HC 576 Progress towards the implementation of Universal Credit

Written evidence submitted The Children’s Society

Introduction

The Children’s Society supports over 48,000 children and young people every year through our children’s centres and specialist services, the majority of whom are likely to be in families in receipt of Universal Credit. We believe in achieving a better childhood for every child but have a particular focus on disadvantaged children.

Whilst we welcome the introduction of the Universal Credit (UC) to simplify the benefit system and improve work incentives, it will also have profound implications for the lives of millions of children and families across the UK. Many of those affected will be amongst the most disadvantaged and it is crucial that the right decisions are made now, to ensure that the transition onto the new system is as smooth as possible for those affected.

mmary

This briefing addresses a wide range of issues relating to the introduction of UC, and makes a number of recommendations. However, we would particularly like to draw the attention of the committee to the following:

Ø The lack of automatic backdating, and in particular, the consequences for families becoming entitled to UC at the point of having a child.

Ø Changes to the structure of support for people with disabilities, and in particular, the impact of the loss of the Severe Disability Premium (SDP) on families with young carers.

Ø Earnings disregards in UC, including the removal of per-child disregards originally proposed.

Ø The future of Free School Meals (FSM) under UC.

Ø The operation of the in-work exemption from the benefit cap under UC and the potential impact on working parents on sick leave or maternity leave.

1. C laims and payments

i. Online claims

Many of the families with whom The Children’s Society works lack either the means or the skills to use the internet. We are concerned that the implications of a shift to online claiming has not been sufficiently addressed. The quality and accessibility of telephone and face-to-face advice on establishing and maintaining a benefit claim must not be undermined by an ‘online first’ delivery mechanism.

We are also concerned about the interaction between an online first system, and having no automatic backdating of UC claims. Claimants who struggle to use the online system may need to seek alternative support in order to help them to establish and access their claim which is likely to delay their claim.

Because childcare costs will require regular reporting, it is particularly important that support is given to digitally excluded families with children in childcare. It should be recognised that these are amongst the busiest families with least time to administer their claim.

ii. Backdating

We are concerned that the DWP have indicated that UC claims will not typically be able to be made in advance of the point of entitlement, and cannot be backdated as standard.

Claimants will only be able to get (up to one month) backdating if they face certain specific circumstances which make it difficult for them to make a claim on the date at which they become entitled. For example:

· The claimant ’s health condition delays their claim

· Problems claim ing online due to system failure or planned system maintenance

We are concerned that:

1. It may be difficult to prove that a claim made online faced "system failure" whilst making the claim.

2. Many claimants may find they have to delay their UC claim in order to find support in using the online system. These claimants should not lose out as a result of this.

3. A very large proportion of claimants will become entitled to UC at the point at which they have a new child. It is very unlikely that parents will be able to make a UC claim on the day on which they have a new child. Expecting new parents to provide medical evidence that they were unable to make a claim on the day they were having a baby seems unnecessarily complicated.

iii . Joint claims

Except in exceptional circumstances UC payments for joint claimants would be paid in entirety into one bank account.

Long term couples who already share their income and bills in full (e.g. through a joint bank account) will not need separate payments to each member of the couple. However, for some couples (particularly new couples), the situation is more complicated.

For example, suppose a lone parent (not responsible for housing costs) moves in with a partner who receives support towards their rent. UC entitlement can only be paid into one bank account, so either (1) the parent will have to relinquish control of the child related UC he/she receives, or (2) his/her partner relinquishes control of their housing support. Neither partner may be happy to give up control over the support that they receive. This could put partners off from moving in together and forming long-term relationships.

Moreover, the outcome of this situation could be that the UC paid for children in the household, is not paid to the main carer. There is evidence that the best way to ensure that money paid towards the needs of children is used for that purpose is to pay the money to the main carer [1] .

