Universal Credit


The system of working-age benefits and tax credits in place before the Welfare Reform Act 2012 is being replaced by Universal Credit (UC). The coalition government described the main differences between UC and the welfare system in place before the Act began to take effect as follows: 


• 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;


• UC will be responsive. As people on low incomes move in and out of work, they will get ongoing support, giving people more incentive to work for any period of time that work is available;


• most claimants on low incomes will still be paid UC when they first start a new job or increase their part-time hours;


• claimants will receive a payment once a month (in arrears), paid into a bank account in the same way as a monthly salary; and


• support with housing costs will go direct to the claimant as part of their monthly payment. 


UC is gradually replacing:


• Jobseeker’s Allowance;


• Housing Benefit;


• Working Tax Credit; 


• Child Tax Credit;


• Employment and Support Allowance; and


• Income Support.


Eventually, everyone on these benefits will have to move to the new system, and UC requires claimants to accept a Claimant Commitment (see pages 17-18).


In February 2016, the Institute for Fiscal Studies (IFS) reported on the long run impact of UC on incomes. The report said:


• Introducing UC will cut annual benefit spending by £2.7 billion in total. This is on top of other benefit cuts such as the four-year freeze to most benefit rates. “When first proposed UC was intended to be more generous than the current system, but cuts to how much recipients can earn before their benefits start to be withdrawn have reversed this.”


• 2.1 million working households will get less in benefits as a result of UC’s introduction (an average loss of £1,600 a year) and 1.8 million will get more (£1,500 average gain). Among the 4.1 million households of working age with no-one in paid work, one million will get less (average loss of £2,300 a year) while 0.5 million will get more (average gain of £1,000 a year).


• Working single parents and two-earner couples are relatively likely to lose, and one-earner couples with children are relatively likely to gain. 


• Owner-occupiers and those with assets or unearned income are relatively likely to lose, but working renters are relatively likely to gain. This has the implication that UC will likely focus support more on those with long-term (rather than just temporary) low incomes, but it also weakens the incentive for some to save.


How Universal Credit works


Claims are made by households rather than individuals and the amount awarded depends on the income and circumstances of all the household members. The previous coalition government claimed that it intended to make sure that no one, whose situation has otherwise not changed, ends up worse off when transferred to UC. Additional payments would be given if necessary, so these claimants do not end up with less than they were getting in benefits before.


However, this government has given no such commitment, and current IFS estimates show that many households — 2.6 million — will be out of pocket by around £1,600 compared to the 1.9 million who will be £1,400 a year better off when they move from tax credits to UC.


A number of unions have told LRD that there are unanswered questions about transitional protection as UC rolls out. The government is cutting the welfare bill and has not made a commitment concerning transitional protection. A Unite spokesperson said the union would be campaigning to raise awareness and make sure that political pressure is put on the government to ensure that people are not worse off as they are moved onto UC. 


A major change is that UC is paid monthly (in arrears) and all benefit payments are made directly to individuals. There is a requirement for claimants to have a bank account or equivalent. 


There is actually a five-week wait under UC as: 


• after you apply, there is a one calendar month assessment period when they work out how much UC you qualify for;


• then a week to administer paying you your benefit;


• so, if you lose your job, the chances are you will have to wait at least five weeks for your first payment.


This initial wait is causing huge hardship and leaving people reliant on food banks (as well as pushing social housing tenants into housing arrears (see page 15)). The Trussell Trust charity, which operates the UK’s largest network of over 1,200 food banks, gave evidence to the Work and Pensions Committee in September 2015 and reported that food banks in areas with higher UC starts have found that a combination of payment arrears and administrative delay is causing “acute short-term income crises” for claimants. “This can result in a period with no income for a client on monthly arrears payments of six weeks or longer,” it said.


Under UC, there is a standard allowance with different rates for single people and couples and lower rates for younger people (see pages 95-96), much the same as those used in Income Support, Jobseeker’s Allowance and the assessment phase of Employment and Support Allowance (ESA). 


There are also additional amounts available for those with:


• a disability;


• caring responsibilities;


• housing costs;


• children; and


• childcare costs.


All of these payments are subject to a Benefit Cap (see page 19).


Disability


The “Limited Capability for Work” element and “Limited Capability for Work and Work-Related Activity” elements of UC are intended to mirror the two components of Employment and Support Allowance (ESA) paid during the main phase of the benefit (see page 51). 


Carers


The charity Carers UK explains that the keys things which might impact on carers (those looking after people who are older, disabled or seriously ill) are as follows:


The carer element: Under UC you can get this if you have “regular and substantial caring responsibilities” for a “severely disabled person”. Carers UK advises that if you satisfy the eligibility conditions for Carer’s Allowance, even if you do not make a claim or you would do but your earnings are too high, you still have “regular and substantial caring responsibilities”. 


In addition, it explains that a person is “severely disabled” if they receive the middle or higher rate of the care component of DLA, the daily living component of PIP, Attendance Allowance, Armed Forces Independence Payment or Constant Attendance Allowance (see Chapter 3).


