Tag Archive | Universal Credit

Welfare Reform: It could have been good

It’s such a shame. There was a wonderful opportunity to make something that worked. To get rid of what was failing and bring in new things that improved on the original. To end the mess and confusion. To repair the holes.

Instead we have more holes. Bigger holes. Holes in places that used to work.

Like Housing Benefit. For those in social housing, Housing Benefit used to go straight to the landlord. The tenant never saw it. Now, Housing Benefit is going to go to the social tenants for them to pass on to the landlord. In a pilot study, arrears increased from 2% to 11%. Landlords faced increased costs as many tenants were reluctant to pay by direct debit due to the financial penalties incurred if a debit payment bounces.

Only 37% of social landlords think direct payment will still be in place in 2017.

Occupants of social housing now also have to contend with reduced housing benefit if they have spare bedrooms. Whilst in theory it sounds sensible to not pay for under-occupation, it depends on a vital assumption that is not met. The assumption is that there are smaller houses for these tenants to move in to. The reality is that there are not. In Falkirk, there are 2547 one-bedroom properties of which 2507 are occupied. That leaves 40 for the 2645 tenants with one spare bedroom, and nothing for those with two or more spare bedrooms. The DWP admits that there is a surplus of three-bed and lack of one-bed accommodation. The DWP suggests that tenants move to a different area – but when all areas lack one-beds, where exactly are these tenants supposed to move to?

Then there’s Disability Living Allowance. This benefit exists to assist with the extra costs brought about by disability. The government is changing this to Personal Independence Payments, a benefit that they predict – and indeed predicted even before it had been designed – to cut 20% off the DLA bill. That’s 20% taken from disabled people. At least 500 000 people are expected to lose disability benefit.

Housing Benefit wasn’t broken. So why break it? DLA could have been improved; instead it was made worse.

But the biggest shame is Universal Credit.

The idea is great. Different benefits shouldn’t be tapered at different rates, as that does cause confusion. So to combine them into one payment with one tapering rate is a good idea.

But the good idea stops there.

The benefit is made up of different components, depending on one’s situation. There is a child element and a disabled element and a carer’s element. But why are these needed when there is already Child Benefit and Disability Living Allowance (soon to become Personal Independence Payments) and Carer’s Allowance?

There are different levels of personal allowance – the amount kept before tapering starts – that will change as one’s situation changes.

There is a cap to the total that can be received, but not everyone is included. Nor is every benefit included.

Council Tax Benefit isn’t included and has been devolved to local councils. This will create a postcode lottery, meaning if you move your income could change. The lack-of-inclusion means that another taper is added to that of UC.

All these things aren’t necessary. Either have a separate Child Benefit, DLA and Carer’s Allowance, or fully include them in UC.  Either have a cap or don’t. Don’t keep changing things as people’s circumstances change – if you do this, you might as well not have bothered with the whole idea of UC.

And then the real problem: all this has been brought in so quickly, that the flaws in the system remain. Councils lack the information they need about how UC will work, so they can’t adapt to it. The IT needed to support it isn’t ready. There have been four directors of this project in 6 months. The pilot scheme is being carries out manually using spreadsheets.

But it isn’t behind schedule. Oh, no. That the pilot is being carried out only in Tameside, and not Wigan, Oldham or Warrington, is not because of delays and problems. That only 300 people – 0.5% of potential claimants – are expected to join in the first month is not because of delays or problems. That those in the trial must be single, have no children, have been recently employed, not be ill or on disability benefits, not be caring for another person, not be homeless, not be in temporary accommodation, have a valid bank account and have a national insurance number is not because of delays or problems. That families will not be included in the October national roll-out – with no fixed date for when they will join – is not because of delays or problems.

It’s such a shame. The benefits system could have been improved. The holes could have been sewn up. The net could have been raised so that people didn’t hit the ground anyway when they fell in. It could have been raised so that people could climb out again.

Instead we have a mess. A universal benefit that isn’t ready; a disability benefit that excludes too many people; a housing benefit that doesn’t meet the cost of housing.

The government could have done something good.

 

References:

Latest information to Universal Credit from The Guardian:

http://www.guardian.co.uk/society/2013/apr/26/universal-credit-pilot-launch

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Lord Freud and Universal Credit – again

 

Lord Freud has written another piece about Universal Credit.  So I’ve written another response, and here it is.

