Work and Pensions Committee - Minutes of Evidence576

House of COMMONS



Work and Pensions Committee

Universal Credit

Monday 17 September 2012

Iain Duncan Smith and Lord Freud

Evidence heard in Public Questions 201-377



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Oral Evidence

Taken before the Work and Pensions Committee

on Monday 17 September 2012

Members present:

Dame Anne Begg, in the Chair

Andrew Bingham

Glenda Jackson

Stephen Lloyd

Teresa Pearce


Examination of Witnesses

Witnesses: Rt Hon Iain Duncan Smith MP, Secretary of State, and Lord Freud, Minister for Welfare Reform, Department for Work and Pensions, gave evidence.

Q201 Chair: Can I welcome you to this afternoon’s evidence session? This is the last evidence session we will be taking with regard to our inquiry into the implementation of Universal Credit. I think our inquiry seems to be quite timely, as it seems to have generated rather a lot of interest. Can I begin with an apology on behalf of the Committee as to why our numbers seem a bit denuded? It would appear that this Committee is a very good recruiting ground into ministerial office or, indeed, PPS office, so, unfortunately, four of the Government members have departed and, from the Labour side, we have one member who has recently lost her mother and another who has been in hospital with an operation, so apologies for the numbers, but no doubt we will still have just as many questions, and we have rather a lot of questions. Without further ado, if I can start by asking some questions on the whole issue of payment arrangements and the support for claimants: the target is that, by 2013, which is not that long away, 50% of claims will be made online. Do you think this is achievable, bearing in mind that less than 20% of Jobseekers Allowance (JSA) claims are currently made online?

Mr Duncan Smith: Can I say it is always a privilege to be here? I am very happy to be here and, of course, the two of us, together, we hope, will be able to cover all of your questions between us, and the full range of them, including some of the points we made earlier on about the issues around RTI1 as well, and I think we should be able to cope with those quite happily.

Yes, I do, actually, because our position was that, by 2013, 50% would be online, but it is quite interesting in terms of the fact that society has moved on a lot from, sometimes, where my colleagues think they are. In reality, they are quite different. 83% of UK households have internet access. We are above the EU average. What is interesting, really, is, when we surveyed claimants, we found that 78% of all claimants-by the way, this includes tax credits etc-use the internet, and at least 41% carry on online banking. A very significant chunk of people who are actually in receipt of benefits are not just being online-the majority-but also, significantly, online banking, so we would do.

I had a long look at this with the officials and with David (Lord Freud), and we looked at this and we broke them down into three groups, recognising that, originally, when we started, 20% were doing this, but 30% were making an attempt at online and not completing the online processes, so there is a higher number who start by going online but found the present system too complex. So, essentially, we broke them down into three groups: the group that are willing and able, and that is about 30%, who, frankly, will not take any time to move across with a better system, and that is what the whole of Universal Credit is meant to be about. The other group, which is 33%, are willing but will require some support, because they are already literate and they just need to be got across on to this in terms of benefits. The last group-up to 37%-are not really used to this at all. Some of them are not literate; some are but have never thought about it and are resistant to it, and those will require the greater level of support, and that is how we work it.

Q202 Chair: Can we look, then, at that last group that you have just described?

Mr Duncan Smith: Yes, sure.

Chair: They, with the best will in the world, will never have access to the internet, either at home or, indeed, if they do not have it at home, are unlikely to be able to access it in a public place either. What help is going to be in place for them? Will there be a helpline number that they can phone automatically?

Mr Duncan Smith: There are two things. First of all, with respect, Chair, I do not accept that they will not be. I think part of the process of this is that many of those in that group will already have access, using telephones and using processes that involve them being online. The point that we are making here is that, for some other reason, it may be, for some of them, that they are not online; others, who are online but very resistant to the idea of having to do this-they are used to going into the benefit centres and they are used to doing it by telephone-are the ones who are resistant. There are plenty of things that we are doing to break them down: the first is to break those groups down into those who have some understanding of the internet, and what we are going to be doing is putting inside-and we are at the moment trialling that-the Jobcentres a much greater number of computers that are wired through to the claim process.

Q203 Chair: Will there be staff there to help people?

Mr Duncan Smith: Yes. The whole point is that in the Jobcentres people will be trained up to help them. I also want to put, alongside those, telephones so that they can go through to the existing telephone system-the telephone banks that we have-and they will be processed so that they will be helped through; in other words, they are online and, if they are not sure about it, they pick up the telephone and they talk to somebody at the other end and they say, "Okay, right, let us get you on to the right page; let us get you down; you need to fill in that box; have you done it?" In due course, we want to be able to tie them up so that what they see and what the claimant sees is exactly the same page, so they can walk them through and make sure their claim is exactly correct, so they get used to it. Remember, they will only ever have to make one claim and, thereafter, it is just a check and adjust. They will not have to keep on making the same claim again.

The second bit of it is, for those who are capable of going home and doing it, because they have internet access, some training on this will have released them to do it from home. For those who really are not, we will keep them coming in. We are also looking, for those outlying areas, mobile support and access. We have been talking to the telephone company about this. They have mobile vans and systems, and we want to be able to use those as well for the people who find themselves in vulnerable situations. Have I missed anything?

Lord Freud: I think it is worthwhile explaining what we mean by "digital by default", which is, if you go on with separate channels-a telephone channel, a face to face channel and a digital channel-what inevitably happens is that people go on one of them and stay on the one that they have chosen. What we are aiming to do is converge people on to the digital channel.

Q204 Chair: So, you basically want to force them on digital to and you put up quite a lot of barriers to make sure they go?

Lord Freud: No, that is exactly not what I said. I said the digital channel is the main channel, but what you are doing with, for instance, the face to face channel, which we are looking at how best to do, is you will be supporting people, in a face to face meeting, in terms of getting them on to digital. It may be that, the first time, they need face to face support getting on to digital, and the second time and the third time, but, eventually, those people will be able to handle their own claim themselves, directly with the system. One of the things we are doing is, on a rather elaborate basis, trialling and piloting with the local authorities how to provide some of these services; particularly, how to get people on to digital, and how to get people financially included. That is the other area of concern that we have: that we get people financially and digitally included, so they can take a full part in the economic life of this country.

Mr Duncan Smith: It is important, of course. I will finish this because I know you want to move on with various other questions, but the really important point is to see this as a real positive opportunity. For quite a lot of the people who end up in difficulties, who are not almost immediately in the world of work, one of the big problems we have found, through a lot of the work that we have done, is that they are excluded from quite a lot of jobs that, these days, require some kind of computer literacy, so they are ruled out of those. They are very limited in what they can do. This is a very good opportunity to get those people back into the 21st Century, so they are able to take some of those jobs. Many of those jobs are being found by people coming from outside, so it is really a good opportunity to get them online and it will do them the world of good.

Q205 Andrew Bingham: So, really, the fact that they will be using digital access to this, and they will have somebody by their side helping them through it, is almost like a training to prepare them better for work as well.

Mr Duncan Smith: It is for those who need it but, as I said, at the moment, we treat everybody as though they have absolutely no skill in this at all. By default, they either come into the centres or they do it by telephone and somebody else does a lot of it for them. My point is an awful lot of those people would be quite content to do this, if we just get them on the right track. Even for those who do not have devices, we are working with companies to get those small internet-access devices, which are dumb terminals that they can use as well, if they want those installed for the first time in their home. We are looking at all of those aspects to help people get through. To get 50% in October I do not think is an issue at all, and I think we will be exceeding 80% by the end of this.

Q206 Chair: Can I just be clear: will people be able to access this on their smartphones? Large numbers of those who you have already classed as the digitally active have only got access not through major computers but through their smartphones. There are, obviously, security issues around that.

Lord Freud: What you2 have to look at is this system is being gradually introduced over four years, and it is on a digital platform. Right now, the favoured digital platforms may be laptops or computers but, as you look forward, you can see that it can be on anything. It could be on a phone. Google is experimenting with putting it on glasses.

Q207 Chair: I think what is on glasses will be what they can read on the screen.

Lord Freud: What I am saying is that we are preparing a system that is capable of expanding through the decades of the technological development.

Q208 Chair: Have you quantified the resources that will need to be put in place to make sure there are the terminals in the Jobcentre Plus and there is that help? Is that anywhere? Can we get copies of how much that is all going to cost, especially as the numbers of staff in Jobcentre Plus have been getting cut over recent years?

Mr Duncan Smith: I am quite happy to talk to you and, if necessary, submit whatever it is to the Committee, but my general view about this-and I have been very close to this from the word "go"-is, right now, I think it will be far more effective and more efficient. Rather than costing us any great money, the truth is it is actually going to save us an awful lot of money at the end of the day.

Q209 Chair: That is in the long term.

Mr Duncan Smith: Even in the medium term, to be quite frank. I am very happy, Chair, to submit to you anything you want about this. But it is an investment. Whatever we do here is an investment in changing people’s lives and getting them in the situation where they are able to have a much improved quality of life and, also, are more accessible to jobs, quicker to get their things sorted out, and much quicker to find out their situation.

Q210 Chair: Even talking about the numbers that you have you are still talking about huge numbers, even by the end of rollout: 20% who will not be able to do the digital online form. How will you identify those people? What will be the criteria that will alert your Department to, "Here is someone who is going to need extra help and who is not going to be able to access it through the digital online service"?

Lord Freud: This is one of the key issues that we are looking at dealing with and we are currently working out how to deal with. The current system basically has something that falls to the lowest common denominator, as Iain said. What we are determined to do is to find the people who really need the support and provide that support for them, without encouraging everyone to require that level of support, and then we tend to move people up. We are doing a major exercise currently to work out how to find those people and find out what support they need. What we are finding is that it is wrong to look at people as being vulnerable as a group; what is right to do is to look at them having particular vulnerabilities and how we support them with those vulnerabilities.

Q211 Chair: What are those vulnerabilities?

Lord Freud: They are various things: incapable of using digital media; incapable of running a budget. These are various difficulties, which may be medical or disabilities. Those are particular vulnerabilities that will need particular support.

Mr Duncan Smith: The intention is to provide a face to face channel for people who we find in that situation, who will be helped to walk through this process and supported all the way through. We have always allowed for the fact that we provide this for the majority and, for the minority who have a difficulty, we provide support.

Q212 Chair: For people who at the moment have needed a welfare rights officer or who have needed help with filling in the form, will the proxy be able to access the online claim and will there be all sorts of barriers that will stop other people? There must be, in terms of security.

Lord Freud: We will have a system that allows trusted intermediaries to enter on behalf of those people and to help them do those things. We have a trusted intermediaries system here, and that system will run on.

Q213 Chair: "Trusted intermediary" does not usually apply to welfare rights officers, because some will go into the office and it will be a different officer, or CAB3 staff. A trusted intermediary is a relative, but there will be people who do not have relatives or other people in their families who can help them.

Mr Duncan Smith: We do an awful lot of this work already. In a sense, there is nothing new about this for the Jobcentres. There is a whole variety of ways, as I said earlier on-

Q214 Chair: Yes, but it is a form, as opposed to-

Mr Duncan Smith: Yes, but that is exactly my point. Those same people, if they are in that kind of state, will, at the moment, be dealt with, closely and personally, by members of staff. They will also be dealt with sensitively if they are on the telephone. There is a whole process the Jobcentre already does that to. What we are simply saying is that the present system is not good for going online, because it is very messy, it is very notchy, and it is very difficult to negotiate. The new system we are designing, which I think you had a bit of a presentation on, is going to be much simpler and much easier and will tie them down in a very straightforward way. What we are saying is, for the vast majority who are or will be online, that system will help them get through; there will be some support for those who are left behind, absolutely. They may be temporary or they may be permanent; we will make sure they are walked through.

Chair: That is all assuming that the computer system works.

Q215 Glenda Jackson: Lord Freud, are you saying that you are regarding local authorities as playing a major role in this programme? If they are, are they being funded adequately? Is the equipment going to be provided to them? Will they be encouraged to employ and train increased staff? On the issue of the most vulnerable, the Secretary of State led me to believe that you already know what constitutes the most vulnerable. Do you know who they are, where they are and what their vulnerabilities are? For example, it is merely anecdotal, but for one of my constituents, who suffers from agoraphobia and has never left his house for 35 years, everything to date has been done for him by his mother, who is clearly ageing every year and has disabilities herself, and is a million miles from being able to use a computer in any way, shape or form. How are his needs going to be met? To pick up on the point that the Chair made, who is the trusted individual, and what kind of security systems are you going to put in place to ensure that the individual is trustworthy?

Lord Freud: Let’s start off with the first set of questions about the local authorities. We have, just last month, announced a series of pilots on how local authorities can work with Universal Credit. We have them in 15 local authorities, where they are working on how you get people on the digital system, how you get the financial support, and how you help them into work and other aspects. I think we had exactly 47 proposals for these pilots from local authorities, and I was deeply impressed by the imagination and the focus of those pilots when you started to read them through, and how they were really concentrating on helping people as individuals in a way that I had never seen before. I think one of the best things coming out of Universal Credit is the way that you are getting a focus on people’s complete issues and the way that they are addressed. I am very encouraged by those pilots. They are just starting. There was a meeting today, where they were all assembled to look at how to do it. They will take place over the next year. We will learn a lot of lessons from those pilots on how exactly local authorities should be involved. Then, as we move through the process over the next four years from October 2013 to 2017, and we start to get more people with great difficulties, we will have learned those lessons and learned how best local authorities, among others, should be deployed.