The benefits of the person you are looking after: A claim for Carer’s Allowance can affect the benefits of the person you are caring for if they receive a severe disability premium within their benefits. Under UC, the severe disability premium is abolished. So if the person you care for is on UC, your Carer’s Allowance claim will not affect their UC. 


However, Carers UK advises that if the person you are caring for has transitional protection, the situation may be more complicated and you should seek advice — the Carers UK Adviceline is: 0808 808 7777.


The claimant commitment (see pages 17-18): Carers UK advises that your claimant commitment cannot include work-related requirements if:


• you have “regular and substantial caring responsibilities for a severely disabled person” (see above); or


• you have caring responsibilities for one or more “severely disabled people” (see above) for at least 35 hours a week, but do not satisfy the qualifying conditions for Carer’s Allowance, providing the decision maker is satisfied that it would be unreasonable for you to meet a work search and work availability requirement.


However, carers who fall outside of these conditions are likely to be required to attend work-focused interviews and carry out some work preparation activities. They might also be required to search for work and be available for work; although the decision maker can decide that there are temporary circumstances (such as caring) which would make it unreasonable to have to meet these requirements. However, Carers UK advise that most carers are unlikely to be affected by UC before 2017. 


Housing costs


For people who rent, the amount for housing costs is worked out in a similar way to the support provided by Housing Benefit under the system in place before the Welfare Reform Act 2012 came into force. However, the payments are made directly to the claimant as part of Universal Credit (UC), rather than to the landlord, to encourage people to manage their own budgets (see Chapter 6 for more information). 


In December 2015, the National Federation of ALMOs (arm’s-length management organisations for council housing) and the Association of Retained Council Housing (ARCH) surveyed 36 social housing providers and found that almost nine in 10 (89%) of the 2,000 tenants on UC in the survey were in arrears. The research identified a built-in seven-week wait for tenants before they could receive their first payment which meant that nearly everyone on the scheme goes straight into arrears.


The (reducing) Benefit Cap on the total amount of benefit means that people may lose some of their Housing Benefit. There is no appeal against this decision. The government says that those affected may have to find the money to make up their rent from other benefit income or consider moving to a cheaper home or area.


In addition, the Housing and Planning Bill, currently making its way through Parliament, includes a new “pay to stay” policy for council housing. The scheme, due to come into effect in April 2017, would force households in council housing (and some tenants in social housing) earning more than £30,000 (£40,000 in London) to pay market rent, or move out, if they cannot exercise their right to buy their home. 


However, there is substantial and mounting opposition to the plans. Shelter has expressed concern about the new scheme, saying the threshold is far too low and will ultimately increase the housing benefit bill, reduce incentives to work and price out key public service workers such as nurses, paramedics and teachers, from high-rent areas. It estimates that 290,000 ordinary households across the country will have to pay 80% of market rent (rising eventually to 100%) or risk losing their home. 


Housing Benefit for working-age social housing tenants, such as council or housing association accommodation could also be cut if they have more bedrooms than are allowed under the so-called ”bedroom tax” (see page 83).


Owner-occupier housing costs


The Department for Work and Pensions (DWP) says that there will be some differences from the existing Support for Mortgage Interest (SMI) provision for owner-occupiers as Universal Credit is introduced: 


• all loans secured on the property will be allowable, up to the capital limit;


• there will be a “zero-earnings” rule for owner-occupier housing costs — if the claimant and/or their partner has any earned income, owner— occupier housing costs stops;


• there will be no “linking” rules — (where claimants return to their previous rate of benefits if they return to work and then stop again); 


• the waiting period will be 13 weeks and the capital loan limit £200,000 (however, before UC is even fully rolled out, this has been increased to 39 weeks for new claims from 1 April 2016);


• there are no deductions for non-dependants in owner-occupier housing costs; and


• there is provision for alternative finance arrangements (for example, Islamic mortgages). 


From April 2018 SMI will shift from a grant to a loan. The changes to benefits to cover housing costs are set out in detail in Chapter 6. 


Children


The additional amount for children which forms part of UC (the child element) is paid as well as Child Benefit (see page 71).


The summer Budget announced that, from April 2017, the child element within UC will be limited to two children for new claims and births after that date (with certain exceptions). In addition, the “first child premium” within UC (equivalent to the family element within tax credits) will be abolished for new claims from April 2017. In 2015-16 this element was worth up to £545 a year. Existing families will receive transitional protection for both measures. 


Childcare costs


There is an additional element of support to help towards a percentage of the costs of registered childcare, mirroring the childcare element of Working Tax Credit. From April 2016, this is rising from 70% to 85% of childcare costs, capped at £646 per month for one child or £1,108 for two or more children per month. This is available to all lone parents and couples where both members work, regardless of the number of hours they work, removing the previous requirement to work 16 hours.


Those without earnings or other income receive the basic allowance plus any additions relevant to their circumstances. For those with earnings or other income, this is taken into account.


