| List of Conclusions and Recommendations
1. 4TIt was clear from the evidence received in our inquiry that there is widespread support for the principles of welfare reform, the general direction of policy development for Universal Credit, and the aim of strengthening incentives to work and facilitating the move from benefits to work. We share this support for the Government's aims for Universal Credit. It was equally clear, however, that there is considerable concern about the ambitious timetable for introducing Universal Credit; whether there will be sufficient time for the Government to learn from its pilots; and whether it is desirable or necessary to implement so many changes at once. Concerns raised in the evidence centred very much on the impact the changes might have on the most vulnerable claimants, such as some people with disabilities, homeless people and those who already struggle to manage their finances. This report therefore focuses on the nature of the risks for these vulnerable groups and on the Government's plans for protecting them.
2. We welcome the Government's objectives of moving to an online benefits claiming system and of increasing digital inclusion, and we recognise the potential benefits for many claimants as well as the important cost-reduction advantages. We are, however, concerned that some vulnerable claimants will not have the internet access or skills to be able to use the system and so may be unable to obtain their benefit entitlement. Simply removing other channels for claiming benefits will not equip people with the necessary skills and capabilities to make the transition to online claiming.
3. For many people smartphones are now the preferred method of accessing the internet. We recommend that DWP gives priority to early development of an application to support Universal Credit claims from smartphones.
4. The systems design for Universal Credit, the service delivery plan and the final version of the Regulations must reflect the reality that some people will need face-to-face support when making a claim for Universal Credit. DWP has been unable to present us with any clear plans for how the Universal Credit service will be delivered to those people who cannot make an online claim. Nor is it clear what DWP's target of 50% online claims in 2013 actually means; if there is to be no paper form then all claims will have to be online and the target is presumably an indicator of how many claimants will need telephone or face-to-face support. We request that, in response to this Report, DWP provides an explanation of its online targets and a clear statement of its proposed service delivery arrangements, setting out how people will be informed about where to go to make a claim, what support they will be able to get there, and what resources DWP is investing in that support. These arrangements need to be in place before anyone is required to start claiming Universal Credit.
Access for intermediaries
5. Some people rely on advisers and other advocates to help them to make and to resolve problems with their benefit claims. These intermediaries need to access relevant information about the claims in order to provide assistance and to seek explanations from DWP staff. It is not clear how intermediaries will be able to access this information when it is held online, unless the claimant is actually present and able to sign into their account. We request that, in response to this Report, DWP provides more information on how intermediaries will be able to access claimants' online information without compromising system security. We also request confirmation that DWP will continue to provide advice helplines for advisers to discuss cases.
Independent advice and support
6. There will be a significant increase in demand for advice services for claimants during the four-year period of Universal Credit implementation. We urge DWP to work with the advice sector to quantify and provide the extra resources necessary to fund retraining of advisers and the additional advice services which will be required to ensure a successful implementation of Universal Credit.
Claims and Payments
7. We understand the Government's preference for moving to a monthly payment system for Universal Credit, given that 70% of people in work are paid this way, and this amount is increasing. We accept that monthly payments of Universal Credit will make the transition to monthly salary easier for claimants and improve the position for claimants whose work status fluctuates. However, monthly payment is not the norm for many people on a low income and some claimants will return to weekly payments when they return to work. Budgeting weekly or fortnightly can be an effective way of managing a low income, and is not necessarily a sign of poor money management and monthly payment risks disrupting the existing budgeting methods of some households. Financial literacy training is likely to be expensive to provide and is unlikely to solve the difficulties of managing on a tight budget4T.4T
8. We are concerned that the Government's proposed exceptions process will be too slow in identifying people who may struggle to adapt to monthly payments and who may fall into debt or suffer further hardship. We recommend that DWP monitors the impact of monthly payments from the start of the Pathfinder in April 2013 and moves quickly to change its approach if this payment system appears to be creating difficulties for claimants.
Single payment per household
9. A single household payment may not be suitable for every household claiming Universal Credit and we therefore see disadvantages in insisting that all households receive their benefit this way. There is potential for women to lose out under this arrangement and a risk that money intended for children or for rent will not be used for its intended purpose. We therefore recommend that DWP decision-makers have the discretion to allow payments to be split between two partners in a household, where circumstances make this necessary. This would not conflict with the Government's intention of calculating Universal Credit on a household basis.