 

Yes, Universal Credit should be simpler to work out withdrawal rates because there is just one withdrawal rate.  But then there are different disregard levels, so an individual may still struggle or need a computer to help them work it out – much like the benefits calculator that currently exists to allow a person to work out the effects of different situations.

Someone will still have to calculate the different components and how much a person or household is entitled to for each component, but that may be the DWP’s job.  And because tax-credits are removed, there is no need to apply to the HMRC.  So from the claimant’s view, applying is also simpler.

Online processing is supposed to give a more streamlined process.  I don’t know if this will be the case or not.  Certainly when I applied over the phone the form that was filled in for me was full of mistakes.  Filling in online meant no mistakes (or fewer mistakes) were made, because I had all the information I needed in front of me.  However I still needed support, partly because health-related benefits can be distressing to apply for.  For people competent with computers, I suspect using an online form is easier.  But for those who are not competent with computers; those who have other difficulties such as learning difficulties, dyslexia or illiteracy; those without computers or without internet; those with chaotic lifestyles or are living in hostels; for these and for others the emphasis on online submission will be detrimental.

I would have assumed that those who find online forms easier, such as because it avoids a trip to the Jobcentre, already submit online.  And those who find this too difficult will already go to the Jobcentre or use a telephone.  So why the need to change?  Should this not be about the customer’s best interest?

Furthermore, an application for Jobseeker’s necessitates repeated trips to the Jobcentre anyway.  So what’s wrong with one at the beginning of the application process?  If you have alternative plans for those who cannot manage online applications, why have them in the first place?

Comments about whether or not work is worthwhile, or more worthwhile, under Universal Credit deserve fuller attention so I shan’t address them here.

The line about ‘most people at work are paid monthly’ gets a little tiring.  The argument against is not about what most people get.  It is about what people at the bottom of the income ladder get; it is about what it is reasonable to expect of people who often already face numerous challenges that may include poor arithmetic skills; and it is about what is best for the people concerned.

If you have alternative plans for those who cannot manage on monthly pay-packets, why have them in the first place?

I’m confused by the ‘new’ conditions on working part-time and claiming benefit.  As far as I was aware, a person could only work up to 16 hours whilst retaining benefit; this was to encourage people to seek some work whilst continuing to have the requirement of looking for full-time work.  Anyone who had caring duties could claim Income Support to top-up part-time work.  I don’t know what ‘new’ conditions have been brought in, unless part-time work is to be discouraged.  Which would be unfortunate given the difficulty of finding full-time work in the current climate, and would keep people away from the labour market for longer.

Lord Freud seems to have hinted at a partial benefit for those who are ill.  Other countries have partial benefit schemes whereby those who are deemed too ill for full-time work but capable of part-time work are given partial benefits.  Some countries also top this up with an unemployment benefit if the person concerned cannot find part-time work.  But as far as I am aware, there has been no suggestion of this by the government.  I am therefore unsure what Lord Freud means when he says, “If someone can’t work full-time because of an illness or caring responsibilities or simply because a full-time job isn’t available, then we will not place additional expectations on them.”  People who cannot work full-time because of an illness do have expectations placed on them – it is called the Work-Related Activity Group.

I also imagine it could be very difficult to determine who is not working full-time “because a full-time job isn’t available,” as opposed to lack of trying.  This would also be a new policy I have not heard of before.

I can’t say whether “speculation” that the IT system will fail is true or not.  I can point out that such large schemes generally do have problems.  But concern about failure, when the concern is based on many past failures and difficulties, is not defeatist.  It is a pragmatic request that things are done properly the first time, taking the time necessary to do so.  It isn’t that “people believe we shouldn’t changes the system because it is hard.”  Rather, it is that given we are changing the system, we should do it properly.

Lord Freud correctly says that, assuming full take up under both the current system and the new one, Universal Credit will involve an extra £2 billion in spending.  Which leaves the unsettling question that if UC brings higher payments and pensioners are not being touched at all, where are the savings coming from?  In large part, the savings are coming from the fact that rises in benefits will no longer be inline with the Retail Price Index, and will instead rise with the Consumer Price Index.  This means that benefits will rise at a lower level, thus giving the savings.  This also counteracts the government’s anti-poverty measures.

