Labour’s plan for Universal Credit – and the reason it will CREATE, not cost, money

Someone needs to tell the writers at The Guardian to give their heads a shake. It might put some sense into them.

That organ’s latest piece about Labour Party policy says the plan to change Universal Credit, so people on the benefit who are working take more cash home, would cost “billions of pounds annually”.

It wouldn’t.

Poor people – those on benefits and those on low-income jobs who need to claim benefits to survive (so much for the Tories’ claim that the minimum wage is also a “living” wage!) have to spend the money they earn.

This fact is central to Labour’s message. The plan is to ensure that people have “jobs you can raise a family on” – which implies that current pay rates, combined with UC, aren’t enough for that.

And raising a family costs money; any extra pay UC claimants received would be spent.

It is an acknowledged fact that money spent into the UK economy by the poorest people in the country has the greatest “multiplier” effect – that is to say, it provides the greatest boost to the economy.

This is because it travels the longest distance, and passes through the largest number of hands, before being taxed back out again.

Think about it: a claimant receives Universal Credit plus wages; he spends some on food, heat, rent, other bills, and necessities. The firms receiving that money give some to their own employees in wages and pay some in taxes, and also spend some in investments and in resupplying their stock. The firms receiving that money do the same.

The money going to employees goes straight back to the bottom of the economy and the cycle begins again.

So the “economic multiplier” – the boost to the economy – provided by cutting the taper rate of Universal Credit to let claimants keep and spend more money is enormous.

It would certainly boost the economy by far more than the £350 million that the Graun reckons a one-per-cent change would cost the Treasury.

And it would bring a little equality into pay rates between the richest and the poorest. I mean, why are the UK’s poorest people paying a marginal tax rate of 75 per cent when people earning more than £150,000 a year are paying only 47 per cent? Shouldn’t it be the other way around?

Some of the Graun‘s other statements are also questionable – although one has to ask whether they originate with Keir Starmer’s right-wing Labour Party itself.

For example: “Labour believes the measure will radically boost the incentive for many people on low incomes to move into work” – as if there’s loads of jobs around for them to move into!

It is a simple fact – apparently unfathomable to right-wing politicians – that people who can get jobs do get jobs; they keep applying until they get one.

The claim that they need an incentive to do so is an insult to everybody who strives at the hard end of the labour market.

And the final suggestion – that Labour has shifted from planning to scrap Universal Credit altogether to simply aiming to make it “more generous and less punitive and bureaucratic” is a disaster in the making.

It means that any Tory government coming in after Labour would simply be able to pervert the benefit back into a penalty system for being poor (which is what it is now).

Better to scrap the lot and bring in Universal Basic Income. Then benefit conditionality, all the bureaucracy that goes with it, and all the prejudice, would be eliminated forever.

Source: Labour to pledge shake-up of universal credit as part of wider ‘new deal’ | Universal credit | The Guardian

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6 thoughts on “Labour’s plan for Universal Credit – and the reason it will CREATE, not cost, money

  1. Simon Cohen

    Mike is correct here. The Guardian uses a false notion of what ‘costs’ are. For a country that issues it’s own currency the only real fiscal limits are resources and inflation, neither of which are an issue at present in any threatening way.

    The real costs to a society are those that damage the well being of people and the cohesion of society. All real costs the Tories have inflicted on us.

  2. SteveH

    Mike – A good and informative article. The Guardian is failing their readers by perpetuating this Tory myth, they have a duty to inform and educate their readers

  3. Jeffrey y

    IV said before we the peasants pay our taxes the rich squirm have offshore accounts yet we have enough to help all but not to give big tax cuts and allow them to attack our taxes like they have universal credit is a stick to beat the peasants with our system under social security was fine until they murdered it

  4. Stephen Brophy

    I have a problem with UC big companies should not be paying poor wages if they are making millions in profits! especially if those profits go to share holders! how about a percentage paid to workers on top of that poor wage! I guarantee UC wouldn’t be needed! the state shouldn’t be subsidising multi national corporations pay structure! it is different with small business and start ups!

  5. Grey Swans

    Admin Over 50s party manifesto includes:

    – £12 per hour minimum wage, working towards £15 per hour, so don’t need to claim benefit when working.

    – 90 per cent of real living wage (Living Wage Foundation rates) for out of work benefits.

    over50sparty org uk
    Seeking help with moral support to start.

  6. trev

    Labour have announced that they will (if elected) tinker with the finer details of Universal Credit and give it a new name. They are spinning this as “scrapping” Universal Credit, which is far from the truth. They haven’t said that they will separate Housing Benefit from other Benefits (one of the main points) and have not said anything about the 35 hours jobsearch, the online journal, or Sanctions, or the other major point – change monthly payments to weekly. But to everyone who will listen they are saying we will “scrap Universal Credit”.

Comments are closed.