The employment impact of Universal Credit is 'highly uncertain'

By agency reporter
March 26, 2018

The Work and Pensions Select Committee, which is conducting an ongoing inquiry into the rollout of Universal Credit, has published the following on its website:

A central part of the Department for Work and Pension's (DWP) case for the benefit of Universal Credit (UC) is their assertion of its effect on employment. In respone to a request for an estimate of the magnitude of that effect, DWP stated it has "determined" that UC will result in 250,000 more people in employment once it is fully implemented.

In a follow up letter to Employment Minister Alok Sharma the Chair asked a set of specific questions about how the Department had arrived at each of the stated constituent parts of that figure:

  • 150,000 more due to "increased financial incentives to work"
  • 50,000 more due to "increased conditionality"
  • 60,000 due to "simplification of the benefit system"

The Department's response did not answer any of the Chair's specific questions, although it did supply an account of academic research papers that have informed the Department's work on UC, and restated the principles underlying those three ostensible benefits of the reform.

DWP concluded by stating: "The approach to our analysis underpinning these estimates was reviewed by the Institute for Fiscal Studies."

Accordingly, the Committee wrote to the Institute for Fiscal Studies (IFS) asking if, in that review, it had found those three estimates reasonable, and what the margin of statistical error might be on the numbers.

The IFS' reply starts out "clarifying the role we had in reviewing DWP's approach" in coming up with the numbers:

"Note that at no stage did we review their approach to estimating the impact of increased conditionality or simplification, to which they attribute 50,000 and 60,000 respectively of the overall 250,000 forecast effect on employment".

The IFS goes on: "Neil Couling's letter to Baroness Hollis on 16 November states that the 250,000 figure is based on the same methodology we reviewed in 2012. For the reasons given above, that can only be true of the element (150,000) which is a result of changes to financial incentives. And we are not in a position to confirm whether and to what extent DWP took on board our comments and implemented our recommended improvements before applying the methodology…."

"The employment impact of UC is highly uncertain. The move to UC involves a number of changes for which it is hard to find comparable precedents (especially UK precedents)" — casting doubt on DWP’s use of academic evidence to substantiate its estimates — "It is not even possible to produce statistical margins of error for estimates of the employment impact, as the nature of the uncertainty is not conducive to standard statistical analysis..."

"Sadly, it will be difficult even after the event to produce convincing estimates of the overall employment impact of UC. The early impact estimates that DWP have published – cited in the Minister’s letter of 12 March – apply only to a small group of claimants who are not affected by UC in the same way as most other claimants […]" and;

"We emphasise that the overall employment impact of UC will conceal very different effects for different groups in the population, with employment rates likely to rise for some and fall for others."

The last point contradicts what DWP have previously told the Committee when asked about the impact on other groups:

"We remain committed to producing robust comparative analysis of the employment impacts of Universal Credit. As we informed the Committee we are planning to expand the analysis for single cases in the Live Service to couples and families in both services.

"This analysis will estimate a labour market impact for these broader claimant groups. In this instance it is misleading to draw a distinction between two services. The underlying policy for both is the same so any comparative analysis will hold true for both systems".

Rt Hon Frank Field MP, Chair of the Committee, said, "The ongoing lack of evidence to back up the much-vaunted employment impact of Universal Credit was already extremely disappointing. But to have our specific queries about basis of this claim answered with airy, irrelevant and, it appears, plainly inaccurate assertions adds insult to injury.

The IFS' letter shows that Old Mother Hubbard hasn’t got much in the cupboard, despite the bragging of the Department. This clumsy and ill-judged attempt to piggyback on one of the most trusted, unimpugnable authorities on public policy and finance would be farcical if it was not so deeply worrying."

* The Committee's letter to Alok Sharma MP is here

* Alok Sharma/DWP response to Committee here

* Committee's letter to IFS is here

* IFS response to Committe here

* Work and Pensions Committee http://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/

[Ekk/6]

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