This is Lord Freud’s article in the Guardian:

http://www.guardian.co.uk/commentisfree/2012/nov/01/universal-credit-debunking-myths

Will we be proud of Universal Credit?

Some time ago Lord Freud (Minister for Welfare) published an article in the Huffington Post extolling Universal Credit as a benefits system we can be proud of an should embrace.  This is a quick critique of what he said.

 

“Universal Credit will be with us next year. There have been questions raised lately and it’s worth being clear about where we are, when it will come in, and how it will impact on people.

We are rolling out Universal Credit in Greater Manchester and Cheshire regions in April next year – six months before the start of the national roll-out in October. This is the start of a four-year process that will see eight million households move on to Universal Credit and benefit from it.”[1]

So far correct.

 

“Universal Credit will create a benefits system that will secure the safety net we are all proud of – with £2 billion a year more in benefits paid out and around 900,000 children and adults being lifted out of poverty – and ensure people are actively helped by the Welfare State into independence.”

The Institute for Fiscal Studies estimated that Universal Credit would, in the long run, cost £1.7 billion more than the current system of benefits.  By ‘in the long run’ they mean that they are ignoring transitional protection.  Transitional protection means that anyone currently on benefits who would be worse off with UC will receive the same amount as they currently receive, until a change in circumstances occurs.  At that point payments will drop to UC levels.  Including transitional protection, Universal Credit will cost £3.6 billion more, but this will not be the long-term cost as the number of people receiving transitional protection will decline over time as their circumstances change.

Lord Freud is therefore correct to say that UC will result in £2 billion more in payments under UC – as long as no other changes are made that would reduce welfare payments.  This isn’t the case, but as long as UC and only UC is considered, then it is true that welfare payments will rise by £2 billion.

UC will reduce relative and absolute poverty.  The IFS estimated that, without transitional protection, UC will result in 450 000 children and 600 000 working-age adults being taken out of relative poverty.[2]  The DWP estimated a lower number of children, which is why Lord Freud has given lower figures.  But he is correct that UC will reduce poverty.

“Currently the system actively holds people back from getting into work and we have a duty to stop this.”

Jobseekers Allowance is £71 a week if you are 25 or over, or £56.25 if you are aged 16-24.  If you are on JSA, then you can also get Housing Benefit and Council Tax benefit.

Housing Benefit has a maximum of £400 a month for four bedrooms, £340 for 3 bedrooms, £290 for two bedrooms and £250 for 1 bedroom or shared accommodation.[3]  Housing Benefit is available to those on low incomes as well as those on JSA. Child Benefit is paid regardless of other income or money received.  Other benefits are tapered off as work income increases.

To see how work incentives occur, let’s consider one case – leaving aside any considerations of why someone on such low income is living in such an expensive area as I have assumed here.  This person is single, over 35, has no children and works for minimum wage.  He rents accommodation for £250 a week and pays £2000 a year in Council Tax.  He has contracted out of the state second pension, is not paying into a private pension scheme and has no savings or assets.  The person is also looking for more work.  Because he has no children, he only receives Working Tax Credit once he is working for 30 or more hours a week.

  Housing Benefit Council Tax JSA or Working Tax Credit wages Total Extra
Unemployed 250 38.47 71 0 359.47 0
11 hours 250 38.47 5 71 364.47 5
16 235.03 33.87 0 99.04 367.94 8.47
24 230.02 24.02 0 148.29 375.33 15.86
30 162.57 11.57 52.08 173.53 401.75 42.28
40 134.62 2.97 52.08 218.53 408.20 48.73

 

This case shows that there is some incentive to work for this person.  If he went from no work to 30-40 hours of work, he would be £40-50 a week better off.  An extra £40 can greatly increase the quality of housing that is affordable, or be enough to own a car, or have a holiday abroad.

Working less than 16 hours a week may not be worth the effort – it’s not even £10 extra.  This may be a ‘passive’ holding back from work – I’m assuming that by ‘active’ Lord Freud means people who would be worse off working, rather than just not very much better off.

 

So how about a couple?  This couple has no children, and the partner does not work.

