HC 576 Progress towards the implementation of Universal Credit

Written evidence submitted by the Child Poverty Action Group

Introduction

1. Child Poverty Action Group (CPAG) works to prevent and relieve poverty among children and families with children. We have particular expertise of the functioning of the social security system through our welfare rights, training and policy work: in April 2012, for example, we published the handbook Universal Credit: What You Need To Know, an authoritative guide to the new benefit. Consequently, we welcome the opportunity to submit evidence to the Committee on progress being made with respect to the implementation of universal credit (UC).

2. In this submission we organise our concerns around the three objectives that the government has set for UC, namely (i) the simplification of the benefits system (ii) making work pay and (iii) protecting the most vulnerable in our society. [1]

Simplification of the benefits system

3. Simplification is a worthy goal but it is very difficult to achieve in a heavily means-tested and conditionality-based system such as UC. Despite streamlining six benefits into one, the use of ‘real-time’ information, and the payment of the benefit by a single agency to those in- and out-of-work, many complexities will remain, and new complications will be introduced with the advent of UC.

4. Recently published regulations reveal that many of the current rules which govern entitlement to means-tested benefits and which currently cause great confusion will simply be imported into UC. These include the rules relating to residence and immigration, couples, students, limited capability for work, housing costs and the treatment of income and capital. [2]

5. However, in addition to existing problems, UC will also create several new areas of complexity including:

· The introduction of in-work conditionality. DWP’s own research shows that in-work claimants are both confused and dismayed at the prospect of being subject to a range of requirements until they reach a certain income point. [3]

· Joint payments. The single household payment raises many problems not least the question of how a couple with one partner who does not accept the claimant commitment will be treated. The regulations provide no guidance on this issue.

· Default online processes. As well as the obvious problem this presents for the digitally excluded, UC’s online interface is likely to pose challenges even for computer literate claimants.

· Monthly payments. While the government’s rationale for monthly payments – that they mimic the usual wage pattern – sounds reasonable, evidence shows that for many low wage jobs monthly payments are the exception rather than the norm. [4] Moreover, studies show that claimants are concerned that the move to monthly payments will hinder rather than help them to budget effectively. [5]

· Minimum and maximum earnings disregards. The introduction of different disregards for various family compositions and at different levels depending on the extent of housing support provided as part of UC is an area of especial complexity. While different disregards ensure a degree of fairness, for example, between families of different sizes, or between home owners and those who receive support with their rent, recent simplifications will result in some groups losing out and look set to cause much confusion.

This is particularly the case for those who have low housing costs. Under current proposals, those with housing costs covered in their UC award will simply get a lower disregard than those with no housing costs element. This provision differs from that originally proposed which scaled the disregard according to the amount of the housing costs received. As a result, those in work receiving help with housing costs may receive a lower universal credit award than claimants in similar circumstances with no housing costs.

We believe that if the government wishes to retain the simplified structure, a way forward is to set both earnings disregards, and in particular the lower earnings disregard, at a high enough level so that the system is fair and so that work incentives are maximised for everyone. If not, then it would be far better to go back to the original provision of tapering the earnings disregards to reflect the amount of housing costs paid. The loss of simplification could be eased merely by stating in award notices what the household’s earnings disregard is in their current circumstances.

6. Both the enduring and the new complexities that will be embedded in UC will present claimants with a whole host of challenges. Without good advice, many claimants will struggle to comprehend either their entitlements or the new obligations that UC places on them. As a result, the government’s expectation that UC will be taken up more widely than many existing benefits could be misplaced. Likewise, the objective of increasing claimants’ adherence to work could be undermined if conditionalities are not fully understood.

7. In our view, it is therefore essential that the government provides support for the advice sector as an integral part of the design, piloting and roll-out of UC. For example, the government could usefully audit existing advice provision, dedicate a percentage of its implementation budget to training and supporting advice providers, and provide funds for recruiting additional advisers as required.

Making work pay

8. Improving work incentives is an equally laudable objective and we welcome a system that allows claimants to take on work without the current levels of disruption to their benefits. However, we are concerned that many aspects of the UC scheme do not sufficiently take into account the real reasons that many claimants do not access work, or work only for only limited amounts of time .

9. The unified 65% taper rate represents little change to work incentives for many existing claimants, and there is no evidence that it will significantly influence the behaviour of claimants compared with labour market factors such as the local availability of jobs, rates of pay, and other conditions of employment. The recent changes to working tax credit (WTC) illustrate this point well. From April 2012 couples have been required to increase their working hours from 16 to 24 a week in order to access WTC. Despite the considerable financial advantage they receive if they do so, and the large losses incurred if they do not, many couples have simply been unable to find the extra hours in the prevailing economic conditions. [6]

10. The availability and cost of childcare also acts as a brake on families’ ability to take up work. In this respect, the cut in maximum childcare support from 80% to 70% which is carried forward in the UC regulations is particularly detrimental to work incentives. This loss is compounded by the fact that childcare costs must be reported on a monthly basis under UC. This requirement is burdensome on parents, and fails to take into account that many do not pay childcare costs according to a regular monthly schedule, but instead on a termly or more sporadic basis. As they will be constrained by monthly thresholds, many parents will be unable to claim back their full entitlement.

