HC 576 Progress towards the implementation of Universal Credit

Written evidence submitted by The Welsh Local Government Association (WLGA)

Summary

1. The Welsh Local Government Association (WLGA) represents the 22 local authorities in Wales, and the three national park authorities, the three fire and rescue authorities, and four police authorities are associate members. It seeks to provide representation to local authorities within an emerging policy framework that satisfies the key priorities of our members and delivers a broad range of services that add value to Welsh Local Government and the communities they serve.

2. It is difficult to disagree with overarching objectives of a welfare system that is simpler, makes work pay and lifts people out of poverty. However the approach to Universal Credit in particular and welfare reform in general is staggering in both scope and deliverability.

3. The UK Government is bringing forward changes to the welfare system which the WLGA believes will adversely affect the most vulnerable in our society. As a reserved matter, UK Government has shown little understanding of the added dimension that devolved government brings to a complex landscape of service delivery.

4. Local authorities have spent many years redesigning locally delivered services to focus on the customer and to absorb the variety of demands that are driven by their needs. Universal credit is designed around the need to save money. It is not designed around the needs of the most vulnerable members of society and we are fearful about the social impact.

5. The format of our paper follows the sequence of questions in the original call for evidence. There are a number of questions where we could not give comprehensive answers but this is not to say that they are not important. On the claimant commitment, it is important that we take a whole system approach to a deeply ingrained problem. The economy has to generate a supply of jobs for the unemployed. On the issue of income entitlement for disabled people we are concerned about the multiple effects of welfare reform. Finally, the majority of passported benefits are an issue for Welsh Government (WG).

Advisory Services

6. Support & Advice – we have serious concerns about the lack of clarity in local authorities’ role in provision of support and advice. The DWP are insistent that there will be a role for local authorities in the face to face (F2F) delivery of Universal Credit (UC). However, the role will not be mandated but will be commissioned via an application process. We must seriously question the DWP’s ability to deal with potentially hundreds of commissioning applications when they are focussed on the delivery of UC.

7. Failure to achieve the desired channel shift coupled with local authority staff reductions and associated diminution in F2F activity means there will potentially be reduced capacity through UC implementation. We anticipate that the change in payment frequency will increase pressure and demand on F2F services. DWP has separately announced it is to close benefit processing centres and contact centres affecting a significant number of Job Centre Plus staff. This will have a significant impact on F2F delivery especially in rural areas.

8. Local authorities in Wales have a long track record of efficient and effective service delivery in benefit services and should have the potential to continue to provide the local gateway to benefits. However it is likely that any commissioning partner for F2F services will not have appropriate levels of access of the UC system in order to properly advise the customer and deliver meaningful benefits to the UC service provision. This would significantly reduce the quality of service that a customer currently receives through F2F services which is very unsatisfactory.

9. Local authorities can play a key role in ensuring the success of UC providing this is adequately funded and decisions are made in a timely manner which allows clarity to assist with service planning. However we are concerned that considerable duplication could occur between UC and the new Council Tax Support Scheme (CTSS) if data sharing arrangements are not concluded successfully.

10. Monthly Payments - Many Housing Benefit (HB) customers have been used to shorter payment frequencies and will find budgeting over a monthly cycle difficult. For those ‘in-work’ UC claimants there is potential for such budgeting pressures to lead to requests for salary advances from employers, or persistent absence as money for fares and lunches runs out at month end. These will be issues that many small/medium size employers may have to address.

11. A further concern is the potential of ‘purse to wallet’ transfer - in effect for many households, the nominated bank account for UC purposes will be that of the male partner, whereas childcare costs, food and clothing, is often the responsibility of the female partner. In households where relationships are unstable, or where there is the potential for drug or alcohol misuse or domestic violence, there is the risk that a lack of financial resources will lead to greater pressure and increased demand on local authority services.

12. For Landlords there is a real risk that they will not receive adequate rental payments as payment will go direct to the claimant landlords and tenants may use the UC payment for non-housing related expenditure causing rent arrears to increase leading to increasing demand on local authority homelessness services.

13. In our view there is a significant risk that ‘pay-day loan’ companies and loan sharks will be the ones that benefit most from this policy.

14. Digital by default – the WLGA has serious concerns about this policy. While there is considerable evidence that channel shift reduces transaction costs significantly there is very little evidence to support the contention that claimants will switch easily to the use of on-line facilities. Where local authorities currently offer e-claiming of benefits, take-up is not high. Online claiming was introduced for Jobseeker’s Allowance but by April 2011, 20 months after the option became available, only 17% of new claims for Jobseeker’s Allowance were made online. The claims by UK Government that the UC claimant will manage their claims in the same way as on-line banking are far fetched.