2 . T he "claimant commitment", sanctions and hardship payments

We are concerned by the lack of detail around conditionality for working parents. C ore conditionality requirements set out in regulations will apply to groups " roughly equivalent to those subject to the current conditionality regime." However, some level of conditionality will be introduced for those working up to th eir "conditionality threshold" – up to 35 hours per week. Conditionality for benefit claimants working 16 hours or more per week is a big change to the welfare system .

DWP briefing notes have recognised that " the decision to move jobs involves consideration of more than simply the increased e arnings that someone may accrue. " Thes e other benefits of a job are particularly important for a parent, including flexible working , maternity leave rights and so forth.

The key principle behind UC is that work should always pay. Currently, in assessing whe ther a claimant has good cause for failing to apply or accept a job, decision makers must consider work related expenses incurred . The same commitment is needed for UC.

The DWP have suggested that the sanction amount for UC would be equiva lent to the standard allowance. This disproportionately penalises couples whose standard allowance is significantly higher than that for single claimants. Additionally this means that conditionality cannot be effe ctively applied to each partner independently .

3 . D isabled people and UC  

i. Disabled children

The DWP has previously announced that the amount of support for some disabled children [2] will be substantially reduced as a result of the introduction of UC [3] . Many families with disabled children which The Children’s Society work with are deeply concerned about this cut.

The overall amount of support a family receives is clearly the most important consideration and for some, additional support received through improved work incentives within UC may offset the cut. However, as shown in Disability and Universal Credit [4] lone parents with disabled children will struggle where they face childcare costs on moving into work. An enhanced childcare component should be provided for families with disabled children, to recognise the typically higher costs for this group.

ii. Disabled lone parents

We are very concerned that there is no replication of the SDP within the UC. SDP currently gives additional support to disabled adults with no one to care for them (or a young carer) helping to cover the additional costs of living with a disability but no carer. This will cost families up to £55.30 per week [5] . This cut could be equivalent to 20% of household income after housing costs.

The DWP reports that 25,000 lone parents are currently in receipt of SDP, this means around 42,000 children are likely to be affected. We are concerned the cut in support will place substantial pressure on these children to take on additional care responsibilities as parents will face difficulties in paying for the additional costs of care.

In total we estimate that around £50 million per year is being taken from support for young carers caring for a disabled parent as a result of this change. No additional support is being provided to local authorities as a result [6] .

4. Local authorities

i . Localisation of Council Tax Benefit (CTB)

The g overnment has announced that CTB will not be integrated into UC . Instead each local a uthority will be asked to establish a scheme of a ssistance . The g overnment will then be deliver ing a 10% reduction in exp enditure on CTB [7] , excluding low income pensioners.

The government ’s impact assessment of the localisation of CTB notes that the local authorities could make savings from CTB expenditure by changing the personal allowances or the t aper rates for CTB.

Any option for providing support with council tax costs will have significant implications for the impact of UC . For example, l ocal authorities may choose to keep the current system and cut expenditure by reducing maximum awards for working age claimants , meaning those on the lowest incomes would bear the highest proportion of th e burden of the cuts. Another option would be to adjust the taper rate, so that CTB is withdrawn more rapidly as earnings increase protect ing the poorest families.

In both case s , failure to integrate CTB into UC risks creating a "double taper" for claimants with both entitlements tapered away in parallel. This recreates the current high levels of M arginal D eduction R ate and undermines the simplicity of UC . Ideally, CTB should be integrated into UC to avoid double tapers and ensure progressive work incentives. However, if l ocal authorities are to be responsible for council tax then:

ii . Social Fund localisation

The Government has also announced its intention to restructure the Discretionary Social Fund , including localising key aspects . The new scheme under UC will have two components :

1. Payments on account which will replace Crisis Loan alignment payments, (paid in periods pending the payment of benefit) budgeting loans and interim benefit payments.

2. Locally based assistance which will replace crisis loans for emergency co sts and community care grants. The financial provision to enable this will be made th rough non- ring fenced funding to l ocal authorities .

