universal credit

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.

Welfare changes founded on Tory rhetoric

The government is about to implement the biggest overhaul of the benefits system since the creation of the welfare state. These reforms have been heavily criticised by 17 charities and non-profit organisations in a report to Birmingham City Council which says that the reforms make child poverty targets “unachievable” and the Chief Executive of Birmingham CAB has warned of “social meltdown”.

Iain Duncan Smith purports that the main purpose of these welfare changes is to provide a greater incentive for people on benefits to work and that these changes will make the welfare system fairer, but fairer for who?

The government’s Universal Credit (UC) will be a new single payment for people who are looking for work or on a low income and will, the government say, help claimants and their families to become more independent.

The government plans to launch UC in April, starting with a number of pilots in parts of the north-east England and then it will be introduced nationally for new claimants from October 2013. Existing claimants will be transferred to the new system in stages until 2017. It will replace the current system of tax credits and benefits for working age people with a new single payment which is paid monthly rather than the current system of weekly or fortnightly payments.

The main differences between Universal Credit and the current welfare system are:

  • UC will be available to people who are in work and on a low income, as well as to those who are out of work
  • most people will apply online and manage their claim through an online account
  • claimants will receive just one monthly payment, paid into a bank account in the same way as a monthly salary
  • support with housing costs will go direct to the claimant as part of their monthly payment.
  • There will be a benefit cap in line with the average weekly wage

There will be a maximum cap on benefits that a household can receive based on the average earnings of a working family (this includes other benefits such as Child Benefit). The benefit cap is designed to make it impossible for anyone to receive more on benefits than the average weekly wage after tax and national insurance.

  • For couples and lone parent households the cap will be £500 a week
  • For single adults the cap will be £350 a week

The benefit cap will be brought in nationwide in April 2013 and reductions will be made to housing benefit payments until universal credit takes over in October 2013.

The benefit cap will most certainly hit larger families and those who live in comparatively wealthy areas the hardest, and Mumsnet suggest that this “may result in ghettoisation of poorer working people and some people being forced to leave their homes.”

Other concerns include fears that UC will result in harsh assessments of people with disabilities and those who are currently unable to work because of illness as well as there being unrealistic expectations for lone parents with young children to go out to work.

Estimates from Disability Rights UK have suggested that 67,000 households will be affected in 2013-14 and 75,000 in 2014-15, with 54% of these being households in Greater London.

Other concerns raised refer to how Council tax credit will be administered by local authorities. The Instititute of Fiscal Studies (IFS) has predicted there will be problems with this because local authorities have been given less funding to administer the credit, which may lead to crude fixes and arbitrary means-testing. The IFS predicts poor families will end up paying 19% of their council tax.

Claimants will have to sign a claimant commitment form to get UC (apart from some groups of people who are excluded such as those with caring responsibilities). If you’re out of work this form sets out what you must to do look for work, such as preparing a CV or registering with a recruitment agency. If you don’t stick to the agreement, your benefit may be reduced or withdrawn.

Mumsnet argue that this commitment will tie in to the workfare schemes, where people will have their benefits cut if they are unwilling to work unpaid for six months. This is called the community action programme or ‘support for the very long-term unemployed’, but critics say it could be an easy way for companies to get free labour and take advantage of people who have been unable to find work (not to mention the fact that it would essentially remove paid jobs from the labour market by converting them into ‘free placements’).

Claimants with limited capability for work-related activity (as defined by a work capability assessment); Claimants who receive the carer element; Those who are responsible for a severely disabled person for at least 35 hours a week or a lone parent with a child aged under one are exempted from this commitment but there are concerns.

The new way of assessing fitness to work for people with disabilities has shown a ‘tick-box’ approach that doesn’t consider individual needs and may disregard ‘hidden’ disabilities, such as autism and mental health problems.

It is also feared there will be targets for private companies who carry out work capability assessments, which will reward them for declaring more people fit to work. This was the subject of a Channel 4 Dispatches programme: Britain on the Sick.