Direct payment of housing costs
10. The proposal under Universal Credit to pay the costs of rent to the benefit claimant, rather than direct to the landlord, is a major change to the benefit regime for tenants in the social housing sector and for some in the private rented sector. We note the Government's view that this will contribute to claimants' financial capability. While we recognise that many existing social tenants and most tenants in the private rented sector already pay their own rents, we are concerned that some vulnerable claimants will be unable to manage making regular rent payments and may fall into arrears.
11. Initial findings from the pilots the Government is running to test the impact of direct payments of housing costs to claimants, the "housing demonstration projects", showed that just over half of tenants surveyed felt confident receiving their housing costs payment direct. Pilots receive additional time and attention both from landlords' staff and from local authorities' housing benefit staff in a way which would not be practical as larger numbers are brought into Universal Credit. Care must be taken in drawing conclusions from such small-scale pilots.
12. We believe that the Government's long-term aims for Universal Credit are more likely to be achieved if time is allowed for a proper evaluation of the housing demonstration pilots, followed by a phased implementation of direct payments after appropriate safety net arrangements for vulnerable people have been developed and tested. We therefore recommend that, during the initial phases of Universal Credit implementation from April 2013, claimants who currently have their housing costs paid to their landlord should have the option to continue with this arrangement.
13. We also recommend that the Government moves quickly to publish a clear definition of "vulnerable" groups within Universal Credit for whom it will not be appropriate to include housing costs in their benefit payment. It also needs to establish a robust process for proactively identifying claimants who are struggling to manage their housing costs so that they can be properly assisted before they fall into arrears and face eviction.
14. Some potential Universal Credit claimants do not have a bank account. Some witnesses were concerned that these claimants may have particular problems managing monthly payments and housing costs and may be vulnerable to exploitation, particularly from those loan companies and operators charging excessive interest rates. We welcome the Government's support for credit unions, but note that it is likely to be some time until credit unions have sufficient national coverage and capacity to offer a solution to everyone who needs it. We therefore welcome the Government's intention to ensure a range of financial product options are available to claimants. However, it is essential to ensure that any new products provide the same protection for customers as mainstream bank accounts. We note that DWP is proposing to subsidise the first year of customer charges under the proposed new scheme. The Government must assess during that year whether support for subsequent years will also be required, and plan accordingly.
Universal Credit entitlement
Payments to cover the additional costs of disability
15. The Government has clearly stated its intention that Universal Credit will provide more generous support for disabled adults and disabled children than it does for people in similar circumstances who are not disabled.We have not yet received sufficient evidence that the current plan for additional disability elements ensures this is the case. We are pleased to see that expenditure on disabled people as a whole will not be reduced. Our concern is how individual disabled claimants whose entitlement is reduced under Universal Credit will access substitute help. Transitional protection will mean that they do not lose in cash terms immediately but it will not provide a long-term solution because it diminishes over time and ends if their circumstances change.The Government needs to ensure that schemes are in place to support individuals to adjust.New claimants who may receive less under Universal Credit than they would have done under the existing system will also need help to live within the sum of all sources of support available in addition to Universal Credit. We recommend that the Government addresses concerns about the system of disability additions within and outside Universal Credit, particularly where these affect disabled children and severely disabled people, to meet its commitment to provide generous support to those particularly vulnerable groups of claimants and to ensure that there is no diminution in their overall benefit package which includes their entitlement under Universal Credit.
16. We welcome the extension of help with the costs of childcare for Universal Credit claimants so that it is available to parents who work fewer than 16 hours a week. However we note that the effective level of support will be less for some families who are currently benefiting from disregards under Housing Benefit and Council Tax Benefit. The costs of childcare are a key factor in achieving real financial benefits from returning to work and the Government will need to monitor the extent to which the childcare element of Universal Credit is effective in promoting work incentives, particularly in the context of the high cost of childcare in the UK.
17. Removing Support for Mortgage Interest as soon as any hours of work are undertaken could discourage some claimants from entering part-time employment, especially single parents who have been able to remain in the family home after separation, and people making a phased return to work after illness. There is also the possibility of unintended higher spending consequences if claimants move to private rented accommodation, where assistance with housing costs will be given. We recommend that the Government looks again at this provision.
