Welfare Reform Bill

Memorandum submitted by Save the Children (WR 19)

1 Introduction

1.1 Save the Children works in more than 120 countries. We save children’s lives. We fight for their rights. We help them fulfil their potential.

1.2 In the UK Save the Children works to ensure that the rights of children are protected, promoted and respected in line with the UN Convention on the Rights of the Child (UNCRC) and other international human rights instruments. We believe no child should have their childhood experiences or life chances damaged by living in poverty.

1.3 This memorandum sets out Save the Children’s position on particular clauses of the Welfare Reform Bill.

2 Save the Children’s summary positions on the Bill

2.1 Save the Children welcomes the government’s drive to simplify the benefits system and make work pay through the introduction of universal credit. We fully support the government’s aim that the universal credit ‘will have a simple structure designed to: provide a basic income for people out of work, covering a range of needs; make work pay as people move into and progress in work; and help lift people out of poverty’. [1]

2.2 We welcome the fact that the Secretary of State for Work and Pensions has explicitly linked his welfare reforms to the government’s commitment to end child poverty by 2020, with the specific pledge that these reforms will reduce the number of children living in poverty by 350,000. [2]

2.3 Whilst supportive of the general direction of travel, we have serious concerns that certain elements of the government’s plans for welfare reform are as yet undefined or run counter to the government’s aims to make work pay.

2.4 Work incentives (Clause 8): To maximise work incentives the government should commit to introducing a more generous taper rate than the one currently envisaged (65%). The taper rate should be review annually.

2.5 Childcare (Schedule 1): We are concerned that the Bill does not explain how support with childcare costs will be provided under universal credit. We are calling for a minimum of 80% of childcare costs to be covered.

2.6 Free school meals (Schedule 2): Support with school meal costs must be maintained for families currently receiving free school meals and must not be subject to a ‘benefit cliff edge’, i.e. families should not suddenly lose all support when earnings increase.

2.7 Social fund (Clause 69): The Bill abolishes discretionary elements of the social fund despite an ongoing consultation. Government should wait until thorough consultation has been undertaken before legislating to reform social fund support.

2.8 Universal credit payments (Clause 97): The child element of the universal credit payment should be made to the main carer or second earner in a couple family. To meet different budgeting needs, payments should be offered on a weekly as well as monthly basis.

2.9 Council tax benefit abolition (Clause 34): It is unclear how government intends to take forward support with council tax bills. To avoid the creation of a ‘second taper’ which will hit work incentives, support for council tax costs should be part of universal credit rather than devolved to local authorities.

2.10 Benefit cap (Clause 93): We are calling for government to rethink the proposed benefit cap, as it takes no account of variations in rent levels, household size, and is likely to increase both homelessness and child poverty.

2.11 Conditionality (Clauses 26-28, 44-56): We are concerned that conditionality placed on parents must take into account whether job offers truly make parents better off. Further, due regard must be given to the impact of sanctions on children.


3. Work incentives (Clause 8)

3.1 The Bill does not set a taper rate for the universal credit, but the white paper, Universal Credit: welfare that works, suggests the government intends the taper rate to be set at 65%. We note with concern analysis which suggests the impact on family finances will be considerably mixed.

3.2 A report by the Institute for Fiscal Studies found that, whilst 2.5million families will gain under universal credit, around 1.4million families will lose (once the transitional payment protection period ends). Under the proposals set out in the white paper, it would appear that work incentives will increase for those currently facing the greatest disincentives to work (e.g. the main earner in a couple household). However, second earners in couples will face greater disincentives to work under universal credit as they will face a more rapid withdrawal of support than under the current tax credit system. [3]

3.3 We note with particular concern that lone parents are expected to lose out under universal credit. Given the barriers to employment faced by lone parents, it is crucial that universal credit provide clear and strong incentives to work to this group. [4]

3.3 The government should clarify the intended taper rate and should commit to reviewing the taper rate annually. The overriding aim should be to introduce a 55% taper rate, as recommended by the Centre for Social Justice, as soon as possible. A universal credit taper of 55% would help to ensure an overall taper rate, or ‘marginal deduction rate’, of less than 70%. [5] On the proposal to introduce a 55% taper, the Centre for Social Justice stated:

"This new system of reduced withdrawal rates would increase work incentives for those who are currently hardest hit by the welfare system. The lower withdrawal rate would provide much more in-work financial support for low earners, and would be fairer and more transparent. This proposal would benefit nearly everyone who wants to work." [6]

3.4 Save the Children is seeking clear assurances from the Minister during the House of Commons Committee Stage that the Government will review the taper rate annually with a view to introducing the more generous rate of 55% to ensure work pays for all.

