Labour outlines plan to replace Universal Credit to help tackle in-work poverty

Jonathan Reynolds has outlined the Labour proposal to replace Universal Credit with a fairer welfare system allowing low-paid people to keep more of the money they earn as part of a wider plan to tackle in-work poverty.

In a speech in Manchester this morning, the Shadow Work and Pensions Secretary said the opposition party was making a commitment to address “one of the most significant failures of Universal Credit”.

Reynolds announced that the next Labour government would reduce the taper rate – the rate at which the entitlement is withdrawn as a person earns more – when it replaces the benefit, allowing claimants to keep more money.

“Labour is committed to a fairer system which means those who need help from the social security system are not punished for wanting to earn more and contribute more,” the Shadow Work and Pensions Secretary said this morning.

He highlighted that, under the current system, for every £1 earned by a Universal Credit claimant, 63p is deducted automatically from their benefit payment by the taper rate – before accounting for national insurance or income tax.

“The real taper rate for many people is actually 75%. That means those on low incomes pay a marginal rate of tax far higher than any other group in the country – including the Prime Minister,” Reynolds said.

According to the party, a single parent working 30 hours a week loses £573 a month of their entitlement, equivalent to a marginal tax rate of 75%. Those earning over earning over £150,000 a year face a marginal tax rate of 47%.

But Reynolds added that “tackling low pay and in-work poverty cannot simply fall on the social security system alone” and said the plan to replace the benefit should be seen as “one seamless package” alongside Labour’s ‘new deal for working people’.

Labour leader Keir Starmer and deputy Angela Rayner launched Labour’s new deal for working people campaign last month, pledging to “fundamentally change our economy” and “make Britain the best place to work”.

“Increasing the minimum wage immediately to at least £10 an hour, sick pay for everyone, protection against unfair dismissal, flexible working and the right to join a trade union, are all part of our plans for a new deal for working people. But they will also mean we have far fewer problems to rectify by way of the [Department for Work and Pensions] budget,” Reynolds said.

He also reiterated his party’s opposition to the government decision to cut Universal Credit from October this year. The minister confirmed last month that the £20-per-week uplift to the benefit will not be extended beyond the autumn.

The government granted the benefit increase when faced with large numbers of people struggling in the first wave of the coronavirus pandemic. It raised the standard rate for a single, over-25 claimant from £317.82 to £409.89 per month.

Although a limited uplift, not available to those still on legacy benefits, it was described by a group of over 50 charities as a “lifeline” for many during the Covid crisis. But ministers have claimed it was “always a temporary measure”.

The uplift had been due to be scrapped in April this year, but following pressure from the opposition and Conservative MPs, and the extension of furlough, Chancellor Rishi Sunak extended the increased payment until September.

Both Conservative and Labour MPs have urged the government to rethink the £5bn cut, while charities have warned that the decision will hit six million households across the country and push 200,000 more children below the poverty line.

Work and Pensions Secretary Therese Coffey suggested at the time that the withdrawal is part of a push to get people into work, despite government figures showing that almost 40% of people on the benefit, which is claimed by over five million households, are in employment.

Writing for LabourList today, Reynolds argued that “the divide between Labour and the Conservatives is clear”, adding: “They want to take £1,000 off working families next month, Labour wants to help families earn and keep more money.”

Below is the full text of the speech delivered by Jonathan Reynolds this morning.

I am so happy to be giving this speech in Manchester. When I first arrived here from Sunderland at 18 I looked at the CIS Tower and I thought I was in Manhattan. I am immensely proud of being a Greater Manchester MP and in the economic success that we have here. Manchester is a great advert for everything that is good – past and present – in our economy: the Industrial Revolution, the Cooperative Movement, the creative industries, scientific progress and our strength in legal and financial services.

But living in and representing Tameside in the East of Greater Manchester as I do, I also understand that there is more to the story. For many parts of our country as traditional industries have declined, new jobs have not adequately replaced what has been lost.