18. We welcome the Government's decision to exclude supported exempt accommodation from Universal Credit. However, DWP must urgently finalise and publish the details of the revised arrangements so that providers have the certainty they need to plan ahead and maintain their service provision. DWP must also clarify how the administration of supported exempt accommodation rental charges will operate within the Universal Credit system, and in particular, whether or not housing costs will be paid direct to landlords.
Calculation of income
19. A clear and easily comprehensible earnings disregard system is critical in order to ensure that benefit claimants can work out the financial advantages of returning to work or increasing their hours. We need more information to be clear that the simplified system set out in the draft Regulations achieves this, particularly for claimants with low housing costs for whom a choice of earnings disregard will exist. We are pleased that the Government is reassessing the proposed disregards.
20. Ministers are confident that RTI will be delivered on schedule and in time to support the introduction of Universal Credit. The RTI implementation timetable is, however, very ambitious and leaves little opportunity for dealing with any problems which may arise. Tax, accountancy and business organisations have raised a range of specific concerns about the RTI programme with us. We did not receive satisfactory responses to our questions about these detailed issues in either our formal evidence session or our informal meetings with DWP and HMRC officials. It is therefore unclear whether these issues are under control or what measures will be put in place to deal with problems as they emerge during full implementation.
21. We request further information from DWP, in response to this Report, on its contingency plans for receiving information on earnings for the calculation of Universal Credit payments if the RTI link is not available. We understand that, if this happens when Universal Credit is introduced, claimants will be required to provide information on their monthly earnings using their online accounts. It is not clear how this will operate in practice or what arrangements will be used for those who cannot manage online accounts. We therefore request that the additional information from DWP includes details about how claimants can provide monthly updates on their earnings if they are unable to manage their claim online, and about the resource implications for DWP of verifying earnings information provided directly by claimants.
22. 4TWe welcome the Government's efforts to ensure that the self-employed are incentivised to increase their earnings rather than rely on benefits, more closely reflecting the position for the employed or those seeking employment. We also welcome the decision to allow self-employed claimants one start-up period every five years instead of once in a lifetime, but are concerned that the Minimum Income Floor may act as a disincentive to entrepreneurship.
23. While welcoming efforts to simplify the provision of information by the self-employed, we share the concerns of witnesses representing professional and taxation bodies that the use of an accounting method different to that used by HMRC may impose a significant and unnecessary burden on the self-employed and we recommend that DWP liaises with HMRC and the professional bodies as a matter of urgency to address these issues.
24. While we support the principle behind the benefit cap, it is imperative that it does not affect the most vulnerable households in a way which makes it impossible for them to cope. We are therefore pleased that DWP has made additional funding available to help mitigate the impact of the cap on these families. We believe that the Government should consider, in particular, the impact on those in temporary accommodation which often attracts higher rental payments, and how the cap might be adjusted to take account of this. We request that DWP sets out in its response to this Report how it intends to monitor the impact of the cap. DWP also needs to clarify how the threshold for calculating income levels which would exempt households from the cap will take account of other statutory rights such as sick pay and maternity pay.
Implications of other policy changes
Conditionality and sanctions
25. DWP has already imposed a more robust conditionality regime on JSA claimants and this will be continued through into Universal Credit. One element is the claimant commitment. This has the potential to help benefit claimants return to work, by making clear what job-search requirements they must fulfil. While we recognise that this is important, we also believe it is essential that DWP supports claimants in the job-search and that the support available to each claimant is clearly set out and actually provided.
26. The new regime also includes tougher sanctions with the ultimate penalty of benefit being withdrawn for three years. Sanctions are a necessary and important part of the benefits process, but there is little evidence that they strengthen work incentives on their own. The effectiveness of the new regime is likely to depend heavily on the quality of the face-to-face support provided by DWP through Jobcentre advisers. Sanctions must be used by DWP staff primarily as a deterrent and a last resort. Staff need to be properly trained to apply sanctions appropriately, and to explain clearly why they have been applied and what remedial action the claimant needs to take for benefit to be restored. We request that, in response to this Report, DWP explains how Jobcentre staff will be equipped to implement the new conditionality and sanctions regime4T effectively. 4T
27. The additional support currently available to many benefit claimants through passported benefits, particularly free school meals, is valued by families, and the entitlement criteria have a significant impact on decisions about returning to work or increasing working hours. Finding a way of administering passported benefits under Universal Credit is a complex issue, involving many other Government Departments and the Devolved Administrations. We accept that there are no easy answers but we believe it is essential for the Government to put fair and workable criteria in place to avoid adding complexity to Universal Credit and the risk of reducing incentives to work.
