How Universal Credit perpetuates the false equation between public and private debt

What the ‘credit’ in Universal Credit actually means. Fure/Shutterstock

The full roll out of Universal Credit, the government’s plan to collapse six welfare benefits into one, was delayed in early January. This followed mounting concerns by MPs and months of trenchant criticism of its design, including from the UN’s special rapporteur on extreme poverty and human rights.

These criticisms are warranted and important. Yet the concept of Universal Credit, and its approach to debt, reveals something wider about the UK’s current political moment.

Taken at face value, Universal Credit has a seemingly innocent meaning. “Credit” simply means a payment made to your account. “Universal” means that it replaces previously separate benefits payments with a singular one that should fit all requirements. On this official reading, the concept may invoke positive connotations of efficiency and solvency.

But people generally associate credit with a form of borrowing, which produces an interest-bearing debt. Under this interpretation, the repayment of a debt is taken to be a moral obligation – and this is relevant to Universal Credit.

Some may argue that Universal Credit is not a loan: no interest is charged, no debt is created, no underwriting takes place. Yet it nevertheless establishes a loan-like relationship to recipients who will be sanctioned if they fail to meet the conditions set up in the “claimant commitment” each recipient must sign. The conditions are all about finding as much work as possible quickly.


Read more: Universal Credit is built around flawed incentives that are doing real damage – fixing it is essential


Public services become conditional

The “credit” in Universal Credit is then not about an actual loan of money. It’s rather about a relationship of discipline and punishment similar to the relationship of debtor to creditor – a relationship of unequal power which supposedly generates moral obligations.

The idea here is that if people receive money through Universal Credit they do not do so primarily as a right, but as a form of performance-dependent loan to help them become “fit to work” and to start working. In this morality story, taxpayers prepay for your benefits so that you can repay this figurative debt by becoming a working taxpayer yourself. If you fail to comply with your “claimant commitments”, you become unworthy of their support. Then your means for subsistence will be reduced or withheld.

But it is not only money that these “debtors” are supposed to eventually pay back by becoming taxpayers. They also repay by submitting to a way of living in which everything becomes secondary to gainful employment.

Fixation on private debt

The reason why the creditor-debtor relationship is used as the model for the obligations of those who receive Universal Credit lies in the grip which the logic of private debt has on British politics.

Private debt is rightly a worry for many Britons. Millions of UK households currently have negative equity or rely on credit card debt or overdrafts to pay for essentials. Unsecured consumer credit, the type that’s not related to mortgages, is fast on the rise.

Public and private debt: not the same thing. John Williams RUS/Shutterstock

Public debt has been at the forefront of British politics at least since the onset of the recent great financial crisis in 2008. The austerity policies of recent UK governments were framed as a direct response to dangerous levels of public debt. The reduction of public spending was justified as necessary to avoid economic collapse. The consequences of these spending cuts are widely felt and disproportionately borne by the disadvantaged and vulnerable.

At the same time, there has been an equation of public and private forms of debt. This equation works via transferring the idea of overspending that causes life-changing bankruptcy from your own household to the nation. As the then deputy prime minister, Nick Clegg, put it in 2010:

We can’t keep spending money as if nothing had changed … It’s the same as a family with earnings of £26,000 a year who are spending £32,000 a year. Even though they’re already £40,000 in debt. Imagine if that was you. You’d be crippled by the interest payments.

With this equation, any pound spent on welfare is a pound added to the debt tally that urgently needs to be reduced. Under this logic, welfare payments should therefore be cut as much as possible. Any pound spent on welfare that cannot be cut should be tied to as strong an expectation as possible that it will be repaid – in some form or other – like a private loan.

A misplaced equation

But the equation hides the differences between public and private debt. States which have sovereignty over their currency such as the UK (and unlike members of the Eurozone) cannot become insolvent like private households. They can always issue more currency to remain solvent. Under some circumstances the issuing of currency can lead to inflation but that is a different question, to which a more complex answer than “balance the budget or go bust” is in order.


Read more: Two real-life accounts of the effect of benefits sanctions


The concept of Universal Credit illustrates the fixation on debt in current British politics. This fixation supports the ongoing shift from a period when public services were considered as a right, to the point where they are received conditionally, on “credit”.

To become free of this fixation, people should spend more time trying to understand public debt and money creation. Doing so would not only be useful for assessing arguments for austerity and conditional welfare. It could also help expand the limits of what kinds of politics are “economically” possible after all.