Q216 Glenda Jackson: Will the funding be there to assist local authorities?

Lord Freud: Clearly, it is premature to say exactly what kind of funding is required.

Q217 Glenda Jackson: We know the cuts they are having to carry.

Lord Freud: We have got funds to introduce Universal Credit. We are not concerned about who undertakes particular endeavours, and we can pay that on a neutral basis, so, in that sense, yes, we do have funding for it.

Q218 Chair: My understanding was that a large chunk of the £2 billion-or £3 billion; there seemed to be some argument in the debate last Tuesday-that was set aside to help introduce Universal Credit would go on transitional protection for those whose income would lose out, rather than in the mechanics of it.

Mr Duncan Smith: The mechanics are part of all of that. The whole point that we have been talking about is getting people online. All those processes are part of what we have to do. We are discussing with local government about how that lies and where that sits. There are other charitable organisations we are talking to. Can I just pick up one point?

Q219 Chair: Can I just pursue that, because I am not clear? My understanding is that a large proportion of the £2 billion or £3 billion-I never heard what the proportion would be-would be straightforward cash transfer to claimants to make up for the difference between what they were getting before Universal Credit was introduced and what they are getting after Universal Credit. That will eventually disappear as inflation takes over, so that, therefore, leaves a lot less money, in terms of the implementation, to go to local authorities-

Mr Duncan Smith: With respect, "less" and "more" are just terms. The reality for us is that we have to sit down with local government, which is what we are doing, and identify what they think they can do and where the overlaps are with things that they are already doing. For example, we are also localising the Social Fund-an area that will overlap with some of these vulnerable groups, so we are working on the details of that. Our point is, simply, it is a matter of process for us with them to decide how this is done, where this is done and who does it, and what the breakout on that is, so I would not really get caught up in the issues around the detailed funding at this particular point, because, within the envelopes of all the funding, we will find the responsibilities for this. I do not think there is an issue here.

Q220 Chair: Surely, though, that amount is capped.

Mr Duncan Smith: With respect, I do not think we should get into a debate about whether or not there is a finite amount within this. My point is we are obligated, with local government and with all the organisations. We planned for this originally. This is what we are discussing and talking to them about: where these responsibilities lie and to what extent some of those may be picked up already, and others that we may have to add to as necessary.

Can I pick up the point that Glenda Jackson made? Glenda Jackson gave a particular case. Can I say that, actually, that case would have to be resolved right now, as it stood, because, if you have an ageing mother, and the ageing mother is less likely, in the future, to be able to help them out, that is exactly what they already have to do: they have to find out how they will be able to deal with this individual who has that particular condition. That is not going to change for Universal Credit; in fact, what Universal Credit will do will allow us to focus in rather quickly on those sorts of people who have those problems. Rather than letting them, or making them, come to us, we will able to discover them much more quickly than we do at the moment, for the very simply reason of how we break this down and it all comes into one single figure.

Q221 Glenda Jackson: But you just said you know who these vulnerable people are.

Mr Duncan Smith: We do. We know them already. My point is you are giving us a case that exists already. That is already known. That will be passported across. My point is, for other new groups that have these particular problems, this process will allow us to get to them much more quickly than we do at the present.

Q222 Glenda Jackson: Who will be the trusted individual and how will that trust be defined?

Mr Duncan Smith: That is between the individual who requires this, the people who they trust, and the Department and the Jobcentres, and all those people will be together, as in all these cases, working out how we support that individual. One of the things about this, including things likely monthly payments, which we are going to come on to, and others, is that we can start hubbing up around the individual, rather than treating them on a single item at each point. We can begin to understand those who have vulnerabilities and who do not make it to the points that we need. Now we can really identify those and, instead of having a system set around them, have a system set for the majority, which allows us to deal with those who have particular individual problems.

Q223 Glenda Jackson: Who is going to be responsible for this interweaving of all the Departments? If I simply look at some of the most vulnerable people in my constituency, it is not only Jobcentre Plus-it is the health service, it is local authorities, it could be mental health.

Mr Duncan Smith: With respect, Ms Jackson, nothing is going to change in that, because these are the same organisations that deal with them daily and get on with trying to resolve what it is for them that we need to do. The point about Universal Credit means, I think and believe, that we will be able to identify them in a far faster mode and in a more meaningful way, because we will be able to surround them with the relevant-let me just take an example: we will get to somebody who has a problem with budgeting much more quickly.

Q224 Chair: I think we have got that vulnerable people already exist in the system and we deal with them in the present system.

Mr Duncan Smith: Exactly.

Glenda Jackson: We do not.

Chair: Obviously whether we do or not is the argument.

Glenda Jackson: We definitely do not.

Q225 Chair: Universal Credit or any major reform to the welfare system costs a lot of money, both administratively and in terms of transitional protection. Local authorities are very worried that they are going to be given a great deal more work to do but on a diminished budget. That is made even worse by the fact that council tax benefit will be devolved to local authorities as well, with a 10% top slice, but they are not allowed to let this affect pensioners. What assurances can you give to local authorities that they are not going to suddenly be landed with a huge amount of extra work supporting vulnerable people without the money there? The trickledown is not going to happen from the money that is there to implement the system.

Lord Freud: We will, bluntly, abide by the new burdens doctrine. To the extent that there are genuine new burdens, which we have transferred from our responsibility, the costs will have to go there, albeit costs that are judged to be reasonable. There is a big process. There is clearly quite a change in the localisation of some of the responsibilities that the welfare system would have centralised.

Q226 Chair: I think I have said to the Secretary of State before that the Communities Secretary of State’s localism trumped the Secretary of State’s simplicity.

Lord Freud: No. Let me just go through that. What we are transferring to local authorities is a whole range of responsibilities, where they can make better judgments on their local requirements: elements of the Social Fund; the decisions on DHPs4, which are very substantial-next year, when you add them all up, DHPs are £165 million; and decisions on direct payments.

Q227 Chair: That just confuses the landscape. The whole point of Universal Credit, and the reason that you get people like me saying that in principle this was a good idea was it was meant to be that single working-age benefit for those who were on means-tested benefit.

Lord Freud: And it is.

Chair: But it is not.

Lord Freud: It is.

Q228 Chair: It was going to be, but then council tax went off to the local authority and the Social Fund went off-

Mr Duncan Smith: With respect, Chair, the whole point about this is that Universal Credit collects up those benefits that are relevant to work-the means-tested elements of it-and basically what we do is we simplify that process and make sure that they act as an incentive to go back to work. There has always been a reality that, around the edges of that, there are always particular conditions and issues that need to be dealt with sensitively and, we believe, better dealt with locally. So, you allow for local intervention because the truth is I think it is better to have things like the Social Fund locally, because at least then there is a chance they get face to face discussions with people.

We have had, in the past, Social Fund payments that have been many payments, so people are treating them as a kind of top-up to their benefits, and no one really asked the question, "What is their problem? What is the issue there?" What we are doing now is moving it to that point where you can start to deal with the problem that is at the root cause of why they are getting into situations where they cannot pay their debts, they cannot budget, or they are having difficulties. Now at least we can begin to focus, and that is the arrangement, really, that Lord Freud is talking about, with getting local authorities to work with us. These are discussions we are having with them at the moment.

Q229 Chair: But all of that takes money. Anyway, I wanted to move on to monthly payments, because quite a lot of the evidence that we have received is that there is a huge concern about monthly payments, not just about those who are used to budgeting either weekly or fortnightly, but just in terms of the nature of Universal Credit: if something goes wrong, in some cases it will be all of their income that they will not get. There are going to be people who will not manage their monthly payments-there have to be. Even if it is 10% or 20%, they are quite large numbers. What arrangements are going to be in place for those? Again, to go back to Glenda Jackson’s point, how will you identify the most vulnerable, in order to give them an option?

Mr Duncan Smith: Can I just put the first base as to what we are doing and why we are doing it, and then hand the details over to Lord Freud? First of all, this is part of that process that says, "Look, the problem with the system that we have, apart from its complexity of different benefits, is that it is a system that is set around the problems of a minority of people in the benefits system, and the majority then have to be part of that". For example, with regards to paying people originally weekly, then fortnightly, the reality of direct payment, and all these things, are set around people who find difficulty in coping. We know they are in the system, but the reality for the majority is simply this: the majority of people, including with tax credits, cycle in and out of the benefits system, either through temporary work or completely in and out because they fall out of work for a period and they come in. 75% of those in work are on monthly payments at the moment, and that is a figure that is rising all the time. In other words, employers want to put people into monthly payments. One of our big problems is, when people fall out of work, they go from what is a standard monthly payment, often, to then having to figure out that they are in fortnightly. It is awkward for them. Getting this set for the majority is critical, so that we can get that cycle.

The second bit of this, which is important and is going to deal with the individual cases on this, is that, for those who have been longer-term unemployed and have got used to fortnightly, the point about this is now the barrier to work is that going to monthly payments once you are in work is the wrong moment to identify when you have a problem, because that means you are likely to crash out of work at that point, because you cannot cope. We need to get them to cope before they go to work, and centre up responsibilities and hub up these issues around them, so that we can deal with them, to get them through their problems. Lord Freud is now going to talk to you about some of the details.

Q230 Stephen Lloyd: Just on that, Secretary of State, what sort of temporary transitional arrangement would you then have for people moving from two weeks to four weeks? People in that particular cohort are severely financially constrained.

Mr Duncan Smith: Some of them are. I am going to get Lord Freud now to talk about that in detail, but I just wanted to make a headline point: this is a positive for those who are out of work. Remember, we did manage a transition from one to two. We were told by everybody it would be a disaster but it is possible to manage people from there to a month.

Lord Freud: Clearly, these issues are related. The direct payments, the monthly payments and the split payments-who gets it-are all areas which circle the same issue5.

Q231 Chair: I have to say they are probably the same people who are digitally excluded.

Lord Freud: Exactly.

Chair: What are the arrangements for them? That is what I want to know. I want to know what the arrangements are for the unusual ones.

Lord Freud: The decision that we have taken is that it is not right to create, in Universal Credit, a proto bank account which makes the payments and does the splits and all of that. That is not the smart thing to do. The smart thing to do is to move that payment through into a proper banking system. That is what we have decided to do, and that means that, in that provision, we can make direct payments to landlords, we can reserve some money for discretionary spending, and so on and so forth. This is the classic, in the jargon, "jam-jar account".

We are announcing today, and we are revealing right now to the Committee, that we have just put out a document requesting expressions of interest from the financial community on how to create some of those products6. We are prepared to subsidise them, and the announcement talks about a running figure of up to £140 million, to make sure that people have the ability to manage their finances and then get support to do so. That is one of the most vital parts of modernising the system; we are allowing people to take control of their lives and get rid of the poverty premium that we have imposed on people by giving them dribs and drabs of money, so they can never buy anything.

Q232 Stephen Lloyd: I agree, but, Lord Freud, can I-

Lord Freud: Sorry, Stephen Lloyd, what we are doing is arranging an advance for people so that they do not see any gap in their payments. So, there is a provision that we have designed so that they can fill the hole, if they need to, as they move from a fortnightly system to a monthly system.

Q233 Stephen Lloyd: Good. I am very encouraged by that. That is the first I have heard of it, so I think that sounds like a very good idea.

Mr Duncan Smith: Also, we have a very good understanding at the moment that those already in difficulty have budgeting problems etc. What this does is bring all that information together. We can transition them over a longer period, if necessary. The real point is understanding which family has a problem. Then you work with them to get them through this process, so you may need to break it down over a longer period.

Q234 Stephen Lloyd: That dealt with a major anxiety of mine that that particular group, albeit a percentage, will then be driven to payday loan companies and whathaveyou.

Mr Duncan Smith: Again, the majority are dealt with, and now we can focus on the minority. That is the key.

Lord Freud: That provision is in Universal Credit.

Q235 Glenda Jackson: Could I just ask: is the minority who will be afforded this change in payments the same minority of the most vulnerable, who you know about?

Lord Freud: Anyone transitioning on to Universal Credit from other systems will have a facility to take an advance to meet any shortfall for the period before the first formal sets of payments are made. We have put that into the system, so it is not a question of vulnerability; it is a question of whether they think that that is what they need. The interesting thing, as the Secretary of State pointed out, is that, when the Department transitioned from one week to two weeks, a lot of provision was put aside for exactly that reason. In fact, remarkably little of those funds were drawn down by claimants.

Q236 Glenda Jackson: Can anyone moving on to Universal Credit, regardless of my definition, say, "I want to be paid two-weekly"?

Lord Freud: No, he can say, "I need an advance to bridge the gap as I go on to the monthly system."

Q237 Glenda Jackson: How long does that last-one payment, two payments?

Lord Freud: One payment, just to get you on; then you get a lump-sum monthly payment, and then you are on the monthly payment system.

Q238 Glenda Jackson: So, you get six weeks’ pay.

Lord Freud: There is an interim payment advance.

Q239 Glenda Jackson: Of two weeks.

