Making work pay – kick them while their down

Universal Credit (UC), the government’s ‘flagship policy’ in their welfare reform programme is being piloted today in Tameside and although it will affect a very small number in this first instance, it will provide a snapshot of how those on benefits will be affected by the system that is due to be implemented on a national scale in October when it will affect nearly six million people.

The underlying ethos for the government is that it wants the system to ensure that work always pays and is seen to pay and to encourage people to see work as the best route out of poverty.

Multi millionaire cabinet member, Iain Duncan Smith, secretary of state for work and pensions, has promised: “Universal credit will mean that people will be consistently and transparently better off for each hour they work and every pound they earn.”

The welfare reforms are clearly built on the government’s “skivers and strivers” rhetoric. In the universal credit white paper (pdf), the government argues: “Welfare dependency has become a significant problem in Britain with a huge social and economic cost.” The new benefit will be “leaner” and “firmer”.

“The UK has one of the highest rates of children growing up in homes where no one works and this pattern repeats itself through the generations. Less than 60% of lone parents in the UK are in employment, compared to 70% or more in France, Germany and the Netherlands … Universal credit will start to change this. It will reintroduce the culture of work in households where it may have been absent for generations,” the white paper argues.

Link to video: Skivers v strivers: the benefits debate explained | Animation

But the truth about Welfare is:

  • A tiny 3% of the welfare spending goes on benefits to unemployed people, but 42% is spent on the elderly and 21% spent on working families.
  • If you were in a couple with two kids and lost your job  you would receive £111.45 a week in Job Seekers Allowance, out of this you’d have to pay for food, heating, water, clothes, travel etc…
  • A single person just laid off, will only have £71 a week to live on.
  • People talk a lot about welfare fraud, but 0.7% of the welfare budget is claimed fraudulently……but at the same time, up to 24% (£11.77bn) of benefits go unclaimed.
  • Experts also reckon that the gap between what the government thinks it should receive in tax, versus what it actually gets (the Tax Gap) could be as high as £120 billion.

In December, the Joseph Rowntree Foundation published a study dismissing this notion of a “culture of worklessness”.

A new JRF report published today suggests that the introduction of UC will see people worse off in work and struggling to manage their finances, with many left to deal with a more complex benefits system than before.

The research, by Inclusion and the University of Portsmouth, took a comprehensive look at what implementing UC reforms would mean for recipients facing one of the biggest reforms to the welfare system.

The report assessed how implementation would affect the three key objectives to be delivered by reform, and found:

Work incentives – Making work pay is the key aim for UC, however the report finds many households are set to be worse off, or only marginally better off. While the new system does incentivise more people to take ‘mini-jobs’ (those less than 16 hours per week), it does not encourage the crucial next step into full-time work and help people move out of poverty. While UC makes things better for people who are currently facing a very high rate of effective tax, not everyone will benefit. Marginal increases in earnings alone are unlikely to be sufficient incentive to move into full-time work, with small financial gains likely to be wiped out by costs such as childcare and travel.

Simplification – Simplifying the benefits system is severely undermined by the localisation of Council Tax Benefit (CTB) and of Social Fund loans designed to help families in crisis. Separate means tests and eligibility rules for CTB and emergency assistance will create complexity and likely to be so aggressive as to leave some people worse off as their earnings rise. The knock on effect of UC on passported benefits (free school meals, free prescriptions) being withdrawn as earnings rise could create cliff-edges for those in work and reduce the financial gains of employment.

Improved delivery for claimants – The report raises serious concerns about a ‘one size fits all’ digital delivery system and around potential IT failures that could quickly lead to backlogs, poor service and complaints. There is little information on the ‘stand by’ arrangements to ensure claimants are paid: system failure could lead to financial hardship for significant numbers of people, with those affected having to rely on emergency help from councils and charities. The shift from fortnightly to monthly payment in arrears has raised concerns amongst families on low-incomes that they will run out of money before the end of each month. Recipients may have to borrow money to bridge the gap, leaving them to start their UC claim in debt. UC may create an unfair bias against women, with child-related support not necessarily reaching the children it is intended for.