We do have some tremendous jobs here in the UK. But we also have too much work that is insecure and low paid. How can it be right that one in eight workers in the UK are in poverty? How can the Government claim to be at the helm of a functioning economy when the existence of foodbanks has become the norm throughout the UK? And how can we ever accept an economy in which millions of children in working households are living in poverty?

It is unacceptable for the Prime Minister and Chancellor not to even acknowledge the extent of in-work poverty in the UK, let alone take steps to tackle it. As much as the Government would like to bury their head in the sand, on their watch the link between working hard and getting on in life has been broken for far too many people. Low pay, insecure work and an inadequate social security system is holding our economy back.

The central challenge as we emerge out of this pandemic must be to end the inequalities in our society and economy which it has so cruelly exposed. Now must be the moment to offer people real hope, and optimism, for the future. Labour intends to do that. I want to talk to you today about our plans for Universal Credit, but also how addressing these issues cannot just be the responsibility of the social security system, it requires a new deal for working people.

Our social security system has taken a political beating under the Conservatives. Under George Osborne they weaponised the politics of ‘welfare’. They stigmatised recipients of social security and set a false narrative of ‘shirkers’ versus ‘strivers’. They used this false divide as a reason to strip back our social security safety net until it was thread bare.

As a result, nearly all of the gains of programmes like Sure Start and the reduction in child poverty achieved by the last Labour Government have been reversed. That meant that when the pandemic hit, we did not have what we needed as a country to get us through the crisis.

Billions of pounds have been spent on emergency programmes, like furlough, and existing policies like Universal Credit have had to be significantly altered in order to cope. Now I say only fools would refuse to learn from that. To build the brighter future I believe our economy can have, we must work with businesses to ensure all jobs are good jobs. But alongside that we need an effective social security system that supports a prospering labour market.

It is not, and never has been, a choice between the two. The Labour Party was founded to represent working people. Work has of course changed beyond recognition in the years since then – but Labour’s mission has not. Our job is to make work fulfilling and to give working people power over our own lives.

The Labour Party is the party of work, whether you work in the public or private sector, whether you’re self-employed or not, whether you live in the North or the South. And I say that is entirely consistent with making sure those who can’t work – due to illness or economic shocks – are treated with dignity and respect.

Work is a core part of who we are, and people rightly take pride in what they do. Labour’s mission is to achieve good work for everyone. That includes our plans to create 400,000 jobs, support 100,000 new start-up businesses and provide 100,000 apprenticeships.

The government have presided over a jobs crisis that continues to let our young people down. They are complacent about the huge numbers of long-term unemployed people and they are sleepwalking into another crisis for those sectors which cannot fully reopen but will lose all furlough support next month.

We need firm foundations for a strong recovery which is why Labour would promise a job or training opportunity for anyone at risk of long term unemployment. But we cannot fix our broken labour market without replacing Universal Credit.

Over the last year we have fought very hard to retain the uplift to Universal Credit that was introduced at the beginning of the crisis. This proposed cut this Autumn will increase poverty and hold back our recovery.

Cutting the budgets of the very families who need it most is unforgivable but add to that the fact that it will weaken our economy and the Government’s decision simply makes no sense at all. That £1,000 is money that is spent in shops and restaurants on our high streets. Taking that money out of our economy when an economic recovery is not fully established is simply robbing Peter to pay Paul.

Also let’s get something clear, and I hope government ministers are listening. Universal Credit is an in-work benefit. In fact, almost 40% of all claimants are currently in work. So when the Prime Minister says, it’s a choice between keeping the uplift and getting people back into work, he is simply wrong. I don’t know what is worse: either that the Chancellor and Prime Minister don’t know how Universal Credit works, or that they are wilfully bending the truth. Either way their ignorance is an insult to millions of decent people.

Taking away that £20 a week would push 500,000 people, including 200,000 children into poverty, it will damage any economic recovery by reducing consumer spending, and it will disproportionally hit the North and the Midlands. This is a government whose rhetoric never matches reality – and is just letting people down.