Lord Freud: Of two weeks.

Q240 Glenda Jackson: And then you go on to the monthly payment. So, in effect, is it a block payment of six weeks of Universal Credit? Is it two weeks and then four weeks?

Lord Freud: Depending exactly on the timing, if you are moving from a two-week system, in practice there will be an advance at the twoweek point to bridge you over into the full one-month payment.

Mr Duncan Smith: Then we look at those, for example, who have serious budgeting issues and we have to work with the authorities on those people to make sure we get them through from two weeks to one month, and stabilise them and deal with their problems. That allows you to focus on those people separately.

Q241 Chair: You have said it is about treating people as grown-ups, as though they were in work, but actually it is the very opposite, because you are not giving them any choice whatsoever. A lot of people in work get weekly payments. In fact, a number of people pay their rent weekly. That is going to be quite difficult to transition into monthly, because there are not four weeks in a month; there are slightly more than that.

Mr Duncan Smith: As Lord Freud talked about, what this also means that we do is we work with people, through those banking products and others, to show that, "There are ways in which you manage your money far better than you do at the moment". That is the process, and he talked about those products that we are talking about. Someone referred to "jam-jar accounts" and various other direct debit processes, but the reality is a lot of those who have been working through in the trials, who have never been in banking, have moved to that very successfully.

The point is what we are not doing is treating them all as though they are infants; we are saying, "Okay, one of the barriers is that the vast majority of people in work are paid monthly. You are, for the most part, going to have to fit in with that." We have a system at the moment that is still set around the idea that somebody leaves a factory gate and gets cash in their pocket once a week or maybe a fortnight. Those days have long gone. For some, they are still there, but vast majorities want to go on monthly, and we have to get them ready for that. That is what this is about.

Q242 Chair: I have lots more on that, but just before I leave, I am not sure I have an answer about the extra resources for local authorities. Could I try this one then: will there be extra resources for the advice sector to assist with the transition to Universal Credit?

Mr Duncan Smith: The very simple answer to that is wherever we need it, if it is needed and support is needed, the Government obviously provides that, but my point is we have to figure out whether it is needed and where that will fall.

Q243 Stephen Lloyd: Can I make a plea then that we have a parliamentary helpline? Whatever the issues, strengths and weaknesses are, we will have a lot of people coming into our constituencies.

Mr Duncan Smith: We are going to have an MPs’ hotline. Sorry, I do not know if we should have said that. We have agreed to have an MPs’ hotline, so you will be able to get straight on to them.

Lord Freud: In response to Anne’s question, we will find some funding for the advisory sector and we can commit today, I think, to have an MPs’ hotline.

Q244 Glenda Jackson: When are you going to tell them that there is an MPs’ hotline?

Mr Duncan Smith: When we have agreed it.

Chair: Glenda, we are not going to get through everything else. I really need to move on. We are going on to Real-Time Information, and Teresa has some questions.

Q245 Teresa Pearce: Thank you. Just before we go on to Real Time Information, Lord Freud, you said there were 15 local authorities in this pilot. Could you let us know who they are?

Lord Freud: Yes. It is probably easier for me to write to you.

Q246 Teresa Pearce: Also, I believe that there is a single district and single contact centre where you are piloting getting more people on Jobseeker’s Allowance (JSA) online.

Mr Duncan Smith: That is not the same pilot. This is in other areas. There are a number of areas where we are doing that.

Q247 Teresa Pearce: No, I know it is not the same pilot, but there is also a pilot to get people on JSA online.

Mr Duncan Smith: Yes, there are a number of places. We can give you the list of those that are doing that7.

Q248 Teresa Pearce: I was told it was a single district and a single contact centre.

Mr Duncan Smith: There is the pilot itself but we are already rolling out more computers into the Jobcentres.

Q249 Teresa Pearce: If you could let me know at a later time which single district and which single contact centre, and the 15 local authorities, that would be really helpful.

Real-Time Information: witnesses, including the Confederation of British Industry (CBI) and the Institute of Chartered Accountants, have told us that many small businesses are going to struggle to comply with the timetable. I think Sage-a massive payroll software provider-did a survey across 1,000 small businesses, and 36% of them were unaware of the upcoming Real-Time Information changes. That was last month. Does that worry you?

Lord Freud: If I start this off, there was a consultation on RTI in summer 2010, and we adjusted how the RTI would work to use existing systems that companies already used to communicate with HMRC. Those were perfectly adequate for us to run our system of Universal Credit. We will get enough information from that methodology to be able to pay Universal Credit. What then happened is the software providers built the systems needed to adapt existing payroll provision, and the pilots started this spring. The pilots had, in practice, gone rather more smoothly than we would have expected-certainly than I expected.

Q250 Teresa Pearce: Is that because of the class of employers you were working with?

Lord Freud: They took a range, from very big to very small-right down to an employer who was the CEO who did his own payroll. They started with ten then went up to 300, and so on and so on. Currently, there are now, more or less, two million employees on the system, as we speak, going through it, and it has gone surprisingly smoothly. I say this because I was, as anyone would be, concerned about how a big change like this would go through, but it seems to have gone very well. You can tell that because the level of noise in the system, as people move over to it, is remarkably low.

What is happening now is that software providers and employers who have stood back a bit from this new system have now come forward, and HMRC have accelerated the introduction of new employers in this current period. We are on target to get a large number in by next April, when we start our Pathfinders, and to complete the transfer by next October. The view of the officials running the process is that giving someone 18 months’ notice of a new system coming in when it is a relatively straightforward change is counterproductive, because they forget about it. A build-up that is relatively rapid in terms of introduction for this kind of system seems to be appropriate. That is what their experience is and they have done it building up carefully.

Q251 Teresa Pearce: Could you just clarify, because software suppliers had indicated to us that there was insufficient time for them to develop the products, because they had not had the specifications from HMRC. Are you saying that has been resolved now?

Lord Freud: Yes, that has now been resolved. There was early concern from the software providers about how much time they had, and that concern has basically gone away.

Mr Duncan Smith: Plus HMRC are offering free software now to the smallest companies, so that is already on their scales. It might be useful for us to run some of the numbers past them on the trial.

Lord Freud: Yes.

Mr Duncan Smith: It might be useful to you because, by September, there will be 1.9 million individual records, which is 1,500 Pay As You Earn (PAYE) employee schemes. Of those, something like 1,230 are small employers. By March 2013, they are talking about over six million individual records, and a quarter of a million PAYE schemes; April adds about another 1.2 million small employers, and by October about 1.6 million will have migrated to RTI, so you can see the build-up is reasonable. That is just to give you a thumbnail sketch of it. Of those, as I said, at the moment, there is no rush on that.

It is important for us to understand what we need. For Universal Credit, we have a much smaller subset of requirement than the whole of the RTI system. We are using-and we will use for Universal Credit until they get the whole thing completed-what is called the EDI, which is the Electronic Data Interchange system, which is already in existence. We also have alongside that an internet channel. These are things that employers and small employers already use for passing their data back and forwards with HMRC. We are using that and, from that, we need, give or take, about a third of the amount of data that is required for the RTI process from employers, so we do not need all of that. Universal Credit is already, essentially, on a track, which is part of an easier subset of that, so it is not a complete thing for us.

Q252 Teresa Pearce: Lord Freud, you said that the pilot had gone well. What did not go well? What did you learn? What issues were identified?

Lord Freud: I had exactly the same question as we got briefed on this weekly. The big concerns were data-matching: that someone would send information about an employee and there was no record of it at the other end at HMRC, so they did not know what information about who was being sent. What that meant was that the employers who sent dirty data along would be contacted to make sure it was matchable data. I think they are currently running at-and I will be nudged from behind if I am wrong-99.8% matching, so there is work on 0.2% to get that correct. That was the big issue. One of the issues was that they had put in a whole team to do the telephone responses of people with problems, and they were actually pretty underoccupied, because it was relatively straightforward. That was an internal issue around overinvestment.

Q253 Teresa Pearce: It would be, though, the relatively compliant employer who would volunteer for this scheme, and there will be employers who are not compliant. To get them up to speed in such a short space of time is going to take a lot of effort.

Lord Freud: One can only go by the pilots and what people have trialled.

Q254 Stephen Lloyd: There is a real point behind that. Presumably, in the pilots you have ensured that some more challenging employers are included. There is no point going to a bunch of employers who are straightforward.

Lord Freud: Yes. The first handful were literally ten employers in the first month or two, then it was 300, and now it is 1,300. By then, you are getting people whose systems are not quite as straightforward, and you are learning the whole time. It is literally pressing one extra button. You do the payroll and you press one button to send that information over to HMRC. What happens, technically, is that that information goes to HMRC, the payment goes through the banking system, and there is a match of the two records. It is called the hash, which is matched across, and that is what happens, but it makes it rather easy, if the software is working. There were examples, originally, in the first couple of months, where the button was not switched on properly, but, if the button is switched on properly, it is a relatively straightforward process when you are doing the payroll.

Q255 Teresa Pearce: What you have, then, is an employer who runs the payroll, presses a switch and informs HMRC of what they have paid on the payroll; assuming they pay by BACS, that is then verified by BACS8.

Lord Freud: Yes.

Q256 Teresa Pearce: What if they do not pay by BACS and they pay by cheque?

Lord Freud: I think 96% of payments are made through BACS, so, if they are not paid through BACS, it is a non-electronic check system.9

Q257 Teresa Pearce: You can understand people’s reticence to believe that the HMRC computer system will work, given it is relatively recently that, if people had more than one job and were reported at the end of the year to HMRC, HMRC could not match those two people up, and people ended up underpaid. This is quite a short timeframe between that happening and now this, which is real-time, real information, so there is a concern about that.

Lord Freud: It is connected.

Mr Duncan Smith: Let me just deal with that point. One of the reasons for that is that, at the end of the year, what happens to people who are in and out of parttime work is their hours change quite regularly. Sometimes they add some jobs for short periods and then not at all, and the problem was they were meant to go and tell HMRC when they changed under the tax credits system, and us, obviously, when it affected their benefits. Of course, many of them got confused about this and did not, so, at the end of the year, they struggled to figure out how many hours. What happened was, in the present system, they would forecast and, invariably, their forecasts were wrong. What the monthly payment thing will do is that most of these companies, if they are half well run, are collecting the data as they go along. All we are saying is that they collect it, then they transfer that data-the moment they collect it to the end of the year. The only people who do not do that on a monthly basis are HMRC.

Q258 Teresa Pearce: I understand that but I was not talking about under-or over-payments of tax credits; I was talking about the number of people who came to us, as MPs, who maybe had a pension plus a part-time job plus something else, and their P60s and P14s were sent to HMRC at the end of the year, and HMRC had them for two years and never matched the data, even though the National Insurance (NI) numbers were there. All I am saying is people’s confidence in HMRC developing this is low.

Mr Duncan Smith: Agreed.

Lord Freud: I think the two halves of your question are the answer to each other, because the problem-

Q259 Teresa Pearce: Clever me.

Lord Freud: If I can explain what I meant, the problem of a system which reconciles everything at the end of the year is really tough.

Q260 Teresa Pearce: But they did not even do that.

Lord Freud: It is tough. Some people will have up to 17 employments in a year.

Teresa Pearce: I quite understand that.

Lord Freud: The reason that it is attractive to HMRC to go to an RTI feed is that you are reconciling monthly.

Q261 Teresa Pearce: I absolutely agree, Lord Freud. It is attractive and, from a Treasury point of view, it means you get the PAYE in on time, instead of getting it as a late payment at the end of the year. I know it is attractive and I know it is an excellent idea; I just am concerned that they can actually do it.

Just to move on, we have the employer who submits the information. It goes to HMRC. It will be in real time, so then the DWP will know what they have to pay in Universal Credit and whether that needs to be flexed from month to month. Is the bridge between HMRC’s computer and the DWP’s computer built or working?

Lord Freud: We are testing that bridge this month.

Q262 Teresa Pearce: So it is not live yet.

Lord Freud: No, it is not live yet, but we are testing the mechanics of the bridge now, and we will be getting live feeds. What we are doing now is we are doing that with dummy data and we will be starting to get live real data for our Pathfinder trial in April.

Q263 Teresa Pearce: Do you have a Plan B in case it does not work?

Lord Freud: First of all, before I answer this, because I know you are not asking a "Did I stop beating my wife?" question, it looks to me as though this system is pretty robust. What we are seeing is we have a comfort level on this, but if it was not to happen or did not happen for a month, the Plan B would be that people would put in their own monthly figures in the way that the selfemployed will put them in, so we can see how much they earn and pay them the appropriate amount to make sure that they have a standard living maintained on a month-by-month basis.

Q264 Teresa Pearce: Just a last question, which is not to do with that-it is to do with what we were talking about earlier-but about the telephone helplines if people do need to claim by telephone: will they be 0845 numbers or will they be local numbers?

Lord Freud: I think they are going to be local numbers. I think that is our decision10.

Q265 Teresa Pearce: Because 0845 numbers are really expensive if you have only got pay as you go.

Mr Duncan Smith: You know, with our present system, that it automatically transfers around the country, so it always finds the blank spot where they can answer. They are called and moved to wherever, and they are always informed. That goes on at the moment.

