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Beware a unified universal benefit

If there is one innovation amid the cuts landscape which seems at first sight attractive, it is the IDS brainwave of a universal benefit, joined this week by the proposal of a high-value universal state pension.   Gone would be the almost impenetrable complexity of interlocking benefits, gone would be the hassle and indignity of means-testing, gone would be the disincentive of the poverty trap with its benefit cut-offs and tapering, and gone would be the high administrative costs and bureaucratic obstacles.   Those gains are not to be sneezed at.   But as with any single panacea, it’s not as simple as that.

One drawback is that individual needs and family situations are so diverse and in many cases frequently changing that, to borrow a phrase from another context, one size does not fit all.   Another is that an overall benefits cap, irrespective of need, will sometimes achieve simplification at the expense of fairness, for example where housing costs are very high in inner city areas.   Yet another problem is that if the aim is to make work pay  more than benefits, the universal benefit will have to be pitched unconscionably low given the current level of wages at the bottom (£5.93 an hour, or £219 a week).   Part of the answer on the contrary has to be, not  that benefits should be reduced, but that the lowest wages should be increased.   But of course the central problem is that if incentives are to operaqte properly, there have to be jobs for people coming off benefits to go to, and at present there aren’t and for quite a time into the future there won’t be.

Equally a universal basic pension at around £140 a week for s single pensioner, and double that for a couple –  a 43% rise on current levels of £97.65 and £132.60 respectively – sounds almost too good to be true.   It is.   What has not been mentioned is that the second tier of State pensions –  the State Earnings-Related Pension Scheme (SERPS) and State second pensions (SSPs) are being wound up and incorporated into the universal basic pension.   That puts a total different light on it since many newly retired persons would then get, not the £180 or so a week that they would be entitled to at present, but only £140 a week.

There’s the further catch that the change is set for 2015.   By that time inflation over the next 5 years will have reduced the value of the £140 a week pension below the £132.60 per week that a pensioner would get if all the current credits and pensions guarantees were included.   Caveat: read the small print before you sign up.

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