When parliament returns we will be fighting this cut with every tool at our disposal. Every Tory MP will have a choice. It’s all well and good saying they’re sympathetic. But it’s time every MP makes a decision about whose side they are on.

Will they stand up to the Chancellor and Prime Minister and defeat this cut? Or will they let the government spend money on handing out dodgy contracts to their mates and pub landlords while cutting the incomes of millions of working families?

But the problems of Universal Credit go beyond this. I know the government would like to say the crisis has validated Universal Credit. I’m afraid the reality is very far from that. We should certainly be grateful for the tremendous efforts of frontline staff to get claims processed. But the Universal Credit being offered in the crisis was a very different Universal Credit to the one that’s usually on offer. Not only was the core amount increased, but sanctions were suspended, as were things like the minimum income floor which calculates support for self-employed people.

And at the same time, entirely new policies were introduced – like furlough and the self-employed income support scheme – because even if you qualify for Universal Credit, it’s level of wage replacement is so low that it was inconceivable that people could have been left to depend on Universal Credit alone. And even when those additional policies were taken into account, millions of workers were still Excluded entirely.

So I don’t think ministers should be congratulating themselves. Instead, they should be honest and recognise that the system we had going into this crisis was not sufficient. The next Labour government will replace Universal Credit because Universal Credit, as it stands, is fatally flawed. For too many people Universal Credit means food banks, housing arrears, sanctions and stigma. Now, the objectives of a simple, more seamless combined benefit were and are laudable.

But what’s remarkable is that the major problems of Universal Credit today, are still the ones first identified by constituencies like mine when they were pathfinders for the new benefit eight years ago. And the Government has never been willing to listen. Today Labour is making a commitment to address one of the most significant failures of Universal Credit.

Universal Credit was sold as a way of always making work pay. Yet for some people it has reduced the incentives to work more hours. The taper rate, which is the rate at which benefits are withdrawn as a person earns more money, is 63p in the pound under Universal Credit. But that figure doesn’t account for National Insurance or income tax. The real taper rate for many people is actually 75%. That means those on low incomes pay a marginal rate of tax far higher than any other group in the country – including the Prime Minister.

So I am pledging today that the next Labour government, as part of our commitment for a New Deal for Working People, will reduce the taper rate when we replace Universal Credit.

Labour is committed to a fairer system which means those who need help from the social security system are not punished for wanting to earn more and contribute more. I also want to say today that tackling low pay and in-work poverty cannot simply fall on the social security system alone. The OBR have forecast that by 2025 the UK will be spending £76.6bn on Universal Credit and its legacy predecessors.

I will defend the principles of the UK’s social security system with every breath I have, but at present I look at those figures and believe too much of what we’re spending is due to the Government’s bad choices. Their complete mismanagement of our labour market and our housing market has created a fractured and broken system which is delivering low wage, insecure work alongside skyrocketing housing costs. And it’s only right to try and correct those failures in the labour market at source.

The plans we have, to improve our social security system, should be considered as one seamless package alongside our new deal for working people. That includes our ambition to give everyone full employment rights from day one and create one clear employment status for all employees.

Increasing the minimum wage immediately to at least £10 an hour, sick pay for everyone, protection against unfair dismissal, flexible working and the right to join a trade union, are all part of our plans for a new deal for working people. But they will also mean we have far fewer problems to rectify by way of the DWP budget.

We have a huge opportunity as we come out of the pandemic, and a responsibility, to put right what was going wrong before. We oppose the Government’s decision to cut Universal Credit from October this year. But we want to go beyond that, ensuring low paid people in the UK can work the hours they need and keep more of the money they earn.

I firmly believe our social security system can support a labour market that works for working people. A system that gets you back on your feet, is there for you in hard times but doesn’t stop you earning or taking the hours that you want. We cannot build a fairer more compassionate economy without replacing Universal Credit with a system that works, and that values work.

The divide between us and the Conservatives is clear. They want to take £1,000 off working families next month, Labour wants to help families earn and keep more money. Because Labour knows the value of work and what working people need to succeed.