3.5 The amount of universal credit will be reduced in relation to earned income, and claimants may earn a certain amount of income before their universal credit award is reduced. We welcome the white paper’s suggestion that universal credit will apply a more generous earnings disregard for some groups than under the current system.

3.6 The amount of income to be disregarded may differ depending on a household’s circumstances and is not specified in the Bill. We are concerned about the complexity of the white paper’s proposals and believe the level of earnings disregard to be applied will not always be clear to claimants.

3.7 According to the information given in appendix 3 of Universal Credit: welfare that works, earnings disregards could still be less than £50 a week for some parents; as low as £40 a week for a single parent with one child and as low as £20 for couple parents with one child. The importance of generous earnings disregards in incentivising employment should not be underestimated. Research by Save the Children with low income parents in 2010 found that parents viewed the current low level of earnings disregard as a major barrier to work. Providing a more generous earnings disregard, allowing people to earn at least £50 before earnings are affected, would support parents to break free from the ‘low pay, no pay’ cycle, giving them greater confidence and financial security when moving into work (particularly parents moving into short hours jobs). [7]

3.8 We believe that a generous earnings disregard would be particularly beneficial for lone parents, many of whom are likely to work short hours jobs. Ensuring lone parents can earn £50 (being able to work more than 8 hours at the minimum wage) before losing their universal credit entitlement would support lone parents to both work and manage childcare commitments.

4. Childcare (Schedule 1)

4.1 The level of support with childcare costs is a crucial determinant of whether the government’s welfare reforms will genuinely make work pay for all.

4.2 Save the Children has long called for 100% of childcare costs to be met through the childcare element of working tax credit. In March 2011 the level of support was reduced from 80% to 70% of childcare costs covered. This could cost some families as much as £1,560 per year, with a significant detrimental impact on work incentives.

4.3 We are concerned that this crucial element of the universal credit is as yet undefined and we are calling on the government to ensure that a minimum of 80% of childcare costs are covered under universal credit – the equivalent level of support provided under working tax credit in recent years.

4.4 Childcare costs should be a specific additional element within universal credit (rather than a disregard). In order to make work pay, this should cover 80 per cent of costs, with an aspiration to increase to 100 per cent as the economy improves. Childcare costs should be paid to the main carer, in the form of a direct payment (further discussion on the way payments are made within the household is set out below).

4.5 Save the Children is seeking clear assurances from the Minister during the House of Commons Committee Stage that a minimum of 80% of childcare costs will be met through universal credit in order to achieve the aim of making work pay for parents on low incomes.

5. Free school meals (Schedule 2)

5.1 Free school meals offer fundamental support to low income families. There is a strong body of evidence showing that free school meals improve children’s health and educational outcomes, [1] as well as making a real difference to families’ financial situation. [2] We are concerned that the Bill does not contain a detailed explanation of how this provision will be maintained under universal credit.

5.2 The current loss of free school meals when moving into work represents a significant ‘cliff edge’ in support for parents but the loss of this support is offset by working tax credits (which kick in at 16 hours and tend to more than offset the lost value of free school meals). We were disappointed that the government cancelled the planned extension of free school meals to low income families in receipt of working tax credit. The extension would have increased incentives for parents to move into work (albeit it would have created a ‘cliff edge’ further up the income scale for parents).

5.3 It is crucial that free school meal provision remains for out of work families under universal credit and that families don’t face a sudden loss of this support in its entirety when incomes rise incrementally, particularly low down the income scale.