Claimants will have to meet degrees of conditionality in order to receive UC and claimants for the basic part of universal credit will be divided into different groups:

  1. No work-related requirements – because they may already earn enough or they may not be able to work at all.
  2. Work-focused interviews only – designed to keep people in touch with the labour market. This group would include a lone parent of a child between the ages of one and five.
  3. Work preparation group – claimants need to prepare to move to work or better paid work and may include people with a limited capability for work.
  4. All work–related requirements group – need to be looking for and available to do any type of work, usually full time. There will be concessions for parents of children aged 5–13 (where work hours would be limited to school hours), although it appears there may be concessions regarding work hours for parents who care for children aged 13–16, too.

There will be a three-month period where claimants will be able to look for work in a specific area and at a level of pay they have previously had, after which they must be willing to accept anything.

These requirements may be designed to help people into work, but the tough sanctions (fixed period sanctions of 91 days for the first failure; 128 days for the second failure, if it occurs within 52 weeks of the first; and three years for third and subsequent failures, if they occur within 52 weeks of the previous failure) mean that people will be forced into low-paid jobs.

Further sanctions will be applied if:

  • There is a failure to undertake mandatory work activity without good reason
  • There is a failure to apply for a particular vacancy without good reason
  • There is a failure to take up an offer of paid work without good reason
  • Paid work ceases by reason of misconduct, or voluntarily without good reason
  • Pay is lost by reason of misconduct, or voluntarily without good reason

If a claimant starts work, some of their earnings will be disregarded before there are any deductions to their UC payment. Once these disregarded earnings have been taken into account, UC will be withdrawn at a rate of 65p for each £1 of net earnings. So, after the disregard, claimants will be £35 better off for every £100 they earn. Not a great target for aspiration.

The government plan for UC is that it will be managed online with the notion of paying benefits monthly to reflect the world of work. The reality of this being that those receiving even a low income will likely have more monthly income left at the end of the month that those relying solely on benefits, further proliferating the dependency of ‘pay-day’ loans.

The Chartered Institute of Housing states that 400,000 of the country’s poorest families – among them those in poverty and on the minimum wage – will have less income in 2015 than they did in 2010, despite ministerial assurances that no one would lose out under its plans. The CIH calculations show that “the government’s aim for households to be better off in work than out of work under universal credit is not the case for all families.” They report that households that earn £247 or less a week will see a fall in real income in 2015, and lone parents with up to three children will always be worse off if UC remains in its current form.

There has been widespread concern about managing UC online with major concerns about the IT capabilities of the new system which is supposed to work alongside PAYE tax details, and employers are supposed to feed payment details into the system to make the benefits system ‘dynamic’. Reports suggest the system is not ready and there have been large delays in processing information. The system relies on real-time information being provided to track claimants’ earnings. All employers are supposed to submit wage information, but it may prove difficult for smaller companies to do so.

Other concerns focus on the assumption that all claimants can manage accounts online, with the Citizens Advice stating that “The new universal credit system risks causing difficulties to the 8.5 million people who have never used the internet and a further 14.5 million who have virtually no ICT skills,”.

Further concerns are stated in full elsewhere regarding the implications of UC being paid monthly and being paid to one member of a household, and the gap that may exist when the current system is phased out and the new one starts.

George Osborne is fond of saying, “where is the fairness…for the shift-worker, leaving home in the dark hours of the early morning, who looks up at the closed blinds of their next-door neighbour sleeping off a life on benefits?” And the Cameron has often talked of the benefits bill “sky-rocketing” while “generations languish on the dole and dependency”.

The assumption then that everyone is online and able to update their ‘account’ simply based on this Tory contemptuous rhetoric of the ‘benefit scrounger’, living an ‘idle’ and indulgent lifestyle spent watching Jeremy Kyle on their 50” plasmas and updating their FB pages.

The reality of course is far different – The benefit scrounger is the bogeyman of British politics, stalking the corridors of Westminster.

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