28. DWP has sought and been given detailed advice by the Social Security Advisory Committee about possible ways of establishing new eligibility criteria for passported benefits under Universal Credit. It now needs to make decisions. We welcome the Government's assurance that, initially, under the Pathfinder, all Universal Credit claimants will retain entitlement to free school meals. A clear indication is now needed on the arrangements it will put in place when Universal Credit is implemented nationally from October 2013, before moving on to consider long-term solutions. We regard "cashing up"including a cash equivalent of passported benefits in the Universal Credit paymentas an interesting idea which might have the potential to avoid "cliff edges", the risk of a sudden drop in entitlement as soon as income levels rise above a certain level. DWP should now explore this in greater detail.
Localisation of Council Tax support
29. We believe that the Government's decision to localise council tax support under a proliferation of local schemes, rather than including it within Universal Credit, will work against its objective of simplification of the benefits system. It will introduce local variation, add additional complexity to earnings incentives and has the potential seriously to undermine the objectives of Universal Credit in terms of enabling claimants to see clearly the financial benefits of taking up a job or working more hours.
30. The decision to reduce central government funding to local authorities for council tax support by 10%, but at the same time to protect pensioners, means that the burden is likely to fall on low-income working-age households, many of whom will be asked to pay council tax for the first time. The recently announced additional short-term funding for local authorities is welcome and may help to reduce the impact on some low-income families. However, we believe that it is essential that DWP fully understands the interaction between the changes to council tax support and the introduction of Universal Credit, particularly for low-income households, and that it begins monitoring the impact of the new council tax support arrangements as soon as they are implemented from April 2013. We request that DWP sets out its plans for this monitoring work, including the timetable, in response to this Report.
Localisation of the Social Fund
31. Social Fund discretionary payments currently provide a safety net for some of the most vulnerable people. We believe that giving local authorities responsibility for a new system of local welfare assistance without central guidance on how to determine eligibility, and in the absence of ring-fenced funding, will result in uncertainty and inconsistency in the way the support is administered. It may well lead to real hardship for benefit claimants who have nowhere else to turn in crisis situations. We are of the view that the Government should reconsider its position on ring-fencing but, if it is not prepared to do this, we recommend that DWP put systems in place to ensure that it closely monitors the extent to which local authorities are able to meet demand for local welfare assistance and that it is alerted at an early stage to specific instances of genuine need being unmet because of different local priorities or shortage of funds.
32. The efficient transfer of data between DWP IT systems and the ATLAS system used by local authorities is as important to the successful implementation of Universal Credit as that between DWP and the HMRC RTI system. It is not clear from the evidence we have received from DWP whether the capacity currently exists to ensure information is passed accurately and quickly between central and local government. We request that, in response to this Report, DWP provides us with further details of the steps it has taken to ensure that its interface with local authority IT systems is robust.
33. The Government has set a very ambitious implementation timetable for Universal Credit. Ministers emphasised that, because implementation will be phased over four years, there will be plenty of time to get it right. While it is true that system enhancements can be developed and refined over time, we believe that the basic structure and the essential elements of service delivery and support must be shown to be in place before the major roll-out of Universal Credit begins4T in October 2013. 4T
34. We believe it is essential for DWP to begin monitoring, and reporting regularly on, the impact of Universal Credit on the full range of claimant groups as soon as implementation starts with the Pathfinder in April 2013. We request that DWP sets out its plans for impact monitoring in response to this Report.
35. Universal Credit development and implementation is taking place at a time of financial austerity and in the context of concurrent significant changes such as localisation of council tax support. We consider that the implementation timetable is ambitious and that there is significant further work to be carried out to ensure that the needs of the most vulnerable claimants can be met. The Government should reflect on the possible consequences of the scale of the proposed changes for some of the most vulnerable people in society and, if those consequences cannot be adequately addressed, should consider modifying its implementation timescale accordingly.
36. The Government has indicated that it expects to lay the Regulations to implement Universal Credit before Parliament in December. Ministers emphasised to us the importance they placed on open and effective consultation on drafting this policy. We hope it will take full account of the concerns raised in this report in finalising the detailed arrangements for delivering Universal Credit which will be set out in the Regulations.