Q266 Chair: How will an employee know whether their employer is on RTI?

Lord Freud: Clearly, there are some examples of people-and the people you are concerned about, as are we, are the people doing maybe just a night-very casual labour-where the employer and the employee need to work out whether that system is going on the RTI or not. We are currently elaborating how that will work exactly, because there may be examples were someone is paid cash casually and will need to report themselves directly. This is this difficult line between very casual employment and self employment. There is a line there and there will be specific guidance. In practice, however, the automatic check will be the payment coming through and people will be able to see their own-

Q267 Chair: The employer that is likely not to be on RTI will be probably a small employer employing some people, cash in hand, and not necessarily putting things properly through the books. They will also be the ones who will be paying the low wages, so the claimant in that situation will be the most disadvantaged-probably the one who is not computerliterate. You are, then, asking for a very sophisticated ability from the claimant to know that that information has not gone from their employer and let you know, month by month, how much they have earned to be able to go into the system and put all that information in. That is way beyond the computer abilities of many.

Lord Freud: Clearly, at these margins, that is exactly where we need to put some effort to make sure that we get absolutely clear which people-

Q268 Chair: Lord Freud, I do not think they are at the margins; that is the point. The client group are going to be the most marginalised anyway, and those who will be in the lowestpaid jobs, so they will also not be with the big employers.

Lord Freud: I was referring to someone who was doing labour one night and did not do it again. If you are doing it more than that, you are on the accounting and payroll systems of the employer, in legal terms. If you are on that system-it does not matter if you are paid cash or through BACS-it will come through and we will see it through HMRC. It is a very small number of people, doing the odd job for one person and never again, who we have a concern about. Normally, people operating legally have a legal obligation-everyone has an obligation-to put it through payroll and inform HMRC.

Mr Duncan Smith: We will have a link with HMRC to check that data. As leading on the thing, we check the data against it, so they will be picked up11.

Q269 Chair: The evidence from employers’ organisations, the Federation of Small Businesses and others, and from the accounting bodies, is that a large number-it might only be 10%-of employers do not have the digital capacity to provide all this information to HMRC. They are not doing it just now. They are doing it the oldfashioned way. If they are not doing it just now, the chances of them getting up and running-companies will have to be up and running from day one, because, in a Pathfinder, you do not know where these people are, and they could be in those exact employers who are not wired in.

Lord Freud: To the extent that we have a digital deficit with a small group of employers, we will have to address it, just as we are addressing it for the benefit claimants. Clearly, to the extent that there genuinely are employers who are not on the system, we will have to address it. One of the things we are looking at currently is to make sure that they can use an intermediary-in other words, an accountant. Normally, the people who are not digital are using someone else to do it for them, and one of the things we will look at doing is making sure that they can use an accountant, a bit like the trustedintermediary system, to come into the system on their behalf.

Mr Duncan Smith: Anyway, you have to be on the system for HMRC. The point is that we will simply set up around them to make sure that their records are established with us and we check against those totals. That is, again, the exception rather than the rule. We are already talking to them about doing just that.

Q270 Teresa Pearce: An area that bothers me is the hospitality industry: a lot of people are on low earnings working as waiters and waitresses in casual work. The employer will, through Real-Time Information, declare the wages. What about the tips and gratuities?

Lord Freud: There are two ways that they work.

Q271 Teresa Pearce: If it’s a tronc it’ll be fine.

Lord Freud: Yes, if they are on the tronc it will go through on the RTI system as wages in the normal way.

Q272 Teresa Pearce: What if it is cash tips?

Lord Freud: If it is a cash tip, the employee will be required to put that into the Universal Credit system, so we make an adjustment.

Q273 Teresa Pearce: That would be the same for hairdressers?

Lord Freud: Yes. Tips are counted as income.

Q274 Teresa Pearce: I understand that. The problem will be that you will have people who are working as waiters and waitresses, and the more automated and the more hi–tech something is the more they think it has all been done. Will there be any sort of advertising campaign amongst people who work in those industries to make them understand that that needs to be declared?

Lord Freud: It is a good point and I think it makes a lot of sense, so I take the point.

Q275 Teresa Pearce: People think HMRC know everything anyway.

Mr Duncan Smith: What we will try and do is because a lot of it will be Universal Credit based on the entry is we will have to make it very clear from the beginning that this is an element they themselves have responsibility for as a cash payment. That will be clear on the Universal Credit entry form. The point is that the other stuff then automatically goes through, but it will be very clear that cash payments are their responsibility to enter. They will see that as they go in and therefore they will be asked that question, "Do you have cash?"

Q276 Teresa Pearce: Unless they work in an industry like that people do not understand. It needs to be that the advisers were aware and told people.

Mr Duncan Smith: Yes, and that is where we can deal with it at the front end. That is very important. They go onto it the first time; they see that box and they fill the box in.

Lord Freud: It is a very good suggestion.

Mr Duncan Smith: It is a very good suggestion, and we will pick it up.

Q277 Stephen Lloyd: Obviously, the whole issue of the earnings disregard has been a matter of an awful lot of debate. I have a series of questions on that. First off, Secretary of State, when do you expect to decide on the final amount of earnings disregard, and the standard allowed and amounts for children under Universal Credit?

Mr Duncan Smith: I cannot give you an exact date, to be quite frank with you, because it is something that we are constantly keeping under review whilst we look at the new information we get regarding how we balance this out. We will be publishing them as and when we fix them.

Q278 Stephen Lloyd: It is obviously only a matter of months before the whole thing goes live.

Mr Duncan Smith: Yes, it will be long in advance of that. My point is that we will certainly come and very happily explain them to the Committee when we do, but right now a number of these things we are going to adjust as we do the OBR12 setup. After that process we should be in a much stronger position to publish them.

Lord Freud: The timing is likely to be with the Regulations, which we decided it would make sense to put out after the Autumn Statement.

Q279 Stephen Lloyd: Okay, so on that basis if I can get-

Mr Duncan Smith: We will go through the OBR process before, but I cannot give you an exact date on that. It will be after. Within a reasonable time.

Q280 Stephen Lloyd: I would certainly like to take you up on that offer. Chair, I suggest that after we have those figures then that would be a very good time for you to come in, and we can quiz you on that. Are you able to give any sort of steer on how you expect they will compare with existing benefit rates, or do we just have to wait for the Autumn Statement?

Lord Freud: We have put out some indicative figures.

Chair: That was very difficult to read.

Mr Duncan Smith: I accept that.

Lord Freud: The fundamentals of it are that the elements are based on the existing benefit structure. The base position is that if you are unemployed on the full amount it is likely that it adds up to the same amount. That is how the structure is developed. The one area we are looking at, and we have said we are looking at very closely, is the structure of the disregards. We have had feedback that they are pretty complicated and we want to make sure that people can really understand what the disregards are so that they are incentivised to go to work, because that is the point of the whole system.

Mr Duncan Smith: That is the point I was making that until we are set on that there will be no point in publishing stuff that we are actually changing.

Q281 Stephen Lloyd: I can understand that, but certainly we will look forward to a second evidence session after the Autumn Statement.

A number of witnesses suggested that the proposed system, the revised system of Universal Credit would actually end up even more complex than what we currently have. That is not a view I particularly share, but I would be interested to hear from the Secretary of State how you would respond faceon to people who believe that, even if they may have agreed in principle with the original concept of Universal Credit, some organisations are now coming out with lines saying it would be even more complicated than what we currently have.

Mr Duncan Smith: The key issue to bear in mind is the impact on the person who is in receipt of this as they crossover into work. That is the key point really about the disregards. For them it is a much simpler experience once they are registered on the system. I do not see why organisations would be saying this right now because, as I said, we have not published the detail about these. For them to make assumptions about this is a little bit previous. My answer to it is we are already taking into consideration concerns that they may have and other objectives, but we learn during the course of this process. I do not think that is actually going to be the case. It is still ultimately a much simpler process and the key person to understand in that process is the person who is signing on, the person who is actually making the claim in the first place.

Q282 Chair: Can I just clarify slightly? It was the Children’s Society and CAB. Your original proposal for the way that disregards would work around housing benefit, for instance, they are saying was simpler than the one that you have revised it to. That has made it more complex. They thought that in trying to help you have made it worse.

Lord Freud: As I just said, we are looking closely at the disregards again. While we are very comfortable with the level of the elements here, we are looking at the disregards to make sure that there is an element of simplicity and logic to them that people can understand. These disregards are a massive incentive for people to work because they rip down the marginal deduction rates for people, particularly at the participation rate level. They are vital, not only so that people have that financial incentive, but that people can understand them so that they act on them. To the extent that people are feeding back to us some concern about the simplicity, we are looking at that closely.

Mr Duncan Smith: My point is that when we come to publish them our belief is what we will publish is the best balance that keeps it simple but also gives good effect. That is the important thing. Simplicity is one of the issues, but the best effect on those entering work is the key to all of this-that is to say their marginal deduction rates are actually far better as a result of the decisions we make on these.

Q283 Stephen Lloyd: Again, within this cohort there will be a fairly substantial number of people who would define themselves as selfemployed, all the various different roles. Again, some witnesses who gave evidence to the Committee believe that the proposed Minimum Income Floor rules for selfemployed Universal Credit claimants may act as an obstacle to those wishing to expand their business. Is that something that has come within your understanding or concern?

Lord Freud: This was an area where there was quite a lot of feedback, especially through SSAC (Social Security Advisory Committee), and we have been looking at this closely. What we need to balance with the selfemployed is a system that encourages people to be selfemployed and then to go on ratcheting up their efforts. The current system has a significant number of people in it who stay at a very low level of activity and are being encouraged to stay in that activity through the tax credits system. We will have a far more active relationship with the selfemployed than HMRC have under tax credits, in the sense that the low earning selfemployed will be subject to similar conditionality as to the employed, so there is going to be a balance there, unless they are subject to the Minimum Income Floor and go above the Minimum Income Floor, which takes them out of that conditionality regime. We are aiming to balance up the position of the employed and the selfemployed.

One of the issues we needed to address with the selfemployed is to inject an incentive to allow people to be entrepreneurs. We will allow people a year where there they do not need to satisfy work-search or availability requirements if they are going into genuine-

Mr Duncan Smith: I think this is the first time we are saying this to-

Lord Freud: No, not this.

Mr Duncan Smith: The fiveyear one, okay.

Lord Freud: The Secretary of State has made another announcement so why don’t you make the announcement on-

Mr Duncan Smith: You do your oneyear and we’ll do the other one.

Lord Freud: No, I think I’ve finished the oneyear. That’s history. Why don’t you tell them the extra bit?

Mr Duncan Smith: Carry on. You carry on.

Lord Freud: As the Secretary of State basically made an announcement, we looked very closely at how often people should have the opportunity to have a year to build a business without any need to satisfy work-search or availability requirements. In the original proposition as set out in the regulations, that was a onceinalifetime opportunity and we have had a lot of feedback from people saying that that is not economically sensible. A lot of people have one attempt that does not work and then they come back, and they should be supported again. As the Secretary of State said, we are now looking at allowing a further start up period every five years.

Mr Duncan Smith: Which is a direct response.

Q284 Andrew Bingham: You cannot have it for five years; you can have one every five years.

Lord Freud: Yes, so you would have a chance to build a business. It did not work and then you-

Q285 Stephen Lloyd: And that is new?

Mr Duncan Smith: It is directly as a response to some of the feedback from the small businesses. We still have not finalised that, but that is where we think we will end up. It gives us flexibility and it gives us a bit of fairness. The key point is that you get some of the groups that are actually static, sitting on zero earnings for a long period of time and receiving tax credits. That is not a good place to be, frankly, either. This is the point that Lord Freud was making. You need to get people actually developing through this process, rather like you would if they were employed.

Q286 Stephen Lloyd: Yes, you do. I am encouraged by that because the current proposal basically penalises failures and kills it stonedead. That is daft because one of the things with starting a business, a small business washing windows or what-have-you, is sometimes it takes a couple of goes before it actually gets there.

Mr Duncan Smith: Yes. So this is why we are responding to that. We think that will help and we have actually talked to a number of the organisations about this.

Q287 Andrew Bingham: Just to get it clear in my mind, it is one year in every five.

Lord Freud: Yes. Where a person has started a new business after the previous one has ceased, another start up period is allowed. That is what we are looking at doing.

Q288 Chair: Can I go back to the Minimum Income Floor? That was the central question. The Low Incomes Tax Reform Group have a couple of worked examples, which you will find in the evidence they gave to us, which show that someone in employment earning a net amount more than the selfemployed, because of this floor actually will end up getting more Universal Credit than the selfemployed did. That is the basis of the question. At that level, because of the floor, it will be a disincentive.

Lord Freud: That is interesting. I have actually just been talking to the Group and they made the point. We are taking it away to have a look, just to double check. We are going to make sure that there is parity between selfemployed and employed.

Chair: There certainly is not at the moment.

Lord Freud: To the extent that there is not, we will sort that out. That is a technical issue that we will sort13.

Q289 Stephen Lloyd: You are looking at it. Another group, which can hardly be accused of being completely radical, were the Institute of Chartered Accountants. To use their words, they say they are appalled "that a simplified cash basis is being imposed on Universal Credit claimants without any proper consultation" on the underlying policy. I do not know whether you have come across that or how much consultation you have done with the chartered accountants.