Work allowances


A work allowance is an amount of money that a person can earn before their benefit starts to be reduced, based on their needs: once earnings exceed the work allowance, UC entitlement is reduced by 65% of the excess. George Osborne announced in his July 2015 summer Budget that the threshold for work allowances in UC would see large reductions, especially for non-disabled claimants without children, for who it would be removed altogether. For households with children, the amount is reduced from what was originally planned to a monthly total of £397 if the claimants do not require the housing element, and £192 per month if they do. 


Under the previous proposals, the work allowance differed between single and joint claimants. For example, a single claimant with one or more dependent children and no housing benefit was able to earn £734 per month before their entitlement was reduced, whereas for joint claimants with children this total was £536. So while the changes to the work allowance rules undoubtedly simplify the system by bringing rates in line with the needs of the household as opposed to the claimant, they are significantly less generous than they were.


The Social Mobility and Child Poverty Commission has warned that the impact of fiscal pressures on work incentives and the extent of in-work support risks undermining the original aspirations for UC. 


Taper rate


As people have an increase in earnings, their benefit is reduced. The rate at which the benefit is reduced as their earnings increase is called the taper rate. For example, a taper rate of 80% would mean losing 80p of benefit for every £1 earned. In the system in place before the Welfare Reform Act 2012 came into force there were several different taper rates, some applied to gross earnings and some to net earnings, making it difficult for a claimant to know what effect an increase in income would have.


UC has one taper rate for earnings set at 65%. So, once any disregarded earnings have been taken into account, UC is withdrawn at a rate of 65p for each £1 of net earnings. In other words, claimants will be £35 better off for every £100 they earn. The government claims that this makes it affordable, but still offers people an incentive to work. Statutory payments, such as Statutory Sick Pay, are treated in the same way as income from earnings. 


Most income from other sources which a person could use to meet their living costs, for example, early retirement pension income or maintenance payments, is taken into account in full, so that UC is reduced pound for pound.


The claimant commitment and sanctions


One of the basic conditions of entitlement to UC is the acceptance of a claimant commitment. This is a record of the claimant’s responsibilities in relation to their award. In the vast majority of cases, where a couple claim, both members must accept this commitment. It is updated and reviewed regularly. Each time it is changed the claimant must accept the new commitment.


The claimant is given a copy of the commitment at their work search interview. If it is not accepted, the claim will be closed.


The commitment must state what will happen if the claimant fails to meet their responsibilities. This could be a cut in benefit, or sanction which can last for up to three years (see pages 17-18).


University of Cambridge professor of law Simon Deakin has warned that the increasing “conditionality” in the administration of unemployment-related benefits mean that unemployed people are increasingly being required to accept low-paid and casualised work or face benefit sanctions. These can lead to loss of all benefits for long periods of time. 


UC will make things even worse, Deakin says, and will apply the sanctions regime not only to those who are unemployed, but also to those in-work and receiving tax credits, where they are working part-time or on a short-term basis.


Very low earners are currently subject to in-work conditionality in a pilot involving 10 Jobcentres. This began in April 2015 and runs until autumn 2017. However, there is as yet no information from the government about how many people are affected or how many people who have been sanctioned are in work. General union Unite is warning that as people migrate from tax credits to UC they will become subject to in-work conditionality or sanctions.


Universal Credit and European Union nationals


The government has introduced a series of measures designed to reduce benefit entitlement to new migrants from the European Union (EU). For example, as of March 2015, new EU migrants cannot claim benefits until they have started work, and all EU jobseekers need to live in the country for at least three months before they can claim income-based JSA, Child Benefit and Child Tax Credit. As well as this, the amount of time EU jobseekers can claim benefits has been halved, meaning that if they are unemployed for a total of three months, they will lose their right to reside in the UK.


The DWP social security advisory committee has warned that a significant number of families could suffer hardship as a result of the UC reforms as migrants will have no access to means-tested support before they have made sufficient contributions through work. 


In addition, prime minister David Cameron has negotiated further restrictions on the in-work benefits paid to migrant workers as part of the terms of Britain’s European Union (EU) membership. These include a proposed “emergency break” on EU migrants claiming in-work benefits for seven years (applying to individual workers for up to four years) and lowering the rate of Child Benefit paid to EU migrants. The rate will be indexed to that paid in a new migrant’s home country with immediate effect. For existing EU migrants, the lower rate will apply from 2020. 


TUC general secretary Frances O’Grady has argued that Cameron missed the point in his renegotiation agenda. She said: “It’s understandable for people to worry about the impact of migration on their communities. But instead of blaming migrant workers the prime minister should deal with the root problems, like bad bosses who use migrants to undercut other workers. And corporations who don't pay their fair share in tax to fund our public services should be dealt with too.”


Government lawyers have expressed concern over the legal difficulty of implementing the four-year residency test solely on migrants, stating that "Imposing additional requirements on EU workers that do not apply to a member state's own workers constitutes direct discrimination which is prohibited under current EU law."