Most people support the principle of simplification behind the new Universal Credit system. But there are multiple design faults that risk undermining that aim
The coalition government is committed to sweeping welfare reform. Universal Credit is central to this programme and between 2013 and 2017 it will replace six means-tested benefits and tax credits.
A uniform 65% withdrawal rate for each £1 of earnings is designed to improve work incentives. And as a single benefit, paid to households on a monthly basis, UC should reduce administrative complexity.
A ‘claimant commitment’ will underpin the sanctions regime with most claimants expected to ‘look for work, more work, or better paid work’ if they earn below their ‘conditionality earnings threshold’. Benefit reforms will be complemented by employment support offered by Jobcentre Plus and the Work Programme.
Much commentary on UC has focused on financial ‘winners and losers’ under the new rules. But our research, commissioned by the Joseph Rowntree Foundation and published today, found that wide support for the principles of reform is undermined by widespread scepticism that the fundamental principles of simplification, improved service delivery and work incentives will be achieved.
Claimants will make a single application for UC and it is expected that the vast majority of claims, notifications and payment checks will be made online. The IT for UC will use ‘real time information’ collected by HMRC, allowing the Department for Work and Pensions to calculate UC payments without claimants reporting changed income information.
The DWP is using ‘agile’ methods to develop its systems and is confident of meeting deadlines, despite concerns among IT experts that the timetable is unrealistic. Any system failure would be serious for UC recipients. The Department should swiftly clarify its planned ‘stand by’ arrangements to ensure that claimants are paid.
It has stated that the default process for claiming UC will be online, and responsibility for claimants unable to manage their claim electronically has been passed to local authorities and other intermediaries. Tight deadlines, however, have left limited time for service design and, where services are being piloted by councils, little funding has been made available for delivery.
The government assumes that the need for face-to-face alternative routes would be a temporary requirement but such services are likely to be needed over the longer term and funding should be planned to reflect this.
Council Tax Benefit is being abolished (and funding cut by 10 per cent) with future support for council tax payments designed and delivered by local authorities and devolved administrations. Similarly, the elements of the Social Fund that cannot be automated and which assist families with crisis loans are being replaced by new discretionary local arrangements.
This localisation risks seriously undermining any simplification gains. Localised rebate schemes for council tax and other departmental arrangements for passported benefits are likely to see the single taper rate lost with further administrative layers for service users to negotiate.
Councils need to work with community organisations and others to ensure service users are informed about new local arrangements and criteria for eligibility. A set of national minimum standards would help ensure a guaranteed level of service for users, whilst still allowing for local flexibility. These should be backed by an efficient and transparent system of redress; given the nature of Social Fund assistance, service users typically will need a quick decision on payment and this must be reflected in the design of local decision making and appeals systems.
The government should commit itself to monitoring the impact of localisation and, if the evidence suggests that the main benefits of UC have not been realised, localisation – particularly of council tax benefit- should be reconsidered,
In most cases full UC entitlement will be paid directly to claimants – although some third party deductions may be made for essential services. Few claimants will be able to choose that the housing element of their entitlement is paid directly to a landlord and landlords will no longer be able to insist on direct payment if a tenant is over 8 weeks in arrears. Landlords and others fear the payment model could lead to greater arrears.
The decision to distribute UC at the household level has also been criticised for its potential bias against women, given that household research shows male partners are more likely to be the main claimant of core means-tested benefits. The incorporation of payments for children into UC will mean that child-related support will not necessarily be transparent or paid to the main carer.
In addition, the shift towards monthly payments represents a significant change for many claimants used to weekly or fortnightly, individual, payments. The proposal has caused anxiety for service users, concerned that the challenge of budgeting on a low income with a single monthly payment will be difficult without getting into debt, especially during the transitional stage of UC implementation.
If no financial assistance is made available to bridge the gap, service users must be fully prepared well in advance for the shift to monthly in arrears payments. If financial assistance is available, but requires service users to borrow money, many UC recipients may begin their claim in debt adding to any existing financial problems. In this key transitional stage, the government should ensure the availability of financial advice and support to service users.
‘Making work pay’ is another key determinant of success. The UC's single withdrawal rate of 65% will, however, be applied after the deduction of income tax and national insurance contributions, creating a marginal deduction rate for many of around 76% in total.
This withdrawal rate will be lower than that applied under current rules for income replacement means-tested benefits, but higher than that which applies under the existing tax credit rules for those in work. Those in low paid work but with significant savings will not be eligible. There is further complexity as the single UC withdrawal rate will be applied after an earnings disregard has been taken into account and these disregards vary depending on claimant circumstances.
Modelling by the Institute for Fiscal Studies shows that whilst the financial incentive to work in ‘mini jobs’ of less than 16 hours a week increases under UC, the incentive for full-time work decreases for many and is only marginal for others. This is particularly the case for second earners.
Alongside the implementation of UC, the DWP has committed to transforming Jobcentre service delivery and allowing advisers discretion in supporting service users’ needs. If the system is to be more flexible and personalised the Department must invest in the expertise of its staff. In particular, there must be more clarity about exactly how Jobcentre staff will help in-work UC recipients or how employment requirements will be clearly communicated and applied to the one million plus claimants likely to be affected.
UC also poses design issues for Work Programme prime contractors. The current funding model was not designed to support employment of fewer than 16 hours – which UC is supposed to incentivise, And whilst sustainment fees reward providers when someone stays in a job, they do not encourage providers to help a person increase their earnings. The role of providers in sanctions and the monitoring of claimant commitments is also unclear.
Plus, particular support is needed to ensure that the different rules regarding reporting income to HMRC by self-employed UC recipients do not disincentivise individuals from starting their own businesses.
Finally, the ‘claimant commitment’ should be an agreement between the service user and adviser rather than a one-sided commitment to the Department. The move towards a tougher sanctions regime and the introduction of in-work conditionality should be accompanied by appropriate support to help people meet the terms of their entitlement and a fair and efficient system of redress.
Getting this balance right will require easily accessible channels for the user voice to be heard - and the appointment of a far more visible Ombudsman.
Dan Finn is professor of social inclusion at the University of Portsmouth. Implementing Universal Credit: will the reforms improve the service for users? by Amy Tarr and Dan Finn is available from the Centre for Economic and Social Inclusion at http://www.cesi.org.uk/node/1226
