Monday, 21 February 2011

The universal credit: lessons from history

...Now, where was I? Ah yes, government policies that won't work. Not necessarily because they're misguided: that's an argument for a different blog in a way. But because they're hasty, not particularly well thought-through, and just plain crazy. Every government has a few of them: the nonsensical and unworkable Dangerous Dogs Act of 1991 is usually cited as the paradigmatic example.

But there's something else that historians and public policy experts can bring to the table when talking about contemporary issues: an awareness of when similar designs went wrong in the past, and exactly how and why.

I think Iain Duncan Smith's 'Universal Credit' proposals fall into exactly this camp.

It's not necessarily a bad idea to make work pay. At present most people on welfare have to pay absolutely absorbitant amounts of Income Tax and National Insurance on their income as they move off state benefits. It's hardly an encouragement to get a job. Labour's answer to this was Tax Credits - relatively generous Income Tax allowances if you were on low pay, had children, etc. etc. There's some evidence that this was moderately effective on making the labour market function more effectively.

The Universal Credit is an attempt to roll everything in all the existing welfare pots into one - and to do this for each household, rather than each individual or couple, to see if the cash can't be provided more effectively. Now there's a lot of problems here - for instance, if you've got any savings, you're likely to lose out, as you'll lose lots of benefits. How is this supposed to reward enterprise, initiative and thrift? More importantly, where are all these jobs going to come from as we move 'from welfare to work' while unemployment peaks at over three million? MPs have recently raked Duncan Smith over the coals about this.

But the main delivery problem is just scale. The following statement from the Government should strike fear in the heart of all those who remember procurement disasters of the past, like ID cards:

We envisage an integrated IT system to manage all claims, and a single payment system to apply a withdrawal rate and pay the correct entitlement. These would not be entirely new systems and could be built on our existing IT and capabilities.

Oh dear. This is known (and deprecated) in management studies jargon as 'hierachical' change - quite the opposite of what the Coalition is attempting in other spheres, e.g. Higher Education and local government (don't worry, we'll come back to those in other posts). It has the benefit of simplicity, clarity and clear lines of responsibility. Its weakness? It's prone, like charismatic leadership, to 'cataclysmic failure' or, more likely, unintended consequences and unexpected outcomes as objective trade-offs become more complex.

Two examples: the Wilson Government tried to 'claw back' some of the cuts to Family Allowances during 1968 and 1969, constructing a means of directing some of the money saved to 'the poorest'. They wanted to construct a 'family income database' to do so. They failed when the Central Statistical Office told them it just wasn't possible.

Second example: the Heath Government of 1970-74 wanted to build a 'negative income tax' that would have meant a perfectly smooth move from receiving benefits to earning, adding on Income Tax as you earned more. The result? As I'm sure you'll have guessed by now, the computer project ran into the sands and the whole thing was scrapped.

The 'big brain' approach of previous governments didn't work. This is quite likely to crash and burn as well.