JRF suggest that the reality of UC is that it could unintentionally trap people in poverty and hardship.  It is self-defeating to encourage more people into part-time work, only for them to see their earnings wiped out when they progress into full-time jobs. If Universal Credit is to be successful in helping people out of poverty, it needs to ensure work is truly worthwhile and does not punish people who try boost their hours and income.

JRF are not the only organisation worried and their concerns are repeated by others:

The government thinks that benefit payments made monthly will help promote good budgeting and more closely replicate monthly salary payments – arguing that 75% of all employees receive wages monthly. This shift from weekly and fortnightly payments to this new regime may push claimants recipients into debt. The Social Market Foundation says: “Most households in our sample opposed the idea of a monthly payment. This was the case for the majority of households, who tended to budget on a daily, weekly or fortnightly cycle.”

The prospect of stopping housing benefit payments to landlords and directly paying the claimant could trigger unprecedented levels of arrears and increased rent collection costs. The National Housing Federation argues “Of all the reforms, the introduction of direct payments to tenants is expected to have the biggest impact – more than 80% of housing associations say it will affect their organisations a great deal or a fair amount, 84% of associations believe that rent arrears will increase as a direct result of welfare changes. The average increase expected is 51%, which, if replicated across the sector, would mean an additional £245m of arrears.”

There are concerns that more people could be evicted as a result. The BBC obtained figures that showed when the direct payments were piloted in six areas of the country there was a big rise in rent arrears as some tenants failed to pass that money on, with arrears rising from about 2% to 11%.

The government has said that “vulnerable” tenants may be excluded (pdf) and has devised an “automatic switchback mechanism” – paying rent to the landlord when a tenant’s arrears hit a threshold level – but the devil is in the detail and there are few details of what constitutes a vulnerable tenant.

The government says “Entitlement to UC is subject to a strict regime of ‘personalised’ conditionality (ie mandatory activity to prepare for and obtain work), backed by tough benefit sanctions (ie loss of benefit) for non-compliance,” but the Child Poverty Action Group warns: “The need for more conditionality comes across as a ‘moral crusade’, rather than being evidence based … There are concerns that some vulnerable claimants could face repeated sanctions for failing to comply with the demands of the system and that personal advisers and the Work Programme (within a culture of ‘payment by results’) will have too much power and discretion to impose unreasonable requirements on claimants.”

The charity argues that “Sanctions, in the form of loss of benefit, are designed to incentivise claimants to meet their work-related requirements and punish them for unreasonable failures. The regime is harsh, and there is concern that some claimants who repeatedly fail to comply with the system could be sanctioned and forced to survive on below subsistence income for long periods. This could include vulnerable claimants with mental health or social functioning problems, who find it difficult to comply with directions.”

A high level sanction can be imposed if, for example, a claimant fails for no good reason to take up an offer of paid work. The higher level sanction is the loss of the standard allowance of 91 days for a first failure, 182 days for a second higher level sanction within a year, and 1,095 days (three years) for another failure within a further year (disregarding “pre-claim” failures).

Hardship payments will be available of 60% of the sanctioned amount for those who cannot meet their “immediate and most basic and essential needs for accommodation, heating, food and hygiene”.

The Institute for Fiscal Students (IFS) calculates that “because of the way the parameters of universal credit have been chosen, couples, and particularly those with children, look set to gain by more, on average, than single-adult families, particularly lone parents, who will lose on average according to our analysis”.

It is really important for anyone worried about the welfare changes to know how they will be affected and get advice from the experts as soon as possible.

Sadly, at the same time as cutting benefits the government have also reduced the amount of funding available for many advice services.  However, if you are worried about the impact cuts will have on you then the experts at Shelter, The Law Centres Network and Citizens Advice Bureau are the best point of information.

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