11. The more generous earnings disregards are welcomed but the absence of a second earner disregard undermines the work incentives for non-working partners. This is particularly important in the context of reducing child poverty given that couple families where both partners work have a significantly reduced risk of living in poverty compared with those with only one earner. [7]

12. The new conditionality regime will be more stringent but we are not convinced that it will be more effective in encouraging claimants to move into work. Much will depend instead on the quality of support provided through the Work Programme. As a result, we believe investment should be directed at staff training , and at providing sufficient time and resources for advisors to form trustful relationships and to develop appropriate and tailored support for claimants with genuine opportunities for self-direction . As recent events have shown, however, some providers are struggling to deliver such a service within the current business model. [8]

13. Work incentives will be further undermined if the withdrawal of passported benefits introduces new cliff edges into UC. To take the most often cited example, withdrawing free school meals from families when they reach a certain income threshold will create a significant work disincentive: a family with three children, for example, would need to earn more than £3,000 more a year to offset this loss of support [9] . While some have suggested tapering passported benefits through various means, experts generally regard this as impracticable. [10] As a result, CPAG and others are calling for free school meals to be extended to all in receipt of UC.

Protecting the most vulnerable

14. The government’s own analysis shows that there will be winners and losers from UC but it has also made it clear that it intends to protect vulnerable claimants. [11]

15. Almost all of those who are eligible for UC must be considered as vulnerable but clearly, within this large cohort there are some groups who demand our especial consideration. At CPAG we are particularly concerned about:

· Claimants with disabilities. Disability premiums have always been a feature of means-tested support in recognition of the extra costs associated with disability such as aids and adaptations, extra heating, transport, special clothing and diets. The severe disability premium is currently worth more than £58 per week, while the disability element of working tax credit is worth around £54 per week. Both these elements will be removed under UC . The replacement of disability living allowance by the personal independence payment (PIP) is insufficient given that we know 500,000 less people will qualify for this support.

· Claimants with children with disabilities. The proposed lower rate to be paid to families with disabled children is significantly less than the current disabled child element contained within child tax credit. This will adversely impact vulnerable families with a disabled child, with many families being worse off by up to £30 per week.

· Carers. UC will not allow an award of carer’s allowance if the claimant is deemed to have limited capability to work or get ready for work. This is, in our view, an unnecessary and illogical restriction which will adversely affect some of the most vulnerable claimants. The fact that a claimant has limited capability to work does not preclude regular and substantial caring responsibilities.

· Joint claimants with limited capabilities. U nder UC couples who both have limited capability to work or get ready for work will only receive one element which recognises their restricted function s . Again, this does not reflect the reality that disability-related expenditure for two people is higher than for one.

· Claimants in sheltered or institutional types of accommodation. Under UC some service charges which are currently covered such as the provision of adequate accommodation for warden and caretaking services will no longer qualify for payment. In particular, this will affect those in sheltered or institutional types of accommodation who will have to fund these services from their subsistence benefits. This is a cutback which requires an explanation.

· Claimants in temporary accommodation. Local authorities have expressed concern that temporary accommodation will be included within the benefit cap. In effect, this serves to penalise those placed in expensive temporary housing through no fault of their own. Claimants in temporary accommodation whose benefits have been capped will need to have their rent shortfall met by the Local Authority. Many Authorities are expressing considerable concerns about whether this will be affordable or possible. The alternative is to ask claimants to make up the shortfall from their own pockets; yet those whose entitlements have already been cut by the benefit cap to below the amount the state suggests it is necessary for them to live on are unlikely to be able to meet these costs.

· Young lone parents. The regulations indicate that lone parents under the age of 25 will receive the same standard allowance as a single claimant without children. Currently lone parents aged 18 or over receive the same personal allowance as single claimants without children aged 25 or over. This constitutes a significant cut for young lone parents and their children.

· Large families. We object to the overall benefit cap on the grounds that for the first time in a generation, the level of state support will be delinked from assessed need . As the government’s own impact assessment shows, it will disproportionately affect children in larger families who are at a particularly high risk of poverty. [12]

16. Beyond specific groups who look set to lose support with the introduction of UC, we have a broader set of concerns with respect to certain design elements of the new benefit. Specifically , we draw attention to :

· Monthly assessments. Such assessments will generate considerable lags in awards being made under some conditions. The regulations have also made clear that changes of circumstance will normally be treated as occurring on the first day of the assessment period. As a result, if entitlement ends during an assessment period, because a claimant starts full-time education on the last day of her assessment period, for example, UC will be lost for the whole month. This, in our view, is arbitrary and will cause hardship.

· Monthly payments. Evidence suggests that many claimants may have difficulty budgeting on a monthly basis. [13] Moreover, payment to the household will disempower many women and remove safeguards that ensure payments for children and housing costs are used for these purposes where one partner in a couple acts irresponsibly. We would like to see more detailed provision in the regulations for variance from default monthly payments to the household, rather than reliance on the discretion of decision-makers.

