Background to universal credit

Universal Credit is replacing six existing benefits including both working tax credit and child tax credit. This page explains the background to UC from its beginnings in 2009 to the Welfare Reform Act 2012 that introduced it as a new benefit in a major overhaul of the benefits system.

Background information

The Centre for Social Justice , an independent think tank established by Iain Duncan Smith, published a 370 page report called ‘Dynamic benefits: Towards welfare that works’ in September 2009.

The report set out the problems with the current benefit and tax credit systems before going on to set out a solution in the form of universal credit.

Consultation

The coalition government published a consultation in July 2010 to gather views about welfare reform. The consultation document ‘21st Century welfare’ reiterated the problems in the current benefit and tax credit systems and set out a range of proposals which all involved a radical overhaul of the existing systems. The consultation closed on 1st October 2010.

The announcement

Following the consultation exercise, the government announced that their chosen option is universal credit and that this would be introduced with a budget of £2billion over the next four years.

One of the announcements relating to the current tax credit system was an indication that HMRC expect to be using real time earnings data which, according to HMRC, will produce savings in the tax credit system by reducing the number of income related overpayments. The detail about this cost-saving also made reference to universal credit with the expectation that 25% of tax credit claimants will have migrated to the credit in 2014-2015 (mainly out of work claimants).

DWP White Paper

In November 2010, DWP published a white paper which set out more information about Universal Credit. Alongside this, HMRC published a new consultation about real time data which is an important part of Universal Credit. See public consultations for more information.

Shortly after the publication, the Works and Pensions Select Committee launched an inquiry into the Universal Credit White Paper on 18th November 2010. As well as collecting responses, the Committee held two evidence sessions: 

On 22nd November 2010, DWP published an equality impact assessment on the Universal Credit White Paper which set out their initial findings on the impact of the measures proposed.

The impact of Universal Credit on Marginal Deduction Rates was set out briefly in the white paper. In response to a parliamentary question, the Government confirmed that MDR would increase for some people.

In January 2011, the Institute of Fiscal Studies published their preliminary analysis on Universal Credit accompanied by a press release which welcomed much of Universal Credit but concluded that the impact on incentives was mixed. A slide presentation showing preliminary analysis of the winners and losers in Universal Credit was also published alongside the press release.

Welfare Reform Bill

The Bill

On 16th February 2011, the Welfare Reform Bill had its first reading in the House of Commons. The Bill outlines plans for a radical overhaul of the tax credits and benefit systems through the introduction of Universal Credit.

Also published was a word document containing many useful links to older reform documents and legislation that may be impacted by the Welfare Reform Bill.

Impact assessments

During 2011/12, the DWP published a note about impact assessments for the bill as well as publishing a separate assessment for each area covered in the bill.

Equality impact assessments

In addition to the series of impact assessments (listed above), during 2011/12 DWP also published Equality Impact Assessments:

Second reading (Commons)

The second reading of the Bill took place on 9 March 2011. A full transcript of the second reading is available here.

Committee stage (Commons)

After second reading, some Bills move to the Public Committee Stage. A full list of the Committee for the Welfare Reform Bill can be found on Parliament’s website. Transcripts of each Committee debate on the bill are available from the Parliament website.

Written submissions from outside bodies and individuals are circulated to MPs appointed to examine the Bill during committee stage in a Public Bill Committee. A full list of the written submissions can be found on Parliament’s website.

You can see all amendments tabled during Committee stage using the following links:

The House of Commons library published a very detailed report about the Bill at Committee Stage. It includes detail of amendments made to the Bill and discussion of the key issues.

Report stage (Commons)

The Bill entered the report stage on 13 June 2011. The first sitting took place on 13 June, with the second sitting on 15 June.

Third reading (Commons)

Following report stage, the Bill had its third reading in the House of Commons on 15 June.

First reading (Lords)

The Bill received its first reading in the House of Lords on 16 June 2011. The Bill introduced to the House of Lords, as amended during its passage through the House of Commons, is available to download or view online. An updated version of the explanatory notes is also available to download or view online.

Second reading (Lords)

The Bill had its second reading in the House of Lords on 13 September 2011. A full transcript of the debate is available on the Parliamentary website.

 

Committee stage (Lords)

The Bill was due to be discussed on the floor of the main chamber of the Lords. However the Government put a procedural motion before the House instructing it to hear the Bill in Grand Committee. This means that no vote can be taken on amendments at Committee stage. There was a debate about the proposal and strong opposition to this move, but in a vote on the issue the Government’s motion won by 263 votes to 211.

You can find transcripts of each Committee debate on the Parliamentary website.

DWP published information about various parts of the legislation ahead of the Committee stage in a series of papers. These are now archived:

Report stage (Lords)

The Lords report stage started on 12th December with the 6th and final sitting taking place on 25th January. You can find the transcripts for these debates on the Parliamentary website.

Third reading (Lords)

The bill had its third reading in the Lords on 31 January 2012. The full transcript is available on the Parliamentary website.

Ping pong

As part of the ‘Ping Pong’ process, the Bill (as amended by the Lords) went back to the House of Commons on 1 February 2012. The Bill then returned to the Lords on 14 February 2012. It went back to the Commons on 21 February, before returning one final time to the Lords on 29 February 2012.

Other developments

In 2011, the Social Security Advisory Committee was asked by the Minister for Welfare Reform to undertake an independent review of passported benefits and provide a report on possible approaches to those benefits in Universal Credit. The review was tasked to consider a number of key issues including complexity, cost and work incentives. SSAC published their report on 27 March 2012.

Welfare Reform Act

The Welfare Reform Bill received Royal Assent on 8 March 2012 and is now the Welfare Reform Act 2012.

The SSAC report and Government Response

Social Security Advisory Committee and Government Response, December 2012

Last reviewed/updated 1 July 2022