Welfare Reform Bill

Memorandum submitted by Oxfam GB (WR 44)

1. Summary

1.1 Oxfam GB is fighting to tackle poverty in over 70 countries. We believe that in a wealthy world poverty is unjustifiable, and can be prevented. That’s why we have a programme in the UK. We are working with partners to reduce the poverty and suffering that still persists in this developed economy.

1.2 For millions of people living in poverty, the way benefits system interacts with their lives is vitally important. That’s why we support many of the principles behind DWP’s proposed Universal Credit (UC). Benefits must help to ensure that work is a tenable escape from the poverty trap. However, there are dangers that some of the intended changes to the complex benefits system will have a detrimental effect. The current Welfare Reform Bill is also short on detail. We hope MPs will ask for clarification on the aims and anticipated impacts of various measures before endorsing the reforms that will considerably affect the ability of millions of people to exit poverty.

1.1 This written evidence sets out Oxfam’s position on five areas of the Welfare Reform Bill where we have particular concerns. [1] In summary these are:

1.1.1 Support for childcare (Schedule 1): The Bill must guarantee a minimum of 80% of support for childcare costs.

1.1.2 Changes to benefit uprating (Clause 68): Benefits should not be uprated by CPI, a planned change which the Bill accommodates. It is particularly inappropriate to uprate Local Housing Allowance (LHA) by this measure.

1.1.3 Payment of Universal Credit (Clause 97):

1.1.3.1 The Bill must ensure provision is available for Universal Credit to be paid weekly or fortnightly on request.

1.1.3.2 Payments intended for children should not be consolidated into the Universal Credit.

1.1.3.3 Government proposals to allow choice over who receives payments should be laid out in more detail and must be shown to account for intra-household dynamics that disadvantage women.

1.1.4 Conditionality and sanctions (Clauses 14, 16-18, 26-28, 30, 44-58, 102-116):

1.1.4.1 Remove proposals to increase the maximum level of sanction that can be applied to a three-year suspension of benefits;

1.1.4.2 Ensure conditionality levels reflect actual costs and circumstances, particularly in relation to childcare;

1.1.4.3 Don’t make parents with childcare needs work for a lower incentive than the standard taper under Universal Credit;

1.1.4.4 Don’t introduce the stick of conditionality, years before the carrot of the Universal Credit.

1.1.4.5 Include a charter of claimants’ rights in the Claimant Commitment, and make it subject to appeal;

1.1.4.6 Introduce a mechanism to uphold the rights of claimants, for example through a contract of welfare rights for individuals

1.1.5 Child Benefit within Universal Credit (Clause 93): Child benefit must be exempted from any benefit cap. Ideally the benefit cap itself should be removed.

2. Support for childcare

2.1 Evidence continues to show that local, affordable, good quality childcare is a key element in the decision to return to work, and is a lifeline for millions of women experiencing poverty. The government must clarify how Universal Credit will support people with childcare costs, in order to achieve the aim of making work pay for parents on low incomes. If the government wants to improve work incentives for families, it should increase, not decrease childcare costs covered through the system.

2.2 Government plans to retain the current funding envelope (albeit at a reduced level, based upon 70% support rather than the previous 80%), but to extend support to those working below 16 hours a week. This inevitably means reducing support for those currently receiving it, either in the form of a reduced proportion of costs (reducing work incentives across the spectrum of hours worked and overall earnings) or a reduced maximum level of support (leading to reduced incentives for those working more hours or earning more), or a combination of the two. This will have a negative impact on the incentives for lone parents or ‘second earners’ in couples to enter work, disproportionately affecting women.

2.3 Withdrawal of childcare support will add to the marginal deduction rates faced by many individuals with children under Universal Credit, in some cases resulting in over 100 per cent deductions. As well as single parents, this is most likely to affect ‘second earners’ in couple households, as it will be the second adult’s job that is more dependent on whether child care is unavailable or too expensive, and childcare costs are often seen as being offset against the ‘second earner’s’ earnings – and ‘second earners’ are known to be more likely to be affected by disincentives.

2.4 We therefore support an amendment to the Bill to create an additional Clause between Clauses 11 and 12 – to guarantee a minimum of 80% of support for childcare costs, as opposed to the currently proposed 70%. It should be noted that the amount previously available was up to 80% support (this was reduced in the Comprehensive Spending Review last year), and that, due to Housing Benefit / Council Tax Benefit disregards – which will not be available under Universal Credit – the effective amount of support was up to 97%.