5.4 The DWP white paper Universal Credit: welfare that works suggests that entitlement for free school meals would be set based on an income threshold. A simple income threshold would create work-related disincentives for many families in a welfare system specifically designed to avoid them.  This is because families would lose support for school meals altogether once they hit the income threshold, rather than losing support gradually as their earnings increase. 

5.5 The government should consider ways to cover the provision of free school meals in order to make work pay for parents on low incomes. Tapering off this support so that families don't lose all help at once would be a possible option. This may require greater funding than that provided under the current system.

5.6 Save the Children believes the following principles should be applied when developing the new free school meals system:

· Make work pay by avoiding steep ‘cliff-edges’, where exceeding a certain income point would result in a loss of benefit which means that the household loses money as a result of earning more.

· Provide support for school meals to every child who needs it.

· Be simple for families to understand and for schools and Government to administer.

· Contribute to tackling health inequalities by improving the health of the poorest fastest, as set out in the government’s public health white paper, Healthy Lives, Healthy People.

6. Universal credit payments (Clause 97)

6.1 In 2010 Save the Children discussed the potential for a universal credit type system with a number of low income parents. It is worth noting the findings of our research here:

· Participants were concerned about what would happen in the event of system failure. Many parents had experiences of current individual benefits or entitlements being received late or stopped in error. Errors such as these could have even greater impact if the individual’s entire income was received in one payment. This may reflect the level of difficulties experienced with the current system, but it is a useful reminder of the importance of taking the service users’ experiences into account when considering reforms to the system.

· Participants saw a universal credit type system as building in some of the ‘responsiveness’ needed to support parents on low incomes currently lacking in the existing system.

· Participants were very aware that parents who move in and out of work are not entitled to the various additional benefits that those who are unemployed for over six months are entitled to, such as housing benefit or council tax benefit run on for first month. [3] A unified universal credit system has the potential to help overcome some of these issues, particularly for families living in privately rented accommodation, who can be hit hard after their first year in work.

· There was concern that a universal system would need to be sophisticated enough to recognise individual household needs, particularly the cost of housing, which is usually the largest expenditure families face. Providing a breakdown of entitlements within the universal credit payment would support money management amongst low income families. [4]

Given these findings, we are concerned that paying the entire universal credit to one member of a couple on a monthly basis (as proposed in the white paper) would not reflect the realities of low income families' budgeting needs. More broadly we are concerned that the budgeting needs and habits of low income families have not been given enough consideration when drawing up the proposals.

6.2 We would like the government to devise a mechanism to split universal credit payments between different members of the claimant household, so that the child-related elements of universal credit can be paid to the main carer. Our 2008 report Why Money Matters reviewed evidence regarding budgeting in couple families and concluded that the ‘main carer’ in the household (usually the woman in a couple family) tends to have responsibility for managing income on a day to day basis, and that income is more likely to be spent on children if directed via the ‘purse’ rather than the ‘wallet’. [5]

6.3 We are also calling on the government to offer payments on a weekly basis to recipients in order to recognise the different budgeting needs of claimants. Some entitlements are currently paid on a weekly or fortnightly basis and low income families may either be used, or prefer, to budget on this basis rather than monthly. The importance of effective household budgeting in protecting and supporting children from the impact of living in a low income household should not be underestimated.

6.4 It is crucial that elements of the universal credit payment are protected or ‘firewalled’ through a minimum payment guarantee in order to ensure that claimants receive some income if there is a delay or dispute in calculating any element.


6.5
Save the Children seeks detail from the Minister during the House of Commons Committee Stage on how the government intends to arrange payment of the universal credit, in order to safeguard the financial autonomy of the main carer in a couple family, to enable households to budget successfully, and to avoid increasing child poverty.

7. Abolition of council tax benefit (Clause 34)

7.1 The Bill makes provision for the abolition of council tax benefit. However, it is unclear whether or not support for council tax payments will be included in the universal credit. The government should set out clearly its plans for supporting low income households with council tax costs.

7.2 Whilst the government has said it intends to devolve council tax support to local authorities, the Bill and supporting documents are unclear as to whether this remains the case. To avoid the creation of a ‘second taper’ which sees claimants losing council tax support on top of the universal credit withdrawal as earnings rise, government should include support with council tax in universal credit and ensure this does not result in increased marginal deduction rates.