Lord Freud: We are talking to various groups. The issue that is underneath this is the extent to which the rules for Universal Credit are the same or different from the tax rules of HMRC. There is an interesting chickenandegg here, because HMRC were consulting on their regulations and we had not had sight of their final position. What I can say is that we are settling down with them to make sure that we are running the two systems consistently. We will be making the appropriate adjustments to make sure that happens both ways.

Q290 Stephen Lloyd: Thank you for that. Explain to me again then-the big issue for them was why you have chosen a cashbased accounting system.

Lord Freud: In practice, it is the same system of definitions as HMRC use. We are just bringing that all into line. One of the issues that may be behind that is the issue of whether there can be carryforwards of profits and losses. That might be the issue. That is something that we are going to look at. We have that kind of system for the employed, with large amounts and spreading it, so we will look very closely at that issue14.

Mr Duncan Smith: Remember the point that we were making that our job here is to deal with the temporary cash shortfall. That is what we do. It is perhaps different from their understanding of what we do, which I think may be the issue.

Stephen Lloyd: I agree. I think that is a very significant announcement.

Q291 Teresa Pearce: I am a bit confused there because if you are basically doing your accounts monthly, weekly or yearly and you are doing them on a cash basis, HMRC would recommend against that and ask you to do it on accounts basis. You would do it on what you have invoiced rather than what you had actually received in cash. Are selfemployed people happy that they have to have two sets of accounts?

Lord Freud: No, we will make them consistent-we will be taking the same figures and definitions where possible.

Q292 Teresa Pearce: So it will be the cash they actually receive rather than what they have invoiced.

Lord Freud: What is important is that this is not tax. This is Universal Credit; this is the welfare support for people.

Q293 Teresa Pearce: But it is going through the tax system.

Lord Freud: I know. It is the same figures, but what we are actually concerned about is how much money does that family have in their pocket that month to live on. Cash is real. We are using the same definitions, but we are trying to make sure the family can buy their food.

Mr Duncan Smith: What we want to end at with this point is addressing this point about this temporary cash shortage. This is a critical issue for us within this, so we are sorting that through and aligning it on that basis. We have a different set of priorities than HMRC.

Q294 Teresa Pearce: As you say, it is how much money you actually have in your wallet or purse that matters. That will be the amount of cash, cheque or whatever you would receive from your customers if you are selfemployed, but HMRC try to discourage people from using that as an accounts basis. They try to get people to use a more sophisticated system. Maybe that is a chat you can have with HMRC.

Lord Freud: I can assure you we are having some rather deep chats at the moment with HMRC, but with a view to getting these definitions right so that people can make a report and the information there basically rolls over into their tax report. It is a relatively simplified reporting of the cash position. I think the issue that is concerning people is the carryforwards when there are imbalances such as big expenditure one month and not in another. That is something we do need to look at.

Q295 Chair: There will be a case in some examples of people who are selfemployed for endofyear rationalisation, as they do with tax credits, because month by month you are not going to get an accurate account of what their true income is spread out over the year.

Lord Freud: That is the point. We are looking at that; we have a system for that.

Q296 Chair: It might be that one month they are overpaid. How do you claw that back?

Mr Duncan Smith: The point I was trying to make earlier on is our absolute base position has to be this temporary shortage that we have to resolve. The rest will be resolved with HMRC over this. That is how it works.

Q297 Glenda Jackson: Forgive me for this, but I am going right back. The Chair raised the issue of evidence that had been presented to us with regard to the changes that you have instituted for housing benefit. I believe there was an announcement today that two categories of cancersufferers based on their treatment will no longer be regarded as being fit for work. What I am trying to find out here is what causes you to change your mind? Is it pressure, is it actually principles of fairness or is it simplicity? I welcome the flexibility in this particular instance-do not misunderstand me-but you have left an awful lot of people in a great deal of anxiety for a very long time.

Mr Duncan Smith: We are merging two different issues here. You are talking about the ESA15 issues concerning how we treat people in the support group versus in the WRAG16 etc. The point was we brought in Professor Harrington to look at all of these areas from the beginning of this and he has made a series of recommendations. He then consulted on the cancer, and then looked at other areas of cancer treatment. This is part of that process that we finally reached a conclusion on balance about what is best. He has made a recommendation and we are adopting the recommendation. That is how the process worked on ESA.

Q298 Glenda Jackson: That is an ongoing process?

Mr Duncan Smith: Ongoing. We did not just bring him in once. It is a perpetual process with him and that is how it has been tackled.

Lord Freud: If I can take the general point that I think you are making, which is how we have been working with outside groups. The creation of Universal Credit has been a very open process and we have really benefitted from having an open dialogue with numerous groups outside. We have made a huge amount of effort to have that communication, including indeed with parliamentarians. We have been incorporating those ideas and thoughts into the Regulations and the guidance to make sure the system works. This is a huge endeavour that we are going through, effectively rebuilding the whole of the benefits system. It requires a lot of input, careful thought and balancing from the community as a whole. We have had a lot of very constructive engagement right the way through this process to help us do it, and we do not have a monopoly on getting this right. We must get the feedback from people.

Q299 Stephen Lloyd: On that, I am going to take you back to one area that I still have a challenge with, even though I actually appreciate some of the announcements that you made today; I think they have been very, very valuable. It is back to the council tax thing; I know that there are some complexities around it within Government, Treasury, the Secretary of State for DCLG and the DWP. How do we avoid getting everything right-the Universal Credit, the IT, the earnings disregard-but, because of the council tax benefit being outside it, the overall process means people will not keep more of their earnings in lowpaid jobs? To me, that is something I have real concerns about.

Mr Duncan Smith: Can I just first of all talk about the generality of this in terms of how we do it? The man who is involved in a lot of that is, of course, Lord Freud. The point is that we recognise fully that if these two things are not, in essence, clear with each other about how they work then you could end up in a position that I know, Mr Lloyd, you raised with me on the Floor of the House, which is you could have a counteracting process that makes those marginal rates higher. We are working very hard with local government to make sure that the system they set and the processes they undertake, and whatever they introduce, does not do that. That process is important for them to understand how it beds across with us. That is an ongoing process; we feel quite positive about it.

Lord Freud, do you want to talk about how that has gone?

Lord Freud: Yes. There are two key issues here. One is what the schemes are that the councils adopt and the data that they use to set their schemes; the other is the effect on Universal Credit. Clearly, on the second what is key is we were able to increase the disregards when the decision to move the council tax rebate over came up. We were able to increase the disregards, which meant that the number of overlapping tapers was very substantially reduced to very few. Now we are talking with the local authorities, through DCLG, and the devolved administrations to make sure that we are passing over the right data so that they know who could have a rebate or not. That is the process that is happening. In terms of the impact on the work incentives for Universal Credit, which is the big concern, the thing taking the strain there is the disregard.

Mr Duncan Smith: The second part about that is that Lord Freud talked about consulting them, which is what we are doing. Of course, we have just put out the guidance on these elements to the local authorities. I think it is 350.

Lord Freud: Yes.

Mr Duncan Smith: It has just gone out. This consultation has now gone to a new level for them to understand what our assumptions are under Universal Credit and, therefore, what their overlapping assumptions must be. That is the point of the discussion.

Q300 Stephen Lloyd: So you clearly appreciate and understand that if you do not get that bit right then all the work and all the direction of travel that you are trying to do-almost the whole success of Universal Credit-could be in jeopardy.

Mr Duncan Smith: The point that Lord Freud makes is an important one, which is had we incorporated that, it would have changed the disregard. What we have allowed for, to some degree, in discussion with them is some flexibility with regards to that so that we can actually buy in some of this change, or the effect of it. Also, our assumptions are out there for them to look at and for us to discuss. We want to get these down to a very marginal level, if any level at all.

Q301 Chair: I am still trying to work out what it is you have said there. I will maybe come back to you, because I still think it is going to be very difficult with regards to council tax because it is going to be added in at a later date. I have quite a few questions here on housing cost and housing benefit. Again, very often those with the highest housing costs are vulnerable or in specialist accommodation. What protection from the benefit cap will be provided for homeless households who are in temporary accommodation and face higher rents, but are unlikely to be able to pay the extra charges?

Lord Freud: There are two areas here, which are the exemption of supported accommodation and the temporary accommodation. This question is the temporary accommodation. That is based on the existing housing allowances, plus an extra charge.

Q302 Chair: Is the extra charge the temporary accommodation subsidy? Is that what that is?

Lord Freud: No, it is the service charge. I think the plan is to run at £40 on top of the LHA17. It is a simplified system. The strain there is to be taken by the increased level of Discretionary Housing Payments in that area, which is running in the first year at £75 million and the second year at £45 million. That is where the strain on the temporary housing is.

Q303 Chair: This is an issue that will not go away because there will be homeless people in temporary accommodation, which by its very nature is a lot more expensive, and in places like London will take you over the benefit cap.

Lord Freud: I think what you are referring to is the exempt supported accommodation.

Q304 Chair: We have a separate question on that. A family in bed and breakfast accommodation is perhaps the way to characterise it.

Lord Freud: We have pulled down the rate of payment to the LHA rate plus the extra temporary accommodation element, which is running at £40. That is the basic rate that we are running at and then clearly we have a protective mechanism, which we may have to maintain for some time.

Mr Duncan Smith: Many of those will be gone by the time we have reached the full detail of Universal Credit because the whole objective is that it is a smaller group that we are dealing with. My sense about this is you can look at these as a completely static group that are going nowhere over the next two years, or you can actually see them as a process of change18.

Q305 Chair: They will be in a process of change.

Mr Duncan Smith: Exactly right. The point I wanted to make is we are already ahead of this, in the sense that we are not waiting until April before you kick this off. Jobcentre Plus have identified all the 56,000 or so families that are there, and are already now working with them. Many of those have already expressed real elements of change in their lives. Something like a third have said that they are now going to be moving actively to seeking work. Therefore, there are big changes coming in already to them before we hit April.

Q306 Chair: Would you not accept that this is likely to get worse because of the other changes in housing benefit that means a number of families are going to be homeless because they fail to pay their rent because their rent was higher than the new local caps on housing benefit.

Mr Duncan Smith: A lot of that is already settling through. We started that process some time ago, so this is the beginning of this year really. By the time we get to the period of the Universal Credit, a lot of that will be taken through on new contracts.

Q307 Chair: If you do not get this right, they end up on the street.

Mr Duncan Smith: My point is that we are not putting them on the street, and the key thing is that that is what the Discretionary Housing Payment was set for-something in the order of £190 million-to make sure that process, regardless of Universal Credit, is managed. What Lord Freud is talking about is how you use it in conjunction with Universal Credit, but nonetheless it would be there and is already being used by local authorities to manage that process now. The numbers of families we are talking about with the cap is actually a relatively small group compared to the housing benefit group.

Q308 Chair: They are a very disadvantaged group.

Mr Duncan Smith: Yes, but the whole point about why we are starting already with them early on the basis of the cap was to identify them and to sort them out. If they have to move, then we move that process forward; if we have to buy out a certain amount of change for a period of time then that is identified early. That is already taking place right now in the Department, having already identified that working with local authorities. All of those Jobcentre Plus centres are working with the local authorities and already have those names and details.

Q309 Glenda Jackson: On that last point, I wonder how you can guarantee that people will not be made homeless, because not everyone who is not in permanent accommodation is being housed by a local authority. Many of them are in the private rented sector and, contrary to what you told us many, many months ago, Lord Freud, rents have not come down. How are those families not going to be put out on the street?

Lord Freud: We can have an argument about the rents coming down, but in the early part of the year they were coming down.

Q310 Glenda Jackson: Not in my constituency

Lord Freud: I was using an average figure, obviously.

Glenda Jackson: This is a Universal Credit.

Lord Freud: I was using an average figure, not that specific.

Glenda Jackson: Yes, but it is universal.

Lord Freud: Sorry, you distracted me.

Q311 Glenda Jackson: The private rented sector, where rents are not coming down.

Mr Duncan Smith: Really the question is dealing with the Local Housing Allowance.

Lord Freud: There are signs that there is some downward pressure on rents as a result of that, and clearly one needs to watch it month by month. It is very difficult to get a counterfactual, as you know. We are in a dynamic market; you cannot know that well what is happening as a result of anything specific. There is some sign of some downward pressure for this community.

Mr Duncan Smith: I do not see this group vastly as a static group. This is where we will part company. I think this group is quite capable of changing some of what they do at the moment. As I said, the survey work, on those groups whom we are already talking to, shows a significant number of them already now engaged, where they were not before, in seeking work to get into tax credits, which exempts them from the cap but does actually give them a position back in the world of work. There are changes already taking place with this group even before this has hit. I see these things in a dynamic sense, not in a static sense. The Discretionary Housing Payments are there to ease that process of change.

Q312 Glenda Jackson: Those groups for whom local authorities have a statutory duty to house do not actually change. They are invariably families with children or individuals with severe disabilities.