15. In our view, a range of delivery methods should be offered as many claimants do not possess the IT skills to conduct their business digitally. There needs to be significant emphasis on digital inclusion. Research by the ONS [1] has revealed that the main barriers were low levels of confidence using the internet, not having home internet access and attitudinal barriers to using on-line service. The same research indicates that:

· 39 million UK adults are Internet users, and of those, over 30m had accessed the internet every week, but 9.2m people have never accessed the internet and 6.3m adults have limited or no literacy; and,

· internet use decreases in line with income – 98% of people with an income over £41,600 falling to 69 per cent of adults with an income of less than £10,399.

Information Technology considerations

16. The success of UC is predicated on a high level of claims being made online and given the concerns expressed above we would question the credibility of such a bold claim. In addition, there is a real risk that on-line claiming will result in an increased incidence of organised fraud.

17. It would appear that some of the benefits hoped for from a single payment will be eroded by a lack of integration in operating arrangements:

· in-work UC claimants need to be aware that any change of circumstances reported to DWP as part of a UC claim will not update details that are held by HMRC. HMRC will need to be informed of any changes separately via the HMRC website.

· UC claimants also need to be aware that addressees are not always updated from Real-time Information (RTI) data sent by employers.

18. For claimants there will be a concern that as UC will incorporate a number of pre-UC state benefits, it will be difficult for them to check the breakdown within the total to ensure that mistakes have not been made. Equally, employers need to be aware that the checking and verification procedures when a new claim is made could identify payroll queries if the claimant disputes the earnings that have informed the UC award.

19. In respect of the RTI system, over 300 employers are currently submitting data to HMRC, with the next phase starting to go-live from July 2012 which will see this figure rise to 1,300 by November 2012. HMRC are still actively recruiting employers for the November – March 2013 window as part of attempts to get nearly 250,000 submitting data. However it is likely that there will only be a two or three month window at the most due to the Self Assessment deadline and the annual coding runs.

20. The lessons learned so far on RTI reportedly relate to data mismatches and the time taken for employer submissions. Rectifying both of these will place a greater burden on employers especially the smallest. This could undermine the whole project given that there are 750,000 micro-employers (those with less than 5 employees) in the UK. This is of great concern in the current economic climate.

21. The HMRC’s track record of change management is not good. The introduction of tax credits was done prematurely and we are concerned that lessons are not being learned. HMRC have acknowledged that the tax credit system has been open to fraud. We need greater assurances that there will be better testing this time and we have to question the achievability of this under such aggressive timescales.

22. Whilst it is seems probable that the work on the UC system is more advanced than that of the RTI system, there are still considerable risks of this falling behind schedule. Again, the WLGA has a number of representatives on various working groups and limited details have been provided on the UC system, comprising merely a few screen shots of how the system may look.

23. In our view, the timescale is one of the most fundamental risks in relation to the implementation of UC. The pathfinder area will go-live in April 2013 and will proceed on a limited basis for several months. It will be operating under conditions where the IT systems are not up and running which limits any evaluation.

24. Other parts of the system are also being tested in isolation such as the direct payment demonstration projects. This is a very limited test based upon a small number of claims and does not replicate how Universal Credit will operate once launched. Local Housing Allowance (LHA) was piloted over 3 years but most of the issues arose only when LHA was rolled out. We would echo the view of the All-Party Parliamentary Group on Taxation [2] who commented that aspects of UC were ‘potentially undeliverable’.

25. Roll-out from October 2013 needs to be carefully managed. In our view, it would be more sensible to ensure that the UC system receives exhaustive testing in the pathfinder so that it is fully fit for purpose when this is rolled out nationally. Even if this delays the project it would considerably reduce the risk of reputational damage than a manual based system.

THE IMPACT ON LOCAL AUTHORITIES

26. There are 3 major changes that are being introduced from April 2013 that will have a profound impact on local authorities that cannot be considered in isolation from UC:

· the benefit cap;

· the new Council Tax Support Scheme (devolved in Wales);and,

· under-occupation within the social housing sector.

Unlike the introduction of UC, there is no phased approach to these changes. However the impact on vulnerable people is potentially more significant than the introduction of UC. The changes will be exacerbated by changes to the social fund.

27. Budgets - Currently there is a significant amount of uncertainty as to future funding arrangements for local authorities and this is significantly hampering their ability to plan effectively. In Wales we estimated the costs of implementing the new Council Tax Support Scheme to be £2m. The impact of recurrent costs is estimated at £60m. Like many of the changes in respect of UC, the level of funding for new areas of responsibility is yet to be decided and timing is now critical. Local authorities across the UK will be setting budgets in the early autumn if they are not already doing so.

28. Of paramount concern for us in respect of the major changes coming in April 2013 is the amount of funding that will transfer to the Welsh block from 2013-14 for the new Council Tax Support Scheme. While the UK Government is proposing a 10 per cent reduction in funding towards the new scheme to replace Council Tax Benefit, the reality is that, because of the calculation methodology being applied by UK Government, the funding to be made available to local authorities in Wales will on average see a real terms reduction closer to 20 per cent against current benefit expenditure levels. Our discussions with revenues managers across Wales tell us that the scale of changes now being proposed is not dissimilar to that under the ill-fated Community Charge. If that is the case local authorities can expect losses in the collection of council tax of around £30m annually.