  Housing Benefit Council Tax JSA or Working Tax Credit wages Total Extra
Unemployed 250 38.47 71 0 359.47 0
11 hours 250 38.47 10 71 369.47 10
16 250 38.47 0 99.04 387.51 28.04
24 232.56 33.11   148.29 413.96 54.49
30 167.77 13.17 89.53 173.53 446.00 86.53
40 152.95 8.61 89.53 218.53 449.43 89.96

 

My couple now has two children under 20; one is over 10 and the other is under 10. Because one is over ten and they are of opposite sexes, they are entitled to separate bedrooms.  This means rent can be up to £340, although I am assuming Council Tax remains at £2000.  The partner is still not in work.  No childcare costs are paid for these children.  The family does not live in London.  Nor does it live in Leicester, Bradford, Black Country, Edinburgh, Lothian and Borders or Cardiff and Vale.

  Housing Benefit Council Tax JSA or Working Tax Credit Child Tax Credit Wages (40 hrs is post tax) Child Benefit Total Extra
Unemployed 340 38.47 111.45 113.68 0 33.70 637.30 0
11 hours 340 38.47 50.45 113.68 71 33.70 647.30 10
16 340 38.47 0 113.68 99.04 33.70 624.89 -12.41
24 307.26 28.40 74.34 113.68 148.29 33.70 705.67 68.37
30 279.68 19.91 89.53 113.98 175.53 33.70 712.03 74.73
40 264.85 15.35 89.53 113.68 198.34 33.70 715.45 78.15

 

As you can see, there continues to be a ‘passive’ deterrent to work when paid work is at minimum wage and is part-time.  Full-time work and work that is paid above minimum wage will generally be worth the effort.

There is an ‘active’ deterrent, but this occurs only in situations where a parent works between 16 and 24 hours a week.  This is because the entitlement to JSA is lost at 16 hours, but Working Tax Credit for parents does not start until 24 hours a week.[4]  This is a change brought in by the current government from 6th April 2012; if they had not brought this in then there would not be any ‘active’ disincentives to work.

Lord Freud is largely incorrect to say that the system actively holds people back.

 

“By bringing together six major benefits, people will be able to manage their claims much more simply. The current risks people face by moving into work, and the fears they will be worse off, will go.  Universal Credit will remove the barriers that we have under the current system where starting a job means switching from one set of benefits to another and informing councils, Jobcentre Plus and the HMRC.  This mountain of paperwork alone is now enough to stop many people from moving into work. Under Universal Credit, claiming will be much simpler and the one benefit will stick with people as they move from unemployment and into work.”

Having looked at the different benefits and what UC replaces, I can agree that UC looks simpler, although it is not as simple as it could be.  UC means that people need only apply to the DWP, and not also to the HMRC for tax credits.  It means that only one benefit is applied for, rather than several – although passported benefits may not be that much effort anyway.  UC means that there will be one tapering rate when a benefit recipient increases the number of hours worked, rather than the different rates that currently exist.

Paperwork in applying for benefits does put people off; whether this is important in terms of stopping people moving into work is questionable.  I have no experience of moving off benefits into work so can’t comment.  The government does however have a good website system for assessing what benefits a person is eligible for.  I have used it above to work out the benefits for different scenarios.  A person does not need to know the tapering rate of a benefit to be able to work out what benefits they will receive under a change in circumstances.  Nor does a person need an understanding of maths, disregards and tapering rates as percentages of extra income.

 

“Many of the new rules under Universal Credit are designed to mimic work -whether that is self employed or paid employment – with much more accountability for both individuals and households.

For the small businesses where people also claim benefits, a requirement to do simple monthly reporting will help people keep a closer grip on their accounts and to budget effectively. In many cases it will also help people to grow their businesses. And in fact, I am working the Chartered Institute of Taxation to simplify the system for small businesses.”

These new rules include being paid monthly in arrears.  What this fails to recognise is that many employers, especially at the low-end of the wage scale, pay weekly – only half of jobs paying £10 000 a year use monthly pay packets.[5]  Monthly payments only mimics higher end jobs.  Additionally, it could leave people without money for a month whilst employers and the DWP catch up with changes in employment status such as job loss.[6]

The government even seems to have recognised that some families may struggle to budget with monthly payments: “The Government is seeking providers who can supply products with extra budgeting functions to support claimants as they move to the new benefit Universal Credit.”[7]  Whilst this may well be very helpful for many clients, it is odd that the government first claims that monthly payments will ensure budget responsibility and then claims a need to spend £80-145 million on developing schemes to manage people’s budgets for them.[8]  This need was also picked up on by the thinktank Social Market Foundation in their report, “Sink or Swim,” although they encourage an opt-in approach by individuals rather than the government identifying those whom they deem vulnerable.