Mr Duncan Smith: They are, but there is a mix of groups. Some of them are already going to be affected by other work that we do, which is bringing more lone parents into the world of work when their second child hits five. Looking at the survey work, it is interesting that a third said they are now definitely on the scale to look for work, which they were not doing before. 88% are up to date now with their rent and coping with the original housing benefit rent changes. Only 1% so far have even had to report they have had to move. In other words, they see where the dynamic element in change is and they will attack that process with advice from us about how to improve their position. That is why I see this as a dynamic group because some assistance will improve the quality of their lives.

Q313 Glenda Jackson: So can you guarantee that no family or no individual with disabilities will be made homeless?

Mr Duncan Smith: I see no reason why anybody should be made homeless.

Q314 Glenda Jackson: That is not the question I asked.

Mr Duncan Smith: We are dealing across housing benefits and everything else with large numbers of groups.

Q315 Glenda Jackson: We are dealing with people.

Mr Duncan Smith: Local authorities, with respect, have to make these decisions. We have given that discretionary money. I do not see the need for that. In our discussions with them, most of them that we have talked to do not; some may want to take a political position on this. What I have just tried to explain, Ms Jackson, is that there is change already taking place. That is the process. Of course there are difficulties; that is why we set up that fund of discretionary payments and increased it for the cap.

Lord Freud: Just to answer that specific point though, people with disabilities or a household with someone with a disability, are exempted from the benefit cap for that reason. That is the structure of the benefit cap. It is not designed to capture people who are disabled.

Mr Duncan Smith: Do you want me to run through the exemptions here, because it seems-

Q316 Glenda Jackson: No, I think we have got the exemptions so I am clearly not going to go much further with that, because I am not getting answers that clarify the situation for me. However, there has been concern expressed about the service charges for supported housing, and in July 2011 you carried out a consultation on housing benefit reform in supported housing. When are you planning to publish your response to this consultation?

Lord Freud: I am not absolutely sure about the timing of our response, but I can tell you the direction of travel on it, which may be rather more helpful. This is one of the areas where there has been a great deal of concern expressed by various groups about the position of supported accommodation. We are very concerned not to undermine their position, so we will be making sure that for supported accommodation, the structure of getting the payments and support for their costs are not changed. We will look, longer term, at localising that support. Let’s just take the most dramatic issue-a hostel looking after women who are-

Glenda Jackson: Fleeing domestic violence?

Lord Freud: Fleeing domestic violence. They may only be there for two or three months, and that hostel is very concerned that setting up the whole Universal Credit system for them would just carve them out, particularly as their costs may be very different in structure to the normal housing costs. We have heard that and we will look to a system that does not rope them into Universal Credit and, in fact, we are looking at how best to make sure that support for those hostels, and all supported accommodation, is kept on an even keel.

Mr Duncan Smith: Either through Discretionary Housing Payments or even some direct payments.

Q317 Glenda Jackson: So you are categorically saying to this Committee that all supported housing-

Lord Freud: Exempt supported accommodation will be treated differently to other housing to make sure that we do not have the problem that people are concerned about.

Q318 Glenda Jackson: Who decides on the exemptions? You?

Lord Freud: No, there is a technical definition of "exempt supported accommodation".

Mr Duncan Smith: I can read it out if they want.

Q319 Chair: Can I give you an example? Will the single room rate, which you are putting up to 35, apply for people who are under 35 but in supported accommodation? A lot of the homeless hostels where people deal with the young homeless have moved away from single rooms and in to selfcontained flats. Under the basic housing benefit rules, they will no longer qualify for housing benefit for a singleroom flat because they are under 35 and they only get the singleroom rate. Because they are in supported accommodation, not only do they have that extra expense but they have they extra expense of living in somewhere that has onsite support.

Lord Freud: The definitions of exactly what we are talking about really matters here. There a group of accommodation, and the hostels I was describing is one of them, that I want to exclude at this time from the traditional housing element, and there are quite a few. The costs in those hostels can be very much higher because there are all kinds of security and support being offered, which Universal Credit is not best placed to deal with. You can see from the direction of travel I was describing a bit earlier, with the localisation of some of this support for the people who really know how it is best applied-it is much better going in that direction than in a national system.

Q320 Glenda Jackson: Sorry, I don’t understand what you mean.

Mr Duncan Smith: Can I just remind the Committee that this is defined in DWP legislation already for the supported exempt accommodation. It is a very clear definition and it is that which we are talking about here. In answer to Ms Jackson on who defines it, it is defined in legislation. I can read it out if the Committee wants to, but it is there.

For those, we are looking to Discretionary Housing Payments, and also through an option to pay direct, in response to their concern that they would have a problem if it were through Universal Credit.

Q321 Chair: So those providers already know who they are and know that they will have that protection.

Mr Duncan Smith: We are talking to a variety of groups who are involved in that.

Q322 Chair: I do not think the individuals know yet.

Lord Freud: This is news. We are telling you something that has not been broadcast. We have decided to go down a rather different route for the supported exempt accommodation in response to the real concerns that we heard when we put out the draft.

Mr Duncan Smith: From consultations.

Q323 Glenda Jackson: Could I clarify something here? The list of supported exempt housing is already out there in the public domain as published by the DWP. What you are now telling us is that the tenants of those exempt supported accommodations will be exempted from the limitations with regard to housing benefit that will apply to everybody else under Universal Credit.

Lord Freud: What will happen is they will claim Universal Credit without a housing element because the housing element will be supplied through a different route because we are talking about a very different cost base for those very vulnerable people.

Mr Duncan Smith: For a particular short period of time, but they are defined very clearly. The accommodation is defined clearly, and groups like Women’s Aid, Homeless Link, Refuge and Mencap have all made it clear that they are concerned about this, so we said we would go away, look at this and see how we will do it. This is basically what our response is.

Q324 Chair: And you have now made the announcement today.

Mr Duncan Smith: Yes. I did not know we had not made this announcement.

Q325 Glenda Jackson: You did say that you estimate that people are only there for three months. That certainly is not my experience.

Mr Duncan Smith: He was using it as an illustration.

Q326 Glenda Jackson: It is a very rosy illustration.

Mr Duncan Smith: It was an illustration about the temporary nature of the accommodation.

Glenda Jackson: Yes, but temporary can spread out for quite a considerable period of time.

Q327 Stephen Lloyd: A classic example is Refuge.

Mr Duncan Smith: They have all made good, commonsense recommendations. They have talked about it. This is what the consultation on all these things is about. We looked to see how we would do that. We discussed it; Lord Freud has been discussing it, and that is where we decided actually on this that it may be necessary on those two categories, either using DHPs or maybe through direct payment to the providers, one way or another, that would be how it would be. As Lord Freud says, then it is without the housing element inside Universal Credit.

Q328 Glenda Jackson: Does that cost all come out of your budget?

Mr Duncan Smith: Yes, but it is quite a small number.

Lord Freud: What will happen is we have a certain amount of budget for these groups currently, and it is just a question of how that money flows through, so this is not a costcutting measure. This is about making sure this money flows through in a way that does not undermine a sector that is really important for some people who are in real extremes.

Mr Duncan Smith: Can I say there is one stage further too? In the short term, it is looking at taking this through, and then, in the longer term, developing a much more localised funding system that draws more on local knowledge and makes it much more responsive. That is essentially where, in the longer term, we are looking to go with this system. It is not a temporary measure. We want to develop that into a system that actually works to the benefit of those who find themselves in these difficult circumstances.

Q329 Glenda Jackson: But not dependent on local authority budgets.

Mr Duncan Smith: No, this is about local knowledge, not local budgets. This is using local knowledge. Like the Social Fund, we are simply saying that we do believe that when you get local knowledge you will make a much better decision about these things and probably quicker too.

Q330 Glenda Jackson: With respect, that was a rather unfortunate choice because the Social Fund has reduced by 10% and is no longer ringfenced.

Mr Duncan Smith: The decisions around the Social Fund, with respect, Ms Jackson, will be made better by that localisation, because now you will not continue to pay people through the Social Fund when in actual fact you should be working to help sort their problems out, not just keep giving them extra elements from the Social Fund without actually knowing why they are in that situation.

Glenda Jackson: I don’t disagree with the premise. I would just be interested to see if these loaves and fish actually feed the 5,000.

Chair: I think we might move on from housing.

Glenda Jackson: Could we just ask the next one about paying housing costs direct to tenants?

Q331 Chair: I think in your reply to me at the very beginning you said that there will be provision to pay housing cost direct to landlords?

Mr Duncan Smith: We have always said that what we do is we make a system for the majority; we then look at what the problems are for the minority. We said all along we need to look very carefully at the trigger points that actually mean someone’s simply not coping and temporarily you may need to take that in hand, but at the same time you want to get them back out of that and deal with their problems.

Q332 Chair: Local authorities and housing associations are really concerned about it.

Mr Duncan Smith: I know, and we are talking to them about that.

Q333 Teresa Pearce: Housing benefit will transfer to Universal Credit. Currently there are 20,000 housing benefit officers employed by local authorities. Those duties will transfer to Universal Credit, but those individuals will not be TUPE’d, I believe.

Lord Freud: That is right, yes.19

Q334 Teresa Pearce: I think the DWP wrote to the Local Government Association saying that it is not a TUPE transfer, but local authorities are stuck in the situation of having to negotiate with these employees without being the decisionmaker. Would the DWP not negotiate with the representatives of these employees?

Lord Freud: We are looking at a system that is moving quite a lot of responsibilities locally, and we started to describe some of those. We are talking to local authorities a lot in this area, and councils are looking at how to provide services on a much more holistic basis. Over the next couple of years, there will be a reorganisation of service for the most vulnerable families and it may be that some of the people who are doing housing costs support now start to do a rather different and broader role. Clearly one of the things we are looking at in the local authority pilots is how they may act as intermediaries into the Universal Credit system. Things are certainly going to change. How they will change is something that we will be developing in the months to come.

Mr Duncan Smith: Can I just pick up something on that? There are two things that are very important. Remember: this is not October Big Bang. This is a fouryear development process of different benefits coming through. This is a fouryear process by which local authorities essentially have time to make some of those changes.

The second important point to make in respect of local authorities is that there are also three other areas that they are now having to take on. Local authorities themselves, with budgets that follow, are doing, for example, council tax benefit, Social Fund and Discretionary Housing Payments, which they were not doing before. My point about this is that it is not just saying there is a group that are not doing this anymore, but there are also requirements that local government is having to do, for which they will need to look at the resource that is there and decide to what degree they need to take some of that resource on. That is over a period of time, so I think there is plenty of time to resolve that.

Q335 Teresa Pearce: For local authorities who directly employ their housing benefits staff that might be more simple than for local authorities that contract that out and would have to renegotiate contracts. That would be more difficult.

Mr Duncan Smith: Not impossible.

Q336 Teresa Pearce: What support will you be giving to local authorities if, for instance, they have to make people redundant? Will there be any recompense to them? Will the DWP underwrite that?

Lord Freud: You have jumped from the "contracted out" into "their own staff". For the contracted out, clearly there is a time process.

Q337 Teresa Pearce: They will have to renegotiate those contracts.

Lord Freud: Yes, and the speed, pace and notice we are giving gives them time to do that. When we come to their own staff, as Iain said, there are quite a lot of roles being developed. There are new things to be done, and as the local authorities reorganise themselves and look at those roles, it may very well be that there is a circulation of people into new roles. Some of the skills of the people in housing are very valuable elsewhere in the rest of Universal Credit. That is one of the things these pilots are about.

Q338 Teresa Pearce: Would the DWP be prepared to share the legal advice they got saying it was not a TUPE with local authorities?

Mr Duncan Smith: I am not inclined to share that advice. It is a matter for us to discuss with local authorities, with respect. It is for local authorities to resolve this matter themselves. My sense about this, to be honest with you, is that this is a matter being made much bigger than it is. The reality is local authorities contracted out, or with their own, have time to deal with this. Basically we never do share that information and I do not think it is necessary this time.

Q339 Chair: Can I just very quickly ask why it is that you are withdrawing mortgage interest support from claimants when they start work immediately, even if it is only for a few hours, whereas, if they were in rented accommodation, they would still qualify for Universal Credit.

Lord Freud: This was quite a tough area. We have been looking very closely at Support for Mortgage Interest, which, as you know, was inflated in what was supposed to be a temporary response to the 2008 crash. In our consultation paper, which came out last year, we looked at having a mechanism not of giving grants, which is what it is at the moment, but having them effectively as loans, which would come back later, potentially when people die and their home is disposed of. That is the kind of consultation that we have been looking at. We clearly need to think very hard at where Support for Mortgage Interest is going. That is our direction of travel20.

Q340 Chair: The thing is, if it is withdrawn as soon as they go into work, all the things that you have trumpeted about how Universal Credit will work for people in minijobs or microjobs, somebody who has a mortgage is not going to take a parttime job because their-

Mr Duncan Smith: I don’t agree with that. I really don’t agree with that.

Lord Freud: Let me take that on. I gave you the outline of our direction of travel on this, which leads you to some shorterterm decisions. One of the key facts is very few people in receipt of Support for Mortgage Interest work parttime.

Mr Duncan Smith: It is around 5%.

Lord Freud: It is a very small number. If we were to structure the mortgage payments in a similar way to rental ones, on the taper, we would be looking at an enormous, unaffordable cost for something that is frankly not the direction of travel that we are looking at in the longer term. The cutover point depends on exactly the level of disregards, but by the time lone parents have done 10 hours on the minimum wage they are matching the existing system if they are on the average income support mortgage support.