29. Staff - The impact on local authority staff is already taking place. The transference of the payment of HB to DWP is already having a destabilising and de-motivating effect on local authority benefits teams. DWP have already asserted that TUPE will not apply. Many employees are now looking elsewhere for job opportunities, one authority in North Wales has already lost 5 staff from a team of 37 since the start of the calendar year and it is anticipated that this trend will continue. Conversely, over the next two years, it is anticipated that the workload of local authorities will potentially increase rather than decrease as a result of implementing these changes. Losing experienced staff at such a time is inevitably going to have a major impact, both in financial and performance terms.

30. Housing Benefit and the cap – In many authorities there is a lack of supply of smaller and self-contained accommodation. This will impact on the ability of families to relocate where benefits are cut for under-occupation.

31. The so-called ‘bedroom tax’ will have a profound impact on both customers and the local authority in the context of both revenue collection and homelessness. Contrary to the expectations expressed by the Department for Work and Pensions in their circular HB/CTB A4/2012 customers cannot simply obtain employment or ask family members to contribute more to the household budget. Some customers will be experiencing a reduction in their benefit of up to £26 per week. This will create great hardship and there need to be additional protections for existing customers.

32. Plans are being made to introduce benefit caps which it is anticipated will not affect a significant number of customers in Wales (around about 1,700 households) but even so, some of these will be significantly affected (£100+ per week). The combination of changes could have a disastrous effect on some people.

33. Our analysis of the UC regulations (Reg 75(B)) allows local authorities the flexibility to adopt the cap "if appropriate" rather than awaiting a directive to do so by the DWP. While this introduces a degree of flexibility into the operation of the cap, this brings with it a danger of inconsistent and potentially incorrect decision making. It also adds complexity and confusion to the process both for the local authority and the claimant, particularly with regard to the area of disputes.

34. There is a real risk of rent arrears and increased collection costs as a consequence of direct monthly payments of UC.  Housing business plans are reliant upon maintaining rent income levels and there is a danger that these plans may not be fully delivered – impacting on WG policies such as Welsh Housing Quality Standards.  This is not just an issue for local authorities with retained stock. With higher risk income streams, the interest rates charged to housing associations may well increase.

35. Council Tax Support Scheme – The development of a new scheme is devolved to Wales. A significant amount of work has been undertaken between Welsh local government and the WG on options, costs, software changes, regulations and modelling. Once a scheme has been agreed, implementation should be straightforward. There will however, be problems managing the impact of further reductions in benefits granted especially where people are having to pay Council Tax for the first time.


The level of the earnings disregards

36. The current system of Housing Benefit does not in any way influence the level of overall benefit entitlement. However the proposal to reduce the maximum appropriate disregard by 1.5 times the housing element cannot be viewed as either a simplification to the current scheme or transparent for the customer. It is an unwelcome complication which could impact further upon other areas of policy such as housing and homelessness. It also introduces a perverse incentive whereby claimants could try and work out whether they would be better off hiding their housing costs, not asking for assistance with them, and thereby receiving a higher level of earnings disregard.

Impact monitoring

37. Monitoring is one element of implementing successful evidence-based policy. The key overarching aim for UK Government’s research strategy should to be focus on the wider social and economic impacts of the Welfare Reform agenda.

38. The immediate financial impacts on individuals and households can be assessed and forecast i.e. the impacts of the main reforms on income according to the composition of household (analysed by region, income group, families with children, lone parents, working-age adults without children, pensioners, and workless households) and the impact and analysis of work incentives.

39. However, the DWP must also undertake research to assess the impact on:

· poverty, including child poverty and inequality (DWP have already undertaken an assessment of the potential impact of UC on poverty in Britain. However, they will need to continue to monitor this) 

· the wider economic and social impacts on a wide range of issues such as social housing, homelessness, social care, education, crime and disorder and health and well-being

· labour supply - e.g. the number of people who move into work or increase their hours as a result of UC. DWP's Impact Assessment of UC estimates that there would be a reduction in the region of 300,000 workless households. They note that they will make a further assessment of the likely impact in the future.

40. It is vital that a thorough-going evaluation looks at all welfare reform changes in the round. The cumulative impact of one or more elements of welfare reform on households, some of whom are the most vulnerable in society, has not so far been considered.

17 August 2012


[1] http://www.ons.gov.uk/ons/rel/rdit2/internet-access---households-and-individuals/2010/news-release---9-2-million-uk-adults-have-never-used-the-internet.pdf

[1]

[2] http://www.appgtaxation.org/PAYE_at_the_Crossroads.pdf

[2]

Prepared 7th September 2012