of children, 70% of single parents, 50% of all renters and more than one third of all families in the North East, West Midlands and London.

Deep rooted issues with Universal Credit. The cross-party House of Lords Economic Affairs Committee’s report Universal Credit isn’t working: proposals for reform is a comprehensive overview of the problems with UC. They argue it has “undermined the security and wellbeing of the poorest in our society” and outline a suite of recommendations to improve the system.

£20 per week cut. Jonathan Reynolds vowed that Labour would use “every tool” to prevent the imminent £20 per week cut to Universal Credit. The Government’s move adds up to a cut of £1,050 a year to the incomes of many of the least well off people in the country. Described by the Joseph Rowntree Foundation as “the biggest cut to social security payments since the second world war”, it is the focus of a major campaign by a wide coalition of civil society organisations.

  • Cross-party defence. Last month, six former Conservative Work and Pension secretaries wrote to the Chancellor calling for the £20 uplift in Universal Credit to be made permanent. The group includes Ian Duncan Smith, Stephen Crabb, Damian Green, David Gauke, Esther McVey and Amber Rudd.
  • Public support. The Fabian Society’s year-long study of public attitudes to welfare used surveys and a citizen’s jury to identify “consensus support for £10bn of extra payments on top of the £7bn cost of retaining the £20-a-week universal credit boost”.
  • Bad economics. The Resolution Foundation highlights that ending the uplift as planned would see the basic level of benefits cut to levels last seen in the 1990s, right as unemployment is set to peak, which they argue would be both "disastrous for family incomes" and "bad macroeconomics” (pp. 23-24).

Options for structural reform? Reynolds also signalled an intention to “replace Universal Credit” so that “low-paid people can work the hours they need and keep more of the money they earn”. We’ve collated various options available to the government for strengthening the social safety net in ways that will create a fair, sustainable and resilient economy in a previous Digest.

Innovations in the devolved nations. Russell Gunson, Chair of IPPR Scotland, is chairing a steering group for the Scottish Government to develop a Minimum Income Guarantee; an income floor beyond which no one in Scotland can fall below. NEF’s Sarah Arnold explained why “England, Wales and Northern Ireland needs one too” in a short Twitter thread.

Weekly Updates

Climate change and industrial strategy

Hydrogen strategy. The Department for Business, Energy and Industrial strategy released its Hydrogen Strategy, outlining the government’s aim to use hydrogen to meet up to a third of the UK’s energy needs through decarbonising ‘hard-to-abate’ sectors like heavy industry. It hopes to make the nation a “global leader on hydrogen” by 2030. Carbon Brief’s Josh Gabbatiss summarised key points within the strategy.

Decarbonising housing and the cost of net zero. The Times reported a sneak-peak of the government’s much delayed Heat and Buildings Strategy, and warned that households with gas boilers may face higher prices through levies to fund low-carbon alternatives such as heat pumps and hydrogen boilers.

The cost of not zero. A new peer-reviewed paper has been published on the economic impacts of tipping points in the climate system. Climate blogger David Roberts provides a good summary of the paper, its significance and policy implications: “the economic impact of carbon emissions is much higher than appreciated, as is the value of reducing emissions.”

Business and competition policy

The harms of concentrated corporate power. New evidence from the US Joint Economic Committee Democrats found the “increased corporate concentration over the past several decades has harmed small businesses, consumers and workers and reduced economic growth”. Their briefing calculates corporate profits to GDP ratios, declining labour share of income and proposes recommendations for reform. (Twitter thread summary)

  • Estimating the damage. “The erosion of competition costs U.S. workers more than $1 trillion in lost income each year, a drop in living standards of more than $5,000 per year for the typical American household” with consumers paying higher prices, workers having less potential employers and declining bargaining power, and marginalised communities feeling the worst effects.

CMA recommends blocking semiconductor merger over competition concerns. The Competition and Markets Authority has warned that a bid to buy the major UK computer chip manufacturer and designer Arm, described as “one of the biggest semiconductor takeovers ever” would “lead to a realistic prospect of a substantial lessening of competition, and consequently to a stifling of innovation, and more expensive and lower quality products”.

CEO pay. The High Pay Centre published its 2021 CEO pay survey. It found that the median FTSE 100 CEO earned £2.69 million in 2020, 86 times the median full time worker in the UK. The research identified AstraZeneca’s CEO Pascal Soirot as the highest paid CEO, receiving £15.49m last year. (Media coverage here)

Tax and monetary policy

The missing profits of nations. Researchers from University of California, Berkeley, and the University of Copenhagen tracked wages and profits across the world to estimate that multinational firms shifted 40% ($946bn) of their profits to tax havens in 2018, reducing corporate income tax revenue by more than $200bn or 10% of global corporate tax receipts. Visit their interactive map to see how much profit is shifted to tax havens and tax revenue lost from countries across the world. (Twitter thread explainer and animated infographic)

Redesigning the role of central banks. Researchers from the Roosevelt Institute have shown how the US’s central bank, the Federal Reserve, could help achieve a more equitable economy if it “adheres to principles and policies that prioritize people over corporations: strong banking regulations, corporate governance reform, readily available state and local financing, and a more inclusive banking system.”

Trade

Brexit and the economy: the story so far. Economist Jonathan Portes explored data on the UK’s economic performance since the exit from the EU single market at the beginning of this year and outlined the impact on trade, wages and inflation in an article for the Byline Times.

Interventionism: the new norm? The Telegraph's James Titcomb outlines the ideological split within the Conservative party over the forthcoming National Security and Investment Act; a law allowing UK regulators to block foreign takeovers of UK companies and intervene in the market on public interest grounds.

Local economies

A new model for high street regeneration. The Guardian’s Aditya Chakrabortty reported on the “new model of regeneration” won by Tottenham’s Latin Village traders in a long campaign against property developers: “At the heart of the alternative scheme will not be a FTSE 250 developer, but a community benefit society that will reinvest profits locally.” See their website for details of the Wards Corner Community Plan and Community Wealth Building in Tottenham.

Legal challenge over pork-barrel spending. The Good Law Project has launched a legal challenge to the government’s ‘Levelling Up Fund’, a £4.8bn pot widely criticised for being distributed to constituencies that benefit the Conservative party politically.