Mr Duncan Smith: Ten hours means they will be better off.

Lord Freud: They are better off at ten hours. Bluntly, our decision was it was unaffordable to make it generic for everyone. The numbers of people affected were very small and their response to do 10, or 12 hours took them out of the problem. That is why we reached that decision.

Q341 Glenda Jackson: There are people who pay mortgage on a house which, for example, they have turned into two flats. They live in one and they rent the other. If they lost that then their tenant, who has paid their rent regularly, is going to lose their home.

Mr Duncan Smith: With respect, we do not think they will. It is the point that Lord Freud is making quite categorically here that it is a very small number we are talking about, but nonetheless, in this category, the amount of hours that has to be worked even under the present system would bring them to parity is very small. Under the existing disregard process lone parents would be very quickly in a better situation on Universal Credit at around 10 hours’ work. To be fair, if you look at seven hours over the week, that is not a huge amount. In fact that is really quite a small amount. Under the present system they would be better off than that.

Q342 Glenda Jackson: We are on to reduced entitlements and passported benefits. One of the most popular passported benefits-the one particularly valued-is free school meals. How do you plan to deal with the eligibility criteria for free school meals when you introduce Universal Credit next year?

Lord Freud: The initial strategy is to try to leave this as unchanged as possible. What we are aiming to do is supply adequate information to the other Government Departments to allow them to run the system as they want to do it, and we are in active discussions on that data-share. The aim will be to have a system out for next October, when Universal Credit goes national. Before that on pilots, because the numbers are relatively small, everyone on Universal Credit who has children in school would be able to get the passported benefit, but the numbers are going to be extraordinarily small, because our design in that passporting period is typically to take single people pretty near the job market, as we trial it. Basically, there will be enough information on earnings to allow the Department for Education to reach a decision on where it wants to place any passporting concessions.

Q343 Glenda Jackson: You referred to single parents in your response, and the evidence that was presented to us by CAB was that, to a lone parent with three school-aged children, the value of free school meals could be around £1,100 a year. What they were arguing is that, to maintain that, you would have to earn four times to be able to maintain that level of providing your children with free school meals. Are you saying to us that these interim arrangements are only interim arrangements and, when a massive number of people are on Universal Credit, you will look again at what constitutes eligibility for free school meals?

Lord Freud: To start with, we will provide enough information to allow the Department to run the system so that, basically, a similar number and category of people will go on receiving the passported benefits.

Q344 Glenda Jackson: Sorry, I do not understand that. What do you mean, "a similar number of people"? If there is an eligibility criterion, that is a criterion. What is the criterion going to be?

Lord Freud: The criterion at the moment is receiving a particular benefit. You receive JSA: the JSA amount is £64, or whatever the precise figure is. What we need to do is provide the right level of what the Universal Credit payment is to define the current point at which people receive these benefits. Basically, the strategy is to run the system on as closely as possible as the existing system. The problem that you are concerned about-and I am sure all members of this Committee are concerned about-are the cliff-edge problems of, as you earn more money and you drop off the eligibility, you lose your £1,100, and that is a disincentive to go to work. That is the problem that everyone is concerned about with passported benefits.

We conducted an exercise last year where SSAC looked at this issue very closely and provided us with some advice, to which we responded. One of the most interesting recommendations to come out of that report was that we should look at incorporating these passported benefits into Universal Credit itself, so that people who took school meals were paid for them in Universal Credit, paid them out again to the school, for instance, and then they got tapered away as their Universal Credit was tapered away. That gets rid of the cliffedge and we could look at doing that in a way that meant there was no cash out of anyone’s pocket. We could do it paymentinadvance, if you like, or almost notional. That is something that we wrote that we would explore, providing generic passporting services for other Government Departments to allow them to have a very efficient and attractive way of providing passported benefits. That would be the strategic, longerterm solution, as we look forward to a fully rolledout Universal Credit.

Q345 Glenda Jackson: In the interim period, then, you do not perceive any family losing their passported school meals benefit.

Lord Freud: Clearly, I cannot make a commitment to what another Department decides to do, but we will provide information to allow them to run on the kind of existing level of support, based on the level of concession that they currently look to apply.

Q346 Glenda Jackson: Is one of those Departments you are talking to the Department for Education, because free school meals are linked to pupil premiums, so, when they go, are some of the most deprived schools in our country going to lose money?

Mr Duncan Smith: That is exactly the point. With respect, they have legislation at the moment. They have to decide what they want to do with that. What Lord Freud is saying is, as these are already vested in different Departments as their own policy, they are not DWP policy, nor are they, essentially, within that remit of the means-tested benefit that we were talking about. They are separate to that. What we are saying to them is, "Okay, these are the things that we can do within Universal Credit. You have to decide whether that is what you want or whether you would want to do this differently to maintain those passported benefits", and that is a discussion that we have with them going forward.

Q347 Stephen Lloyd: It is, however, crucial, Secretary of State, because the very group that we are trying, through Universal Credit, so hard to break are the very group that we believe, as the coalition Government, the pupil premium will help us break.

Mr Duncan Smith: I am not here to answer the question of how the Department for Education resolves their issues in that respect. What I need from them-and what we are in discussion with them about-is how they, therefore, wish to see that interact with Universal Credit. They may decide they do not want to see it interact with Universal Credit, and that they would rather dispose of that locally on a set of criteria that maintains exactly the same people on that benefit, and that may be a possible solution for them.

All I am simply saying is, from our standpoint, we are available to do that for the individual Departments. We talk endlessly about free school meals, but, as this Committee will know, there is the nature of the numbers of passported benefits, and they are all differently hooked, so they have to make that decision in each of the Departments. They have different trigger points. They are not all the same. They are quite different. Some are incredibly complex about the way they want to run, and some of those Departments may say, "Actually, we find it much easier to control those separately". If you ask me about Universal Credit, it has no bearing in the sense that it makes it better or less good for Universal Credit. For us, it is an issue that says, "We can do these certain things but these would be the criteria that we have to set for that, but you need to decide whether you want to do it like that or you want to maintain it in much the same way, in which case we can go on without it". It does not have a bearing on Universal Credit being successful or not.

Q348 Chair: With Universal Credit, it is virtually impossible to identify the triggers that you use to put in payment a passported benefit.

Mr Duncan Smith: When I looked through the list of passported benefits, some of them are unbelievably complex, as we know, and have a whole variety of different triggers that get you to that point, and some of them are to do with the benefits system and some of them are outwith the benefits system. My point, then, really, is that what we are trying to offer is that it affects the benefits system within Universal Credit. We can arrange for that but they have to decide whether they want to do it like that.

Q349 Chair: I think the fear is that there will be all sorts of different assessments in order to decide who is going to qualify for this money, rather than just, "If you are in receipt of that benefit-"

Mr Duncan Smith: With respect, Chair, as I look through it now, categorically they are already a complex range of assessments. That is the one thing I would say, outside of our remit, is incredibly complex, has been built up over a period of time, and it seems that half the people involved in it do not understand it, and certainly those in receipt of it have great-

Lord Freud: Can I just make a request of the Committee? If this Committee was to look through that particular proposition of putting it on Universal Credit coherently along the SSAC lines and recommend that we pursue that with all speed in the years to come, I think the Secretary of State and I would be most appreciative.

Q350 Chair: You are, then, saying that your mind is not made up but you have come up with a potential solution.

Mr Duncan Smith: We will discuss it with everybody and find out whether it matches their needs but, as I say, some of these are so complex and were set for different reasons, and some of them are not even hinged on triggers in benefits elsewhere. My point is that not all of them are the same. Free school meals is, arguably, perhaps one of the simpler ones, but the rest get progressively more complex. Then, of course, there is the devolved administrations issue around theirs as well, whereas the Department for Education does not come into these areas, so there are complexities alongside. We are in discussion with all of them about this and the best way to do it, frankly.

Q351 Glenda Jackson: Could I just clarify? Are you saying that the majority of passported benefits do not come out of the DWP-they are the responsibility of other Departments?

Lord Freud: Yes, that is exactly the reason they are called "passported".

Q352 Glenda Jackson: Yes, I understand that. What I am trying to clarify here is, if that is the case, surely that list of passported benefits should be very easy to define and handed over to other people. Would that not make your life easier? It would make it much harder for claimants, of course.

Mr Duncan Smith: Can I just answer that question by saying we are flexible. If that is how people wish to take their payments forward on a set of criteria, that is fine. What we are saying is, "If you wish to have it on the basis of it being brought through and triggered through Universal Credit, then we have discussed how to do it and it is up to the Departments now to decide that".

Q353 Chair: Your Pathfinder starts in April next year, and although it is for people who are on JSA initially, there will be people with children down the line who might have-

Lord Freud: Everyone in the Pathfinder is covered; that is not an issue.

Chair: Why they are covered?

Lord Freud: Because we will not have a system ready until the formal start. The numbers are very few and we have decided, in the interests of not causing any problems as we run the Pathfinder, just to say people on Universal Credit would have the same passported rights as they would if they were on the benefits system.

Q354 Chair: So, so long as they are on Universal Credit, they will get free school meals.

Mr Duncan Smith: That is not an issue. You could say it is an opportunity to look at this again, if the Departments want to look at how they want to do it. Some things have been built up over time and become very complex, and I think there may be a good opportunity for them.

Q355 Chair: The way that you are talking, it looks like the grandfather rights, or whatever you are calling it, might go on for some time.

Lord Freud: No. This is up to the Departments in terms of their budgets, but we will provide them the data to allow them to run on, effectively, more or less, without too much change, the same eligibility as the existing position, because our interest, clearly, is not to cause any problems or changes on an interim basis when there is, potentially, a strategic solution, looking a couple of years ahead, which actually makes much more sense for everyone and could be a very attractive solution, and certainly the SSAC-recommended solution.

Q356 Glenda Jackson: We also had evidence that specific groups of disabled people will have a significantly lower income on Universal Credit than under the current system, even when they are not fit for work. What is the policy rationale behind this?

Lord Freud: It is just not true.

Glenda Jackson: Oh, good. Fill us in then.

Chair: When the Severe Disability Premium goes, it is.

Lord Freud: We have maintained the amount of spending within the disabled community. We have adjusted how it is distributed. Clearly, there is transitional protection for those where there is a change. The particular change you may be looking at is the simplification of the child premiums21.

Q357 Glenda Jackson: Which has been reduced, has it not, from £57 to £28?

Lord Freud: It is down from three levels to two levels. We spent an enormous amount of time debating this, and what emerged was there was a sense of unease about the definitions of which children fitted in which category, so we made a commitment to have a hard look at that within the next three years, just to make sure that we have disabled children defined appropriately. That is something that we will do. The numbers going in to Universal Credit in that build-up period-

Q358 Glenda Jackson: I am sorry, I hate to interrupt you there, but you are saying the "definition of disabled children". If we are looking at the Government’s policy here, it is to enable people to get back to work, and that will not be the child-it will be the parent. For some parents, that is absolutely impossible, because of the disability of their child or children; there are others who could get back to work, even though their child is disabled, so that is the issue, isn’t it, not the definition of the disability of the child?

Lord Freud: The only change that people are concerned about is the reduction in the levels of the disabled children, so what we have done is matched up-

Q359 Chair: No, I do not think so. I am sorry; it is much wider than that. There is no equivalent of the Severe Disability Premium of £57 in Universal Credit. Very separate from Disability Living Allowance (DLA), that helped to reflect the extra costs of a disabled person who lived alone and who would have to buy in care, because they would have live-in care. That goes, and there is nothing to replace that. The Disabled Child Addition comes down from £57 a week to £28 per week, so, again, there is less money going there. There is no equivalent of the disability element of the working tax credit for those who are found fit for work. I was going to ask a question on what the eligibility for the higher disregard will be for those with a disability and what happens to people who are presently on permitted work. Those are examples where what is presently in the benefits system-and there is also the one where you can be both a recipient and a carer, and both in the couple can and only one will be able in the couple, so you can define it differently, but there will be less money going in to those households, whatever way you look at it.

Lord Freud: We can end up arguing for ever on this. Can I just make one point, though, about the disabled and what Universal Credit does for them? I think Universal Credit is the most liberating thing for the disabled community that there is, because, at the moment, if you are defined as disabled, that is it-you are stuck. You cannot trial going into work. You can get a certain amount of money and then that is it-you lose it. Under Universal Credit, once you have been placed in the particular position by the Work Capability Assessment, you will be able to try to do some work and you will be able to work as much as you can, which may fluctuate.

The present position is, if you were to try to work and you were disabled on the benefits system, you would get off the benefits system and go into the tax credits system, fearful the whole time that whatever problem you had might recur two, three or four months later. Clearly, then, you would have to get off tax credits and get back into the benefits system, which, as everyone knows, is a complete nightmare. I remember, when I was looking at this a few years ago, I was given the shocking figure that, if you have a reasonably complicated claim, your paperwork was lost 40% of the time. Basically, people do not take that kind of risk. No one would take that kind of risk.