2.5 Fewer ‘second earners’ (or lone parents in employment) would mean fewer women with access to independent income from employment. But it would also work against the aims of the improved maternity provisions and the sharing of parenting roles to which the government is committed. The goals of more individualised conditionality would be undermined for 'second earners'. And while the government takes more low earners out of tax by increasing the personal allowance, many 'second earners' will lose two-thirds of each pound.

2.6 It is also important to take a dynamic perspective. If (mostly) women are dissuaded from becoming ‘second earners’, the impact on their right to income and on gender roles could be long-lasting and affect their lifetime income profile. In addition, a key government concern is to reduce workless households. Women becoming lone parents are more likely to stay in the labour market if they were in work during their previous relationships; [1] so work incentives for ‘second earners’ in couples are crucial for reducing worklessness in lone parent households as well. Earnings for both lone parents and 'second earners' are also important for tackling child poverty effectively.

3. Changes to benefit uprating

3.1 The linking of benefits to CPI amounts to a decision to progressively devalue benefits in relation to the cost of living – it is inequality in one clause. The measure as it currently stands is especially unfair given that elsewhere RPI is retained for income tax allowances and thresholds. It is particularly inappropriate to uprate Local Housing Allowance (LHA) by CPI [Clause 68], when support is already being removed elsewhere. Help with housing costs should always reflect the actual costs of appropriate local housing because everyone has a right to a secure home.

3.2 A main cause of the increasing benefits bill has been the increase in Housing Benefits payment. But that has because the cost of housing has gone up far faster than other aspects of the cost of living. As a result, a shift to CPI uprating, rather than uprating that reflects local housing markets, will cause benefits to cover a smaller and smaller proportion of actual housing costs – leading to hardship, debt, and ultimately homelessness and destitution.

3.3 Uprating other benefits by the CPI measure is unfair, as they will fall further behind the average standard of living. In fact, things should be moving the other way, as in the last thirty years, unemployment benefits have gone from being a fifth of average income to a tenth. [1] With high food and energy inflation over the past few years (on the rise again after a recessionary lull), even average RPI inflation has not reflected the increasing cost of living for the poorest – the data is not officially collected, but calculations at the height of the 2008 food price crisis suggested that inflation for the poorest 10% was running at 1% more than the official RPI figure. [2]

4. Payment of Universal Credit

4.1 We have concerns about the way in which Universal Credit is to be paid to couples. This stems from the government’s proposal to pay Universal Credit in a single payment to one nominated member of a couple. Because Universal Credit subsumes many benefits with different purposes, decisions about payment become much more significant.

4.2 We are worried about the impact of the new system on the way that financial resources are distributed below household level between men and women (the ‘purse’ or the ‘wallet’), an issue which we feel the government needs to consider further. We are concerned about who gets control of money intended for particular purposes such as support for children. The reforms must bolster, not undermine female empowerment, by increasing female financial inclusion, successful household budgeting, and supporting an equitable balance of power in the household.

4.3 The government’s proposal to allow couples to ‘choose’ who receives a single payment is inadequate, since that ‘choice’ takes place in a context of gender inequalities within as well as outside the household. Men are often seen as having a right to personal spending, whereas women’s spending on home and children is seen (by both men and women) as their personal spending. [1] The Millennium Cohort Study showed that 1 in 4 mothers do not even have a small amount to spend on themselves, rising to 1 in 2 in households on less than 60 per cent of median income. [2] A recent Oxfam-funded study of 30 black and minority ethnic women in low income couples in north-east England included examples where ‘several women had so little access to money that their husbands were effectively in control of key aspects of their lives’. [3]

4.4 We are also concerned about the proposal to make the single payment on Universal Credit on a monthly basis. This is likely to impact upon budgeting strategies that people living in poverty have built up over time, increasing the risk of debt, and makes people especially vulnerable to a mistake in benefit payment. This is likely to impact particularly upon women in households, as they tend to have the main responsibility for managing the money - making ends meet - in low-income families, where this is often a source of anxiety (albeit also pride) rather than of power. [4] The Bill should therefore make provision for payment of Universal Credit to be made weekly or fortnightly at the claimant’s discretion [Clause 97].

