Cutting universal credit would ‘hammer’ country’s lowest paid earners, warns Anneliese Dodds

Exclusive: In an interview with The Independent, the shadow chancellor also warns Rishi Sunak against increasing taxes in next year’s Budget

‘Now is not the time to either reduce spending or to increase taxation,’ says Rishi Sunak’s shadow counterpart (PA)

Anneliese Dodds has urged the chancellor not to cut universal credit, warning that any reduction would be compounded by increases in council bills and wage freezes and would “hammer” Britain’s lowest earners.

In an interview with The Independent, the shadow chancellor also warned Rishi Sunak against hiking taxes in next year’s Budget as the country faces the deepest recession for 300 years and the prospect of a third national lockdown.

At the onset of the coronavirus crisis in March, the Treasury injected £6bn into the universal credit system, providing millions of low-paid and unemployed people with an extra £20 per week until April 2021.

But Mr Sunak has failed to guarantee that the government will extend the uplift, despite repeated warnings from campaigners and opposition parties that returning to pre-pandemic levels of support could drastically increase poverty in Britain.

A decision could now come as late as the Budget in March – just weeks before the additional payment is set to expire – potentially creating further uncertainty for millions of families across the country when unemployment levels are set to peak.

“Very sadly, I think it’s very unlikely that we’ll be out of the economic consequences of this pandemic by that stage,” Ms Dodds said.

“It will be very, very difficult for people to have any chance of increasing their incomes, so I do think it is the wrong decision to be threatening to remove that money from people at that stage.

“This is part of a pattern from the Conservatives: on top of that change to universal credit uplift, you’ve also got that increase in council tax, which is going to hit the lowest-earning people the hardest and also that freeze on public sector pay, which if you look at some low-paid workers, like teaching assistants, it’s really going to hammer them as well.

Alongside campaigners, the Manchester United footballer Marcus Rashford, who has helped force two government U-turns on free school meals during the pandemic, is also reportedly pushing for the uplift in universal credit payments to be made permanent.

Mr Rashford is expected to discuss the issue over a phone call with the work and pensions secretary, Therese Coffey, in the next fortnight. He has not commented publicly on the issue, but wrote a message on Twitter to Mr Sunak last month, asking: “Is the universal credit uplift going to be taken away in April?”

In March, Mr Sunak is also expected to set out the toll of the pandemic on the nation’s finances, having warned just last month: “Our economic emergency has only just begun”. When he unveiled the latest iteration of the Treasury’s support package in November, the Office for Budget Responsibility (OBR) forecast that the deficit would hit £394bn by the end of the year – an unprecedented sum in peacetime and equivalent to 19 per cent of the entire economy.

The chancellor has repeatedly refused to rule out the possibility of increasing taxation to begin paying back some of the colossal sums of debt, despite a Conservative manifesto pledge not to increase the rate of income tax, VAT or national insurance.

The Institute for Fiscal Studies has previously suggested that tax rises seem “likely” if Mr Sunak intends to deliver on what he has described as the “sacred duty to balance the books”, but suggested the bill for spending could be deferred until after the next election.

Asked whether the chancellor should use the Budget to increase taxes, Ms Dodds replied, “No,” and urged him to ensure economic support is effectively targeted.

“But then secondly he needs to focus on building economic confidence,” she said. “It’s not just Labour saying that – bodies like the IMF [International Monetary Fund], the IFS and others have stated very clearly, obviously the UK has experienced the worst recession in the G7.

“It’s predicted to experience the slowest recovery in the G7 as well by the OECD [Organisation for Economic Cooperation and Development]. Now is not the time to either reduce spending or to increase taxation; now is the time to focus on trying to protect jobs, keeps businesses going – that’s got to be the priority of the government.”

Citing the OBR’s outlook last month that the UK economy could contract by 11 per cent in 2020 – the worst year on record since 1709 – she added: “While we’re in the middle of the deepest recession in 300 years, they should be focused on retaining jobs, recovering jobs, rebuilding business, retaining workers – that should be the focus.”

Speaking to The Independent before news emerged that Boris Johnson had struck a trade deal with the EU – removing the imminent threat of a no-deal Brexit – Ms Dodds, a former member of the European parliament for southeast England, said it was “pretty obvious” the Conservatives were not going to deliver the agreement promised at the 2019 general election.

“Unfortunately there are major areas of our economy the government has already admitted will not be covered by the deal,” she said. “Financial and related professional services, for example, employ around about 10 per cent of the UK’s population. Most of that employment is actually outside London, yet that entire, enormous sector within our economy is not included within this deal.”

However, in comments echoed by Sir Keir Starmer, who revealed on Christmas Eve that Labour would back the deal – assuring its safe passage through the Commons – the shadow chancellor said: “If the choice is deal or no deal, then a deal is obviously in the national interest”.

Ms Dodds, who was appointed John McDonnell’s successor in April after Sir Keir’s landslide win in the party’s contest to succeed Jeremy Corbyn, also recalled the “terrible disappointment” of Labour’s fourth consecutive defeat at the ballot box in 2019. 

“Obviously I wanted to see change. I wanted to see a Labour government in place," she said. "I still really do. Clearly, we’ve got that next general election in 2024, which feels like a long time away now, but actually will come quickly upon us.

“I hope that our country will be in a very different situation by then and we’ll come out of this crisis – and to be honest, I suppose the challenges of general elections feel quite distant while we are still in the middle of that crisis; it’s impacting on so many people so fundamentally.”

But for Sir Keir to form a government with a majority of just one after the next general election, Labour would need to win 124 parliamentary seats – a scale of victory not seen by the party since Tony Blair’s landslide in 1997.

While Ms Dodds insisted it was “possible”, she also recognised the sheer scale of the challenge: “It’s a mountain to climb – there’s no question about that. A steep mountain to climb.

“I’m well aware there are obviously constituencies that Labour has not held for a very long time that we will need to regain. We need to be positioning ourselves as able to represent people right across the country, in every single part of it. I’m determined that we have that conversation with people right across the UK that we understand their concerns.”