7.3 Including support with council tax within universal credit would be in line with the aim to create a more unified and simplified benefits system.

7.3 Save the Children is seeking assurances from the Minister during House of Commons Committee Stage that support with council tax will be included within universal credit.

8. Benefit cap (Clause 93)

8.1 The government should reconsider the proposal to introduce an overall benefit cap which takes no account of variations in rent levels, nor of household size, and is likely to increase both homelessness and child poverty.

8.2 Save the Children recently published research into severe child poverty which shows that families in areas where housing costs are high (such as London) and families with a large number of children are at greater risk of severe poverty. [6] The benefit cap is likely to have a disproportionate impact on both these ‘at risk’ groups.

8.3 Save the Children is calling on the Minister to reconsider the decision to introduce a cap on benefits.

9. Social fund (Clause 69)

9.1 The Bill ends the provision of elements of the discretionary social fund. Community care grants and crisis loans (other than those currently available to applicants pending payment of benefit – alignment loans) will cease.

9.2 The government is currently consulting on localising these discretionary payments so we believe the Bill’s provisions are premature. Full and thorough consultation on this very valued support should take place before decisions are made.

9.3 We are calling on the Minister to reconsider the abolition of discretionary elements of the social fund so that full and proper consultation on this crucial support can take place.

10. Conditionality (Clauses 26-28, 44-56)

10.1 Any reforms to the conditionality, sanctions and penalties regime must support the government’s policy aims, and must be based on the needs and circumstances of the individual receiving the benefit, taking realistic account of any specific barriers to work, as reflected in the claimant agreement. Any appropriate new conditionality should only be applied to a claimant if the job they are offered makes them better off. This should include taking childcare and travel to work costs into account.

10.2 The government has recognised that the current system does not provide enough support to 'make work pay'. It seems wrong therefore, that the Bill places greater conditionality and sanctions on claimants ahead of its reforms to ‘make work pay’ (universal credit) coming into force. Government should reconsider this approach and focus more on incentivising work under the current system (for example increasing the earnings disregard for lone parents to £50).

10.3 Due regard must be given to the impact on dependent children of sanctions applied to parents – especially the most extreme proposal to suspend benefit payments for up to 3 years. Government is obliged by Article 3 of the UN Convention on the Rights of the Child to ensure the best interests of children are a primary consideration in all matters affecting children.

March 2011


[1] Department for Work and Pensions, 2010, Universal Credit: Welfare that works .

[2] Department for Work and Pensions, 2010, Universal Credit: Welfare that works .

[3] Institute for Fiscal Studies, Universal Credit: a preliminary analysis , 2011

[4] For further discussion of the barriers to employment facing lone parents, please see: Save the Children, Breaking Down Barriers: Understanding constraints to single parents entering and remaining in work , 2010

[5] The marginal deduction rate refers to the rate of deductions on every pound earned through increased Income Tax and National Insurance and reduced means tested benefit payments .

[6] Centre for Social Justice, Dynamic Benefits , 2009

[7] Save the Children, Benefiting from work: Addressing efforts to reform and improve the benefits system , 2010

[7]

[1] For example: School Food Trust (2007) School lunch and behaviour: systematic observation of classroom behaviour following a school dining room intervention. Sheffield : School Food Trust

[1] School Food Trust (2009) School lunch and learning behaviour in primary schools: an intervention study. Sheffield : School Food Trust; School Food Trust (2009) School lunch and learning behaviour in secondary schools: an intervention study . Sheffield : School Food Trust

[1] School Meals Review Panel (2005) Turning the tables: transforming school food . Sheffield : School Food Trust

[2] For example, for a family with three primary school-aged children, school meals cost an average of £1043 per year

[3] That is an extra four weeks of Housing Benefit and Council Tax Benefit which is paid at the same rate the claimant was receiving before starting work.

[4] Save the Children, Benefiting from work: Addressing efforts to reform and improve the benefits system , 2010

[5] Save the Children, Why Money Matters , 2008

[6] Save the Children, Severe Child Poverty Nationally and Locally , February 2011