The government plans to make all benefit recipients report any income at the end of every month.  But the Chartered Institute of Taxation has ruled that these extra burdens include deadlines that many businesses may be unable to meet.  According to the CIT, “ rule preventing losses from one assessment period being carried forward to the next ‘shows fundamental misunderstanding of how businesses operate.’”[9]  These monthly transactions would be calculated using different methods and criteria from those determining self-employment.  There seems to be little foundation for Freud’s comment that this will be helpful for small businesses.  however, it is good to note that he is still in consultation with the Institute on this matter.

 

“Most importantly of all, under Universal Credit people will know they are better off in work than on benefits.”

Well, yes.  But the same is true for the majority of people under the current system, and where it is not true it is because of changes made by this government to Tax Credit eligibility.  So UC is only an improvement if the incentives to work (i.e., more money is kept) are greater than the current incentives.  Work incentives are largely better under UC, but not always.  They are better for:

  • single, no children: up to 30 hours
  • single, 2 children: up to 16 hours
  • couple, no children: 2nd earner less than 10 hours
  • couple, 2 children: always better off under UC

Work incentives under UC are the same as the current system for:

  • single, no children: 40+ hrs

Work incentives under UC are worse than the current system for:

  • single, no children: 30-39 hours
  • single, 2 children: over 16 hours
  • couple, no children: 2nd earner works over 10 hours

 

“We are working closely with Councils too as they introduce localised Council Tax support schemes. The speculation that these will undermine the work incentives in Universal Credit is misguided. It fails to take into account the increased earnings disregards in Universal Credit – the amount that someone can earn before their Universal Credit starts to be reduced.”

As far as I am aware, concerns that the new Council Tax system will undermine UC is not due to lack of consideration of the increased earnings disregard.  As the above bullet-points show, UC does not uniformly improve work incentives.  Nor does UC mean everyone wins.  And UC tapers at 65%, which is higher than the taper rate for tax credits.  The Institute for Fiscal Studies said that, “It is difficult to see how a localised form of CTB could work alongside Universal Credit without undermining the government’s aims of a simpler benefit system with more transparent and stronger incentives: a fully localised CTB could lead to a complicated and opaque benefit system, if the hundreds of authorities that currently administer CTB each have their own rules for its replacement; and giving local authorities the ability to determine the withdrawal rate of CTB (or its replacement) could undermine any strengthening of work incentives that might arise when Universal Credit is introduced.”[10]  There is no reason to believe that Lord Freud is correct in saying that increased earnings disregards will be sufficient to counter any negative effects of localised CTB.

 

“As well as helping people to move into work, Universal Credit will get people online and closer to the jobs market.  Independent research carried out by Ipsos Mori, reveals that 78 per cent of working age benefit claimants say they use the internet already – clearly demonstrating that being online is suitable for most claimants.  However, we recognise that not everyone is ready to use online services and we are making sure that there will still be face-to-face and telephone support in place for those who need it.

We are working now with councils across Britain to have this support in place – and to ensure the skills people gain from learning to claim online also help them to look for work online.”

Whilst 78% use Internet, 10% of these (7.8% of the total) did not use it at home, meaning that overall 30% did not have internet access at home.  People on JSA were particularly likely to not have access to internet where they lived.[11]

But the information that matters most comes out later.  People were asked about their use of technology, specifically using self-service tills and various uses of the internet.  At best, only 51% of respondents used and were happy to continue using internet for searching for jobs online, and a further 10% had never done so but would like to try.  The possible negative responses were ‘I have done this but am not interested in doing it again’ and ‘Never done and not interested/doesn’t apply to me/never use service.  For using the internet for social network sites, 47% selected one of these responses.  For online shopping it was 47%; online banking was 51%; finding out about government services, such as entitlement to benefits, was 43%; and claiming benefits online was 58%.

Only 14% of people had previously used the internet to make a claim for benefits.  Only 43% had ever used the internet to find out about government services.

So the majority have not used the internet to access benefits, despite this being the recommended route, and the majority do not want to claim benefits online; 43% also do not wish to find out about benefits online.

