Cut red tape in Universal Credit to help parents and the self-employed

8 Jun 15

Universal Credit is intended to simplify out-of-work benefits and in-work credits, but in its present form it could make things more complicated for many of those it is meant to assist.

Red tape

Describing the introduction of Universal Credit (UC) as a big task would be something of an understatement. It is the most radical shake-up of the welfare system in at least a generation and will fundamentally change the approach to improving living standards in the next decade and beyond. Over the past nine months the Resolution Foundation has grappled with many of the big questions arising from this challenge and our full review of UC is published today.

In practice, it is the little things that will prove important to the success of the new system. Make it too onerous for people to use or understand, and many of the gains associated with the merging of six benefits into one – a key strength of UC – could be undermined.

Universal Credit is often sold as representing a simplification of the existing fiendishly complicated system of out-of-work benefits and in-work tax credits. And it certainly provides smoother transitions for those moving in and out of work. But too much of the simplification is directed towards the operation of the system, rather than people’s day-to-day interaction with it. In some instances, internal processes are streamlined at the expense of piling excessive red tape onto recipients.

Take the new approach to childcare support, where parents must claim on the basis of monthly ‘paid-for’ costs. This contrasts with the current system where parents have their annual childcare costs covered in monthly instalments. This may sound like a simple enough switch; but remember that many families will be facing term-based bills, while others will have significantly higher needs during school holidays. The current approach helps smooth fluctuating costs over the year; the UC model doesn’t – and could lead to some parents missing out on support.

Switching these new monthly requirements to a quarterly basis would ease the administrative burden on parents and allow high one-off costs to be spread out across a greater period. It is striking that the government’s new Tax Free Childcare offer, designed for those not receiving tax credits or UC, will also use a quarterly reporting approach. It’s hard to understand why these two populations should face different requirements.

Another group likely to be disadvantaged by the new UC ‘simplicity’ is the self-employed. In order to conform to UC’s monthly approach, they are expected to report their incomes once a month, rather than once a year as with tax credits (and as they do for tax purposes). This new reporting burden will be unwelcome. But there is a potential financial cost too. That is, those who face fluctuations in their earnings from month to month could find themselves getting less from UC than do employees who – over the course of the year – have the same salary.

The solution? Reintroduce some flexibility again. Allowing the self-employed to report their income in line with how they do so in the tax system would remove the potential disparity with employees. There are more examples. Identifying and understanding them all, and determining how to fix them, requires painstaking attention to detail – which is why the Resolution Foundation and our panel of experts have spent nine months getting under the bonnet of UC.

Our far-reaching review takes on ‘bigger’ issues too – such as improving the work incentives in Universal Credit to encourage hundreds of thousands more people, particularly women, into employment. But as any public policy specialist will know, getting the small details right matters just as much, especially in UC where they have the potential to improve outcomes for millions of lower income households. They are the essential building blocks on which a reliable system can be built, without which improved financial incentives that UC brings may never be fully realised.

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