Social Fund payments provide a crucial bulwark of support for families in times of financial crisis help ing people to find independence in the ir community and help ing people to deal with emergencies.

iii . Impact monitoring

Assessing the impact of different localised schemes of assistance particularly of CTB and the discretionary Social Fund should be a key priority for impact monitoring. There needs to be evaluation of the range of schemes being put into operation and the amount of spending on these schemes .

5. The level of the earnings disregards

i. Per child disregards

Previous DWP briefing notes had emphasised that there would be a disregard paid per child in the household. These were to be £520 for the first child and £260 for the second and third children. For a working family with three children, this would be worth around £676 per year.

The draft regulations indicate there will just be a single (unspecified) level of disregard for families with children. The DWP has emphasised that this is a simplification measure, and that UC will account for household size through the child element. [8]

ii. Variations in disregards by levels of housing cost

Previous UC briefing notes from the DWP have emphasised that there will be different levels of disregard for households with and without housing costs, with the level of "maximum" disregard [9] reduced by 1.5 x the level of housing costs claimed, until it reached a "minimum" level.

So, for example, the "maximum" disregard for a lone parent with two children would be £9,000 per year, and the minimum would be £3,040 [10] .

UC regulations now suggest there will be only a maximum level of disregard (for households without housing costs), and a minimum level (for those with housing costs) in order to make the system simpler. We are concerned this measure actually makes the system considerably more complicated, since households with low levels of housing costs in receipt of UC would have to make a determination of whether they would be better off claiming for help with housing costs but receiving a reduced earnings disregard, or making no claim for help with housing costs. For example:

There have been suggestions that the maximum and minimum income disregards should be replaced with a single income disregard applying whether or not the household has housing costs. This could leave many working people with no housing costs considerably worse off compared to under the current system. In particular, households with mortgage costs, who lose their support with mortgage interest on moving into work, would find it extremely difficult to ensure that work paid anything at all if they also lost their higher level of disregard.

6. P assported benefits

The government has not yet made key decisions about how passported benefits [11] will operate under UC. The Children’s Society is particularly concerned about entitlement to FSM.

Under the current system, the loss of FSM at 16 hours work per week is partially alleviated by gaining Working Tax Credit at the same threshold. This means that the family will normally still gain income overall at the point where they lose FSM entitlement.

Under UC, there is no single threshold at which the family gain a substantial increase in benefit income. This means that the loss of FSM is not covered by other benefits, creating a ‘cliff edge’ where if a claimant exceeds this point, the costs exceed the benefits – they lose money by earning more or working longer.

The government has indicated that they are considering how to replace the current entitlement criteria, possibly through an income threshold at which FSM entitlement is lost. [12]

Figure 6 below illustrates the potential impact on the income of a lone parent with three school aged children with an earnings limit of £7,500 per year (£144 a week) to be imposed on FSM entitlement:

Figure 6: Household income under UC [13] for lone parent with three children with earnings limit of £144 per week for FSM entitlement

(Where rent is £85 pw, council tax is £15 pw the family are in receipt of FSM which is included as equivalent cash value [14] )

It is clear that this situation would create a severe work, and work progression, disincentive. A family earning £143 per week would be substantially better off than a family who (as a result of taking on additional hours or receiving a pay rise) earned just over the £144 threshold.

In the case given, the person’s earnings would need to increase by £4,500 a year [15] before their overall income [16] reached the level it was at when their earnings were below £7,500. This is likely to be exacerbated as the family would also lose the additional entitlements that are provided locally as a result of the receipt of FSM [17] .

The full costings of these recommendations and proposals for dealing with FSM under UC are included in the attached paper ‘Fair and Square’.

