Can officials argue in favour of changes to Universal Credit before the £20 uplift is taken away?

Credit: PA

Ever since I’ve worked as a political journalist in Westminster, there has been one tension in government that seems largely guaranteed – and that is between the Department for Work and Pensions (DWP) and the Treasury.

Back in 2010, a heated personality clash between former Tory leader and former work and pensions secretary, Iain Duncan Smith, and the then Chancellor, George Osborne, was filling the column inches.

It is perhaps not surprising that Whitehall’s biggest spender, responsible for not only the country’s entire benefits bill but pensions too, tends to find itself at loggerheads with those holding the purse strings – but here we are again.

This time – as I understand it - it is less a story of politicians at war- but more of bubbling frustration among Whitehall officials desperate to soften the blow of the £20-a-week cut to Universal Credit coming early next month.

Rishi Sunak is determined not to keep the Universal Credit uplift. Credit: PA

I’ve heard that officials have given up on persuading the Chancellor to keep the uplift to UC (announced when the pandemic first hit in March 2020 as a temporary measure) and I can understand why.

Sources suggest Rishi Sunak is determined on this one, and from what I hear the DWP secretary, Thérèse Coffey also thinks the ship has sailed.

But they wonder if another idea could be more palatable to the Chancellor.

I’ve heard that behind the scenes they are pushing to reduce what is known as the earnings taper rate of UC – currently set at 63%.

To explain – a 63% taper rate means that for every £1 a person earns as they move into work, 63p of their benefit is withdrawn. In practice – that feels like a 63% tax rate (or 75% when national insurance and other taxes are added on.)

Thérèse Coffey - Secretary of State for Work and Pensions. Credit: PA

That is way higher than any tax rate at the top end of the income scale – and is clearly a massive potential disincentive to work more hours, which doesn’t feel very Conservative.

One source suggested that a proposal included cutting the taper rate from 63p to 60p.

Duncan Smith, who was the key architect of UC, told me that he believes the government should urgently pause any cut to the benefit because of the other pressures already facing families - and reassess in the Spring.

“We don’t know where we will be after the furlough scheme ends (on October 1), and we don’t know what will happen to the cost of living with rising energy and food prices,” he said.

“There is a perfect storm of issues collecting in the run up to Christmas.”

The former party leader has previously argued in favour of cutting the taper rate, and it is a policy that was supported by the think-tank he co-founded, the Centre for Social Justice. Gavin Rice, its head of work and welfare, told me it acts as a “huge disincentive to work”.

“Lowering the withdrawal rate would allow those on in-work benefits to keep more of what they earn and incentivise them to stand on their own two feet. With an unprecedented number of vacancies and real wages rising, our benefits system should be encouraging Britain back into work.”

So, might the Chancellor consider such a proposal?

Treasury sources sound pretty doubtful to me, not least because of the cost. Keeping the £20 uplift would amount to between £5 and £6 billion.

Reducing the taper rate varies in cost. The original CSJ proposal of 55% would cost billions.

But according to sources the 3% reduction that has been proposed to the Treasury could be more like £600m – which may not feel quite so eye-watering for a government that is, admittedly, already hiking up National Insurance to pay for health and social care.

Moreover, this idea is all about trying to persuade Mr Sunak – and he is determined to focus relentlessly on the government’s plan for jobs.

So far, there has been little movement from the Treasury and I suspect it will turn down this proposal, but officials will hope that the principal at its heart – to incentivise work – might appeal to the Chancellor at a time that people’s cost of living is being heavily squeezed.