How Universal Credit will work

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

A major change is that Universal Credit is paid monthly and all benefit payments are made directly to individuals. There is a requirement for claimants to have a bank account or equivalent.

There is a basic allowance with different rates for single people and couples and lower rates for younger people, much the same as those used in Income Support, Jobseeker’s Allowance and the assessment phase of Employment and Support Allowance (ESA) (see page 42).

There are also additional amounts available for those with:

• a disability;

• caring responsibilities;

• housing costs;

• children;

• childcare costs.

All of these payments are subject to a Benefit Cap (see page 14).

Disability

The disability amount is intended to mirror the two components of ESA paid during the main phase of the benefit. Disability Living Allowance (DLA) will be replaced by a new Personal Independence Payment (PIP). Most people currently getting DLA will eventually have to reapply for PIP. Even if people were getting DLA, they may find that they don’t qualify for the new payment or that the money they get will be less than it was on DLA (see page 16).

Carers

Carers UK advice on what is happening to Carer’s Allowance as Universal Credit is introduced is as follows:

There are currently three main groups of people getting carers’ benefits:

1. Carers who currently do not qualify for means-tested benefits and just get Carer’s Allowance of £61.35 a week.

Carers in this group are not directly affected by the introduction of Universal Credit. This group will remain outside the new system and the government has not announced any plans to reform the Carer’s Allowance they receive.

The carer will continue to receive Carer’s Allowance while they satisfy all the other rules for the benefit providing that the person they are looking after continues to receive benefits including:

• the middle or higher rate of the care component of Disability Living Allowance; or

• Attendance Allowance; or

• the daily living component of Personal Independence Payment.

2. Working-age carers who receive means-tested benefits like Income Support, Jobseeker’s Allowance, income-related Employment and Support Allowance or Housing Benefit, with or without a Carer Premium (an extra amount for carers of £34.20 a week).

Carers in this group will have their means-tested benefits moved on to Universal Credit.

Carers who are currently on Income Support or Jobseeker’s Allowance will have those benefits replaced by the standard allowance of Universal Credit and may get an extra amount for caring, called a carer element — similar to the carer premium. They may also get help with the costs of their mortgage interest payments and additional amounts for any children they have.

If they qualify for Housing Benefit (to help with the cost of rent) they may receive other additional amounts to help with these costs. However, the Benefit Cap on the total amount of benefits may affect how much support carers get towards their housing costs.

If carers’ circumstances remain the same they should not be worse off when they move on to Universal Credit, but this could only offer very short-term protection.

3. Carers over State Pension age, who qualify for Carer’s Allowance but cannot get it at the same time as their State Pension because of the rules of the benefits system.

These carers may get a Carer Addition (an extra amount for carers of £34.20 a week in Pension Credit (see page 63). According to Carers UK, most carers will not be directly affected by the introduction of Universal Credit and will continue to receive the same benefits and pension as they did before.

However, for new claimants, there are changes to the age at which couples become entitled to Pension Credit. Before the introduction of Universal Credit, a couple could claim Pension Credit when one of them reached the State Retirement Age (SRA). With the introduction of Universal Credit a couple will not be able to claim Pension Credit until both of them have reached the SRA.

This will have an impact on the amount of income couples receive from benefits — with older people having to wait longer before they get entitlement to the more generous benefit rates of Pension Credit.

The government has also announced that it is simplifying the process for claiming the Carer Addition in Pension Credit. Carers in receipt of a state retirement pension will be able to claim Pension Credit — and receive the additional carer’s premium in Pension Credit — without making a claim for Carer’s Allowance.

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 Act came into force. However, the intention is to make payments directly to the claimant as part of the Universal Credit, rather than to the landlord, to encourage people to manage their own budgets (see Chapter 6 for more information).

The 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 they may have to find the money to make up their rent from other benefit income or consider moving to a cheaper home or area.

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 16).

No changes to the way that homeowners receive help with housing costs (i.e. their mortgages) have been announced.

Children

The additional amount for children which forms part of Universal Credit is paid as well as Child Benefit (see page 59).

Childcare

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: 70% of up to £175 for one child or £300 for two or more children per week. It is converted into a monthly limit for Universal Credit.

A difference is that it is available to all lone parents and couples, where both members work, regardless of the number of hours they work, removing the 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.

Income disregards

A disregard is an amount of money that a person can earn before their benefit starts to be reduced. Income disregards to Universal Credit are based on a person’s needs. For example, a couple with children have a higher disregard than a couple without children.

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 Act 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.

Universal Credit has one taper rate for earnings set at 65%. So, once any disregarded earnings have been taken into account, Universal Credit 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 Universal Credit is reduced pound for pound.

Claimant commitment

One of the basic conditions of entitlement is the acceptance of a claimant commitment. This is a record of the claimant’s responsibilities in relation to their award introduced in October 2013. 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 DWP have prepared a guide for claimants about the claimant commitment: www.gov.uk/government/uploads/system/uploads/attachment_data/file/254541/uc-and-your-claimant-commitment.pdf

The claimant will be 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.