My Lords, first, I join all other noble Lords in congratulating the noble Lord, Lord Bassam of Brighton, on securing this important and timely debate and in paying tribute to the tireless work of the late Baroness Hollis.
For too long, the benefits system has been a Byzantine nightmare: a complicated arrangement of six different benefits coming from three different government departments. This complexity created obstacles for claimants entering the workplace. Under the previous Labour Government, our benefit system created a poverty and dependency trap for claimants and their families where, ironically, it could be more worthwhile to claim benefits from the state than to work.
The old system disincentivised work through cliff edges at 16, 24 and 30 hours worked per week. Workers claiming benefits could increase their hours but gain essentially no financial benefit from doing so. That meant that those choosing to work could have an effective tax rate of more than 90% on their income.
Universal credit changes that. It makes work pay. Because universal credit incentivises work and does away with the old system of cliff edges, 86% of people on universal credit are trying to increase their working hours. They are doing so because they can be sure that, the more money they earn, the more money they will get to keep for themselves. Indeed, analysis shows that people in work and claiming universal credit are on average £600 a year better off as a result.
Universal credit is projected to help an additional 200,000 people into work, adding £8 billion per year to the economy when fully rolled out. That is more money for the Government to spend on our public services and infrastructure. But, more crucially, those 200,000 more people in work are 200,000 more people taking pride in earning for themselves and their families. In turn, that means many more children growing up in homes with working parents, rather than in workless households. We know from research that children do worse in workless households. Children in workless families are almost twice as likely to fail at all stages of their education as those in households with at least one parent working.
However, no system is perfect, and I welcome the Chancellor’s commitment to spend an additional £4.5 billion to help with the full rollout. The Economist argued recently that universal credit was a policy worth implementing, and suggested that, if done properly, this reform could be a “shining example for others”.
The Government have committed £51 million pounds to Citizen’s Advice centres to deliver support for new claimants. They have provided online guidance—immediate access to work coaches—to support claimants, and have trained 1,800 universal credit work coaches to support claimants with mental health issues. The end result is worth it. We must have a benefits system that is easier for claimants to navigate, and that supports and incentivises working. We need a benefits system that encourages those that are structurally unemployed into employment, so that their children do not fall victim to the same fate. The previous benefits system—which incentivised claiming from the state over work—is not fair to those claiming it, to their families, and to hard-working UK taxpayers who ultimately finance it.
Because of this Government’s commitment to get Britain back to work, there are thousands of families where children grow up seeing their parents coming home from work every day. We cannot overestimate the positive effect of this: such behaviour sends an immensely powerful message to the next generation. We need a benefits system that supports this, not one that actively discourages claimants from seeking work.
In closing, I pose two questions to my noble friend the Minister. Does she agree that, whereas the legacy system stifled work opportunities, universal credit unlocks them, and that it is crucial to continue to roll out universal credit to extend opportunities to work to all?