See the rest of this series here
THE ROAD TO UNIVERSAL CREDIT
What’s changed?
The Government was expected to slow down the rate at which existing benefit recipients are moved onto Universal Credit (UC) following a series of problems with the benefit. In the Budget 2018, it sensibly confirmed that this process will be delayed – it will now not start properly until late 2020 – in order to allow the Department for Work and Pensions (DWP) more time to make improvements.
The Budget also included practical measures to ease the transition, including the ‘running on’ of key out-of-work benefits for an extra two weeks when benefit claimants are required to make a UC claim. This builds on the Budget 2017 decision to ‘run on’ Housing Benefit in the same way, and should reduce the number of people subject to the five-week wait for their first UC payment.
Other changes included less stringent rules for paying back benefit advances, and a grace period before the self-employed minimum income floor (MIF) takes effect.
What’s left to do?
While these steps are very welcome, there is still more to do to ensure that UC is fully equipped for the last and most challenging phase of its roll-out. A clear gap is that tax credits can’t be ‘run on’ in the same way. This is probably due to administrative difficulties – tax credits are administered by HMRC, not DWP – but these departments should work together to overcome such issues.
In addition, further delays to the roll-out of managed migration mean more families will move on to UC ‘naturally’ (when their circumstances change). No ‘run-ons’ are available to this group. More fundamentally, the growing need for benefit continuation during migration onto UC means the Government should revisit the five-week wait, which is built into the current design of UC and causing these problems.
Finally, before UC roll-out progresses further, it’s essential that the share of claims being paid in full and on time is increased, and that scrutiny bodies such as the Social Security Advisory Committee are involved in ensuring that service standards are met.
THE UNDERLYING DESIGN OF UNIVERSAL CREDIT
What’s changed?
The biggest, and less expected, change to UC at Budget 2018 was the announcement of £1,000 increases in ‘work allowances’ (the amount that can be earned before benefits start being reduced) available to families with children and/or with limited capability for work. For most working families, this is a boost of a flat rate of £630 per year.
This measure has implications for how generous UC is compared with the system it replaces. We expect an additional 200,000 working families to gain from the switch to UC as a result of it. It means that for some groups (including most renters), the significant cuts to UC announced in the Budget 2015 have now been reversed. By lifting the amount that can be earned before benefits are withdrawn, these work allowance increases improve the incentive to work.
What’s left to do?
UC had two original aims:
1. Increase benefit take-up by simplifying the system.
2. Improve incentives to enter and progress in work.
While recent work allowance increases will enable more people to progress in work, there is still more to do. In particular, our recent Nursery World series on UC highlighted that it still creates the risk that single parents will reduce their working hours. This is because it removes the 16 hours rule for single parents in the tax credit system and replaces it with a work allowance set at a relatively low level of earnings. Even after the boost to their work allowance, a single parent renting and earning the National Living Wage could halve their weekly working hours from 16 to eight and lose just £24 per week, for example.
Alongside this, UC continues to insufficiently support dual-earning families with children. Second earners have no separate work allowance so, in most cases, will lose 63p in benefits from the very first pound of their earnings. With child poverty far less likely in dual-earning families than single-earning ones, this design feature fails to reflect the reality of working patterns in 21st century Britain.
These two groups of (usually) mothers have been shown to be the most responsive to work incentives, so it is essential that further investment in UC focuses on them in order to make the system more female-friendly and a better vehicle for driving down poverty.
Finally, beyond work incentives, there are many aspects of UC’s underlying design that the Budget was silent on, and that were flagged as key areas for reform in previous articles in this series. A priority should be to allow self-employed workers to report their income annually rather than monthly, and apply the minimum income floor on the same basis. This move would prevent UC from penalising those who have fluctuating income and outgoings – particularly likely for self-employed childminders who work more in term times.
Some readers are likely to have noticed problems for families with childcare costs, where a strict monthly assessment pattern with arrears payments does not align with the way costs accrue. The Government should consider how families can be supported up-front with childcare costs. Otherwise, we are risking arrears to childcare providers.
For the full series, see https://www.nurseryworld.co.uk/universal-credit