These figures were for ‘main claimants’, defined as the member of the household that receives the largest amount of benefits.  When all claimants are considered, 62% responded positively when asked if they would be willing to make an application for a benefit or Tax Credit online.  45% said they would need help or support.  Reasons against online use included lack of skills (32% of respondents) and low literacy (9%), fear of making a mistake (21%) and cost (13% cited cost of computer, 10% cited cost of internet).

Evidence submitted to the DWP by the Centre for Economic and Social Inclusion suggests even worse figures:[12] “Universal Credit will also serve to reduce the channels through which individuals can claim benefit. As the draft regulations make clear, online claiming will be the only option available to claimants unless they fall “within a class of case for which the Secretary of State accepts telephone claims or where he is otherwise willing to do so.” On the latest data just 19.6% of new JSA claims were made online,[13] while ONS figures show that almost a quarter of households have no internet access and that the rate of internet use decreases in line with income.”[14]

Overall, these are not figures that suggest an on-line service of benefits is something that will work well or easily for benefit claimants.

 

“Our IT programme for Universal Credit is on time and, in fact, and is already being tested by claimants. Rather than a big bang approach we will be rolling out Universal Credit gradually. Nor are not starting from scratch, we are using existing IT systems and building the extra capacity and capability as we need it.”

But BBC News quoted Labour’s Shadow Work and Pensions Secretary Liam Byrne as saying, “Universal Credit is overdue and over budget and now everyone from the chancellor to charities, the CBI to local councils is warning this is a car-crash about to happen.  We’ve been warning of this for months and we’re summoning Iain Duncan Smith to the Commons for a full scale debate.”[15]  Liam Bryne led an opposition day debate on this topic.[16]  He has said that UC is £100 million over budget, nine months late and in danger of becoming a car crash.[17]  Leaked documents showed that part of the welfare reform – real time information on finances – has been rated as having significant risk of failure.[18]

“We are working with other Government departments, councils, housing associations and community groups across the country to prepare people for the change. We will even establish a hotline for MPs as the benefit comes in to answer their questions.”

Well, I hope they are, although DPAC might point out that the DWP sometimes claims to be in discussion with groups with whom it has not had any discussions.

“Universal Credit is about to become a part of the lives of millions of people across Britain. It will simplify their benefits and ensure their path into work is much easier and clearer. I want everyone to embrace that.”

It is unclear if UC will make paths into work easier and clearer.  Until it is shown that UC is a success, I have no intention of embracing it as such.


[1] Freud, 4th October 2012, Universal Credit will create a benefits system we are all proud of, Huffington Post. http://www.huffingtonpost.co.uk/lord-freud/universal-credit-lord-freud_b_1935413.html?utm_hp_ref=tw

[2] Brewer, Browne and Joyce, 2011, Child and working-age poverty from 2010 to 2020. Institute for Fiscal Studies.

[4] If a couple has children, together they must work at least 24 hours and one of them must work at least 16 hours.  In this hypothetical example, only one adult works so this adult must work 24 hours.

[5] Sink or Swim, Social Market Foundation

[6] ibid., IFS Brewer, Browne and Wenchao, 2011, Universal Credit: A Preliminary Analysis. Institute for Fiscal Studies

[7] Freud, 17th September 2012 New financial products to help Universal Credit claimants manage their money, DWP http://www.dwp.gov.uk/newsroom/press-releases/2012/sep-2012/dwp102-12.shtml

[10] Brewer, Browne and Wenchao, 2011, Universal Credit: A Preliminary Analysis. Institute for Fiscal Studies

[11] Tu and Ginnis, 2012, Work and the welfare system: a survey of benefits and tax credits recipients. Ipsos Mori All figures in this section come from this report.

[13] DWP (2012) Proportion of new claims to Jobseeker’s Allowance submitted online http://www.dwp.gov.uk/docs/jsa-claims-online.pdf

[14] Office of National Statistics (2012) Internet Access Quarterly Update, 2012 Q1 , 16 May 2012

[18] Kirkup, 9th Apr 2012, Tax reform project running into trouble, say experts. Telegraph. http://www.telegraph.co.uk/news/politics/conservative/9194620/Tax-reform-project-running-into-trouble-say-experts.html