· Reliance on complex IT systems. UC will depend on a sophisticated IT platform but given the mixed record of past large-scale government IT projects, we are all naturally cautious about the ability of the system to function effectively. There is no provision in the regulations for situations where the system breaks down, nor as far as we are aware, any broader contingency plans being made for such an eventuality. Given the amalgamation of payments for adults, children and housing costs, claimants risk destitut ion if there is a problem with their award.

17. The government has made various provisions designed to ameliorate hardship in certain circumstances but we are sceptical about the effectiveness of these arrangements as follows:

· Transitional protection. We understand that the government is intending to restrict transitional protection to existing claimants who are ‘migrated’ onto UC through the DWP’s managed programme. In contrast, those transferring onto UC due to a change of circumstances will not get any transitional support. This arbitrary approach is unjust and undermines the government’s repeated assurance that nobody will lose out at the point of change. Given that 12 million existing claimants will be transferring onto UC by the end of 2017, this could adversely affect many who move onto UC because, for example, they have a child, a child leaves home, or when they enter or leave employment.

· Hardship payments. These payments will be available to some who lose support because of a sanction. However, such payments will be both more restricted and recoverable under UC. Reclaiming hardship payments will mean that sanctioned claimants will continue to receive a reduced rate of UC for significant periods after the sanction expire s .

· The localisation of elements of the social fund. Responsibility for crisis loans and community care grants, both of which provide vital support to low-income families in extreme situations, will be delegated to local authorities from April 2013. However, as settlement letters sent out in August 2012 show, the localisation of these elements occurs in the context of significant cuts to the available budget which will highly constrain the level of support that can be provided. As one local authority officer recently said to us, ‘The social fund is not being localised, the social fund is dead’.

Conclusions

18. Universal credit has three laudable objectives but as our submission shows, there are multiple aspects of the model which undermine the achievement of these goals. Moreover, it is important to acknowledge the overall context within which UC is being designed, and to recognise that the benefit is very much a function of its broader environment.

19. Most obviously, UC is being developed in a time of acute fiscal austerity: £18 billion of cuts are being made to the social security budget over the spending review period, and an additional £10 billion have been mooted for the period 2015/16. The benefit will suffer because of this – most obviously, the taper rate has been increased to 65% from the original 55% advocated in the earliest design stages. However, as our analysis above shows, impoverishment is also embedded in UC and in our view is being used to incentivise claimants to work. Both the effectiveness and the morality of such a strategy must be questioned.

20. UC is also being introduced at a time when a more subtle assault is being made on those on low incomes. Claimants are routinely depicted as negligent, fraudulent and personally at fault for their plight despite the fact that the evidence overwhelmingly suggests otherwise. These misrepresentations have a deep and pervasive impact on policy design, public opinion and indeed on claimants themselves, many of whom experience a sense of shame when seeking state support [14] . Aspects of UC, in particular tighter conditionality and sanctions, reflect and reinforce this inaccurate view of claimants. Again, we question the correctness of such an approach.

21. To conclude, UC represents a chance to construct a system that supports and assists those on low incomes better than previous schemes. We hope that the Committee will agree with, and advance our analysis throughout the design and implementation of the new benefit.

17 August 2012


[1] DWP, Universal credit: welfare that works , CM7957, November 2010

[2] See CPAG, Universal Credit and related Regulations: response to the SSAC’s call for evidence , July 2012 for further information

[3] M Rotik and L Perry, Insight to support Universal Credit user-centred design , DWP Research Report, July 2012

[4] See for example work by the Women’s Budget Group available at http://wbg.org.uk/pdfs/0-Universal-credit-frequency-of-payment-Sept-2011-revised.pdf

[5] M Rotik and L Perry, Insight to support Universal Credit user-centred design , DWP Research Report, July 2012

[6] USDAW, Two thirds of families about to lose tax credits are already living in poverty , March 2012 , available at http://www.usdaw.org.uk/newsevents/news/2012/mar/twothirdsoffamiliesabout.aspx

[7] DWP, Households Below Average Income 2010/11 , June 2012, table 4.5db

[8] See, for example, I Mulheirn, Work programme design is flawed , July 2012 available at http://www.guardian.co.uk/commentisfree/2012/jul/02/a4e-job-agencies-payment-performance Source?

[9] Free school meals are worth £386.10 per year per child, or £1,158.30 for three children. With a Universal Credit taper rate of 65%, to increase their take home income to cover the £1,158.30 lost in free school meal support, a family would need to earn at least £3,309 (excluding the added burden of tax).

[10] DWP, Universal Credit: the impact on passported benefits , Report by the Social Security Advisory Committee and response by the Secretary of State for Work and Pensions , CM 8332, March 2012

[11] DWP, Universal credit : impact assessment , October 2011

[12] DWP, Households Below Average Income 2010/11 , June 2012, table 4.5db

[13] M Rotik and L Perry, Insight to support Universal Credit user-centred design , DWP Research Report, July 2012

[14] R Walker & E Chaise 2013 Poverty and shame Presentation delivered at Oxford University , March 16 th 2013

Prepared 7th September 2012