7. UC and the household benefit c ap

The Children’s Society has a number of concerns over the operation of the household benefit cap under UC.

i. The links with in-work rules under UC

Under the current benefit system, exemption from the out-of-work benefit cap will be based on Working Tax Credit entitlement. Under UC this will no longer apply, instead:

i) The household will be exempt from the cap where their earnings are at or above £430 per month.

ii) The 9 month grace period for the household benefit cap will apply where households have had earnings above £430 per month for each of the previous 12 months.

We are concerned that:

1) Term time workers will be affected by the cap in school holidays, and will find it impossible to "earn" the grace period since they will never have 12 months where their earnings are above the level prescribed.

2) Although counted as earnings towards exemption from the benefit cap, the rate of Statutory Sick Pay (SSP) [18] is not sufficient to meet the earnings requirement. Therefore, SSP claimants will become affected by the cap, despite remaining in employment. Also, a period of sickness could mean an employee loses entitlement to the grace period.

3) Also, although counted as earnings, Statutory Maternity Pay (SMP) may be paid at a rate which is too low to meet the earnings requirement, even if they had income too high for the cap prior to taking maternity leave. Maternity Allowance (MA) is not counted as earnings.

This means that mothers taking maternity leave to have a child, and in receipt of SMP or MA, may be affected by the cap during their period of maternity leave, or lose their entitlement to the grace period of exemption from the cap after their maternity leave ends.

The "earnings figure" for in work exemption from the out-of-work benefit cap has been set in the regulations at £430 per month. This is slightly higher than 16 hours per week at minimum wage for those aged 21 and over. However, it is around £85 per month higher than the equivalent of 16 hours per week at the national minimum wage for 18-21 year olds.

ii. The implications for the monitoring and evaluation of the impact of the cap

We welcome the government’s assurances that they will monitor the impact of the household benefit cap and review it in 2014 following its first year of operation.

17 August 2012


[1] See for example: Jackie Goode, Claire Callander and Ruth Lister (1998) “Distribution of income within families receiving benefits” Policy Studies Institute

[2] Other than those on the high rate care component of DLA, or those who are severely visually impaired

[3] Further details of this change are set out in the attached briefing note “Cuts to financial support for 100,000 disabled children under UC” .

[4] (attached) From The Children's Society, Citizen's Advice and Disability Rights UK .

[5] £2876 per year. This cut could be equivalent to 20% of household income after housing costs.

[6] This issue is discussed further in the attached briefing note on “cuts to support for Young Carers under UC.”

[7] Saving £410 million.

[8] “Changes to the structure of disregards for families with children have also been made to reduce complexity making the system simpler to understand and operate. The structure and levels of the disregards are being designed to ensure that households have strong work incentives. The effects of the change to the design of disregards will depend on the exact levels of disregards which will be finalised closer to implementation of UC. UC will account for different family sizes and circumstances through the different elements including the child element. The child element will comprise of two rates; one rate for the first/only child and then a reduced rate for second and subsequent children.”(personal communication from DWP)

[9] The level received for a household with no housing costs.

[10] Proposed max and min levels as follows:

[10] Minimum levels: for a single person without children £700; for a couple: £1920 plus £520 for the first child and £260 for the second and third children; for a lone parent: £2,260 plus £520 for the first child and £260 for the second and third children; and for single disabled people or a couple where at least one person is disabled: £2,080. Maximum levels: for a single person without children £700; couple: £3,000 plus £4,250 per household for a child (regardless of the number of children); lone parent: £9,000 (regardless of the number of children); and disabled people: £7,000 per household if a recipient or either partner in a couple is disabled.

[10]

[11] Such as Free School Meals and Free Prescriptions

[12] DWP (2010) “ UC: Welfare that works ” London: DWP (p48)

[13] Based on out of work benefit levels for Feb 2012

[14] £1100 annual value for three children is worth £21 per week when divided equally across the course of the year.

[15] From £144 to £231 per week.

[16] Including the value of FSM.

[17] Including uniform allowances and reduced price access to leisure facilities.

[18] Currently £85.85 per week

Prepared 7th September 2012