With Universal Credit, you have a fluctuating condition. You can work: you can work full-time for those months when you can and then, when it is bad, you can go back into parttime or none for a period, and back and forth. You are liberated by the system in a way that the present categorisations simply do not allow. I think this is one of the most liberating things for people who have a disability. Do not forget: the number of people who are disabled for mental health reasons is 42% of the total and it rises after a couple of years of inactivity to 68%. Those are the figures that I remember. We are doing something more for people in this category, with Universal Credit, than has been done before, and I really think that is a liberating factor.

Q360 Chair: I know Baroness Tanni Grey-Thompson is undertaking a report that will come out in October into all of this. I think you have got a very, shall we say-

Glenda Jackson: Narrow?

Chair: I was trying to avoid saying "naïve", but I think you have got a rather naïve view of how many disabled people, or people with longterm health conditions, live their lives, and to get the Severe Disability Premium they needed care. That was specifically for care. We are talking about a group of people that have quite high needs, and in that case they will get their Severe Disablement Premium. We understand from other evidence there may be winners and losers in all of this, but there will be families or households that will lose out as a result of these changes, particularly with the removal of the disability premiums.

Mr Duncan Smith: Can I just ask one practical point, which is nothing to do with the questioning? I am wondering what time you are planning to go on to, because I have got meetings I have planned-I will get them changed if necessary, but I wondered what-

Chair: We have this section and one more section, so hopefully 15 or 20 minutes, if that is all right with you.

Mr Duncan Smith: Okay.

Q361 Stephen Lloyd: Again, I not only accept the narrative of what you are saying, I agree with it, for other reasons than politics, but underpinning that I do have that fear of, for instance-some of these are actually from groups like CAB-the Disabled Child Addition has been reduced from £57 per week to £28 per week, unless the child is receiving higher rate care under DLA. There is no equivalent to the Severe Disability Premium, of £58 per week, in Universal Credit. How do we manage those profound anxieties that people, mostly with quite significant disabilities, have that, as far as they can see, "Crumbs, I am going to lose £50 or £60 per week."

Lord Freud: This money is maintained in the disabled community. We are not taking money out here.

Q362 Chair: If there are winners, there are bound to be losers.

Lord Freud: There are losers in the structure of it, but, of course, the transitional protection is designed so that there are no actual cash losers.

Q363 Stephen Lloyd: If I am a disabled person hypothetically, going from £57 per week down to £28, what you are saying is the way Universal Credit is working is that that £30 will be made up in different ways within Universal Credit?

Lord Freud: Yes, because it is going into a higher payment for the severely disabled adults at £77.

Mr Duncan Smith: The higher rate is quite a significant increase, and the point about it is, that if I just list them, there are 10 variable payments, all coming off different benefits, and bear in mind that we also have DLA and ESA outside of this. The point is what has happened piecemeal-some of these disability benefits existed before DLA came in; in actual fact, none of this was really reconciled. What we are saying is all the money that goes into this is being recycled into the same support for disabled people, but a lot of what we looked at says, within this system, the group that are going back to work that need the biggest support was the most severely disabled. That increase, we think, will help them enormously through into work, and that is the point about Universal Credit for those, while they are seeking work.

As I said, there are other benefits around this: DLA, which is outwith the support for disabled people within the Universal Credit, and ESA, which gets bound into this. My point about this, when you look at it, is that this is money we are putting in with the balance to both simplify, get rid of the cliff edge for young people as they come into adulthood-which has been one of the problems that has caused issues-and to go to a higher settlement for those who are most disabled.

That is our purpose: cash protection on the transitional protection, so that we do not see a big, sudden fall out, but overall managing this so it makes it easier for people with greater disabilities to be sustained.

Q364 Glenda Jackson: DLA is an inwork benefit.

Mr Duncan Smith: DLA is outwith Universal Credit is what I am talking about.

Glenda Jackson: No, exactly.

Q365 Chair: Will there be any caps on the cash protection? In other words, if a household is losing £100 a week, or even £150 a week, as a result of the changes, will they get the full cash protection for that?

Mr Duncan Smith: Yes.

Q366 Chair: Until a change in circumstances or inflation.

Mr Duncan Smith: Absolutely. With this identified group, the point is identifying and working very closely with them to ensure that in the cases that are necessary that they are protected-maybe some of them should actually be, and are not, in receipt of DLA. My point is that this is such a complex issue-I know there are differences of opinion-that a lot of people do not understand what they should and should not be getting. It has got so complex. I looked at this list; this has built up piecemeal over a period of time, and no one has sat down and said, "How do we simplify this so we help people?"

Q367 Chair: I do not think anyone disagrees with you that it is very complex. Our problem is that even Universal Credit is going to be quite complex as well, and that is the difficulty of why other people have not done it. You have been brave enough to put yourself forward and you are doing it, where other politicians have feared to tread, perhaps.

Lord Freud: The fundamental point is we are reorganising disability payments to make them coherent, but we are not taking any money away, even without transitional protection. We are not taking any money away in the restructure, and then we are making sure that people who are used to particular payments are cashprotected, through transitional protection, and then the new structure comes in, which is more coherent.

The thing that has particularly warped the system is, because of the child poverty agenda over the last decade, child payments have been rising and rising, relative to adult payments, and that is what has been driving up the overall child disability payments. One of the reasons to get it back into line is to make an adjustment to get the system to be coherent to that. It is not sensible to have a payment running for children, which drops immediately when they hit adulthood even though they are still living at home, in practice, in many cases.

Q368 Glenda Jackson: When you say that there is no reduction in the payment, do you mean for the whole of Universal Credit when it actually it rolls out? There is going to be no reduction; no one is going to lose out. I would like to know how you are going to make reductions in your departmental budget? You have got to cut billions.

Mr Duncan Smith: We are not cutting the money there.

Q369 Glenda Jackson: No, I was referring to the Universal Credit.

Mr Duncan Smith: The disability payments and the transitional protection is already budgeted in our scope; it has got nothing to do with what we are doing in other benefit areas. Under Universal Credit this area of disability is the same going through to Universal Credit, and protected for those who are in through the transitional protection. It is in the budget.

Q370 Glenda Jackson: And you are still going to make the billions of cuts in your Department?

Mr Duncan Smith: What we are already down to do at the moment is separate to Universal Credit.

Q371 Andrew Bingham: Just about the implementation: you published the draft Regulations in June that SSAC have commented about. When will the final detailed ones be laid before Parliament?

Lord Freud: We will lay the final Regulations after the Autumn Statement now.

Q372 Andrew Bingham: The Autumn Statement?

Mr Duncan Smith: December.

Lord Freud: It is 5 December, I think. The reason for that is we have got to put all the Regulations out, and the Autumn Statement-

Mr Duncan Smith: Has a bearing.

Q373 Stephen Lloyd: It will be the same time when you present the earnings disregard figure.

Lord Freud: Exactly. The whole thing wraps up: it is a debate with the OBR, the Treasury; there is the Autumn Statement; and the structure of our Regulations.

Q374 Andrew Bingham: I am quite reassured with what we have heard today at various levels, but it is such a huge, revolutionary change. Where do you think the two or three biggest risk areas are still?

Lord Freud: I will say what I think the challenges are that we need to get right, and which we have been spending a lot of energy and effort on. That is to get the security system working properly, and that is at several levels. That is around identity, making sure that the people who go in are the people they say they are; there is a lot of cleaning up we can do with the existing base. There is the issue of cyberfraud: just to make sure the system is utterly robust; we are putting a lot of energy and effort into making sure of that. We must also make sure that we have got an operations capability of watching what is happening to the system, and we are introducing, a joint operations capability there-so we sit and watch the system and see what is happening as it runs. We are going to identity assurance, where we are going to open up a marketplace to make sure that people’s identities are verified by externals and we take them through-that is a new thing-and we are introducing some of the most sophisticated cyberfraud systems, adapted from the banks and others, to make sure that we have a really robust system. Those are some of the biggest issues.

Mr Duncan Smith: The online cyberfraud is the area that is probably the newest in all of this, because it is not historically something that the systems have got, but a lot of other people have gone before, so we have been in discussions with companies like Amazon, for example, who have a very good record on this. We have also talked to other government organisations, who are specifically involved in this-I shall not necessarily name them. My point is we are working closely with them, bearing in mind that there are states that wish to attack things, and there are criminals out there who do a lot of online attacks and fraud.

It is making sure we have got the systems. You can have a very secure system; the securest system is the one that you shut down and nobody can get into it. Clearly we have to have a system that has a variety of different checks; if somebody goes through their data is held and we can use it, but nobody else can, and so it goes on. Those are the things that companies like Amazon have had to do, and have done very successfully over the years. It is about learning from what they do, because this essentially is a consumer product, just like theirs, but it has a particularly important feature, which is that we must always be ready for the moments when we have to pay people at all times, because not paying people is a problem.

Q375 Andrew Bingham: We have to get that reassurance across to people, because people will be nervous.

Mr Duncan Smith: Yes. It is certainly an area that I think, if you do not mind me saying so, Chair, you might want to look at in general terms, because it is an area that is the least understood sometimes by our colleagues in the House, about how cyberfraud and fraud has moved on dramatically since the early days.

Q376 Stephen Lloyd: Equally, picking up on what my colleague has said on getting that news out to the public, I think one of the biggest challenges that we face, because the media dialogue, for want of a better word, had-I am being a bit subjective here-been so hyperbolic over the last few months, is to ensure the people who you and I believe will benefit from Universal Credit get back to thinking that this is a good thing.

Mr Duncan Smith: Yes. Perhaps I can reassure you, Mr Lloyd, about this. On Thursday we are carrying out a major exercise in informing the media about what we are doing, in the same kind of detail that we are talking to you, looking at the system at the front end, talking about budgets, and talking about all the elements that you, as a Committee, want to inquire into. We are going to take them through that; essentially we are going to open up much more to external view and scrutiny, because we will benefit from it, and also because this is such an important system that I want people to learn what it is all about.

There is a lot of ignorance at the moment in the media, and some suppositions made about things, which I think are important to tackle head on. The most important one is about everyone saying, "You must not have a big bang. You must not go straight off. You are not going to be ready on time." The truth is the time that we deliver this is 2017, when it is complete, and it is in, so that is over four years. We start that process in October. We do not finish it; it just begins.

The whole point about the "agile" process, which I find frustrating at times, because we cannot quite get it across to people, is to understand that "agile" is about change; it is about allowing you to get to a certain point in the process-one leap: check it out; make sure it works; and as you go into the next leap you come up with something that says, "We can rectify some of the issues in this, and make that even more efficient". You are constantly rolling forward, improving and making more efficient things. There is a constant retrospective change that goes on to complete that system, and that is what will happen all through those four years.

Q377 Stephen Lloyd: Some of the announcements you have made today have assuaged some particular fears that I think some of us have had.

Mr Duncan Smith: You will see more of that now, because we are at the stage now where the system itself is getting to the point where we understand critically where that is, and we know now, therefore, where the trade offs are with the concerns that have come to us, and how we can deal with them.

Lord Freud: Everyone concentrates on building the machine, if you like. What is really interesting is the ecosystem around it. We have talked a bit about the opportunities here, and the opportunities are incredible to transform people’s lives with the digital inclusion, and the financial inclusion. Those are two things that we think will make more social transformation in terms of improving people’s lives. If we can get it right-and we are concentrating on it, and we are working on it, to make it right-we could really improve people’s lives and what they do. That is our objective here, based on the introduction of Universal Credit.

Andrew Bingham: I think you are right, because the way online and digital has transformed people’s lives in other areas, now it comes to this. You are dealing with people who are fearful of change, and fearful of moving onto the internet with things, and I think that is absolutely right.

Chair: It is part of our role, in making sure that you make it work, for us to scrutinise and be as hard as we can on you, to make sure, because if it does not work-that is somewhere where I do not think we would like to go. Can I thank you both very much for coming along? It was a longer session than we intended; it is dark outside, but I do appreciate your time. Obviously we still have some questions we did not ask. I hope we can write to you and get some answers22, for some of the detailed stuff particularly. We will probably revisit this at some time in the future, but in the meantime you have given us enough to start writing our report.

[1] Real-Time Information – a new system for collecting PAYE taxation, administered by HM Revenue and Customs

[2] Ev 102

[3] Citizen’s Advice Bureaux

[4] Discretionary Housing Payments

[5] Ev 105

[6] Ev 100, 102

[7] Ev 102

[8] Banks Automated Clearing Service —widely used electronic processing system doe financial transactions

[9] Note from W itness: RTI will be received in UC systems with a lower confidence than that attached to the verified electronic payments and this will feed through into the risk assessment that is being applied to claimants.

[10] Ev 105

[11] Ev 105

[12] Office for Budget Responsibility

[13] Ev 100

[14] Ev 105

[15] Employment and Support Allowance

[16] Work-related Activity Group

[17] Local Housing Allowance

[18] Ev 101, 106

[19] Note from witness: The current position is that we believe the changes do not meet TUPE regulations so TUPE is unlikely to apply. DWP is currently in discussions with the LGA (Local Government Association) , COSLA (Convention of Scottish Local Authorities) and WLGA (Welsh Local Government Association) on this subject. No final decision has been taken.

[20] Ev 106

[21] Ev 106

[22] Ev 103-104

Prepared 21st November 2012