4.5 The government must also explain what it has planned in terms of short term, transitional safeguards. This applies to those who will have weaker work incentives under the new system. It also applies more broadly to people on low incomes who will find their existing budget-management tools removed, and who will be especially vulnerable to system failure now that there is only going to be one payment. This is particularly pertinent to women, who tend both to be household budget managers in low income households, and to act as ‘shock absorbers’ at times of crisis, going without in order to protect other members of the household. In particular, the government must explain what support along the lines of the current Social Fund is going to look like, and how it intends to meet the need for additional support or education for people to up their skills in budget management and financial planning.

4.6 At present, different benefits may be – and often are – paid to different members of a household. The child element of Tax Credits is paid to the main carer (usually the woman), along with support for childcare costs; and benefits associated with housing are paid to someone with responsibility for paying housing costs (or direct to the landlord). Including money for children and childcare costs in a single payment of Universal Credit is of particular concern, as research shows that money coming into the household through the ‘purse’ (woman) is more likely to be spent on children’s needs than money that comes in through the ‘wallet’ (man). Consolidating these elements into a single payment runs the risk of transferring ‘from purse to wallet’ compared with the current situation, which could have negative impacts upon children’s welfare, and on the distribution of resources within a household.

4.7 The inclusion of money for housing costs in one Universal Credit payment is also of concern, as the payment may therefore not be made to the tenant or mortgage payer. In couples with unequal financial power relationships, this could lead to problems around payment of housing costs if money is withheld from the tenant or mortgage payer, and reduce security of housing tenure. This is particularly likely to affect newer couples: in a 2001 study, for 1 in 3 men and women (and nearly 1 in 2 older women), when they started living together as a couple, the accommodation was in their name only. [5]

4.8 We therefore propose an amendment to allow for the splitting of payment of Universal Credit according to functional element, so that provision for children can be paid to the main carer, and provision for housing paid to a tenant or mortgage payer [Clause 97].

4.9 The government should also commit to investigate the payment of the living costs element of Universal Credit to couples, beyond allowing for the splitting of payment by functional element. The provision to allow couples to ‘choose’ who receives the payment rests upon two assumptions – that that choice is an equal one, and that resources are distributed equally within households. Research shows that neither of those assumptions are safe, and we would therefore encourage the government to investigate alternatives, such as splitting the payment of the adult living costs element of Universal Credit, and to consider piloting different approaches. The commitment in the Equality Impact Assessment of the Welfare Reform Bill to monitor the impact of Universal Credit in terms of distribution of income within households is welcome, and we would urge the government to provide more detail of what this will entail.

5. Conditionality and sanctions

5.1 Social protection is a basic human right, and it should not be made ‘conditional’ upon any particular set of behaviours. We therefore oppose increases in conditionality and sanctions on principle. An increasingly punitive system of conditionality misdiagnoses the nature of structural barriers to employment faced by people living in poverty. Additionally, research shows that, while sanctions unequivocally cause severe hardship, and contribute towards increased crime rates, their impact on employment is at best mixed, and can lead to worse outcomes in the longer term. [1] Beyond that, however, we are keen to see that what provision for conditionality and sanctions there is in the Bill is not damaging to people living in poverty.

5.2 Proposals to increase the maximum level of sanction that can be applied to a three-year suspension of benefits are unacceptable, as they introduce the threat of long-term destitution (Clause 30). Destitution should never be used as a tool of public policy, particularly in a developed economy.

5.3 It is crucial that conditionality levels reflect actual costs and circumstances. This applies particularly to childcare costs, since levels of childcare support under Universal Credit will be reduced compared with the status quo. An amendment to reflect this should be introduced, to ensure that the work search requirement includes provision that work must leave people financially better off, once childcare and travel costs have been accounted for, to ensure that people are not punished for failing to take up work that is not financially viable [Clause 17].

5.4 We would urge the government to incorporate into its ‘reasonable job offer’ test that parents with childcare needs not be required to work for a lower incentive than the standard taper under Universal Credit, once childcare costs have been taken into account. Quality and accessibility of childcare must also be taken into account before any sanctions are applied.

5.5 Universal Credit is to be phased in over a number of years, whereas increases in conditionality are to be introduced immediately. This is fundamentally unfair and illogical, since the increased levels of conditionality are framed as being part of a new social contract between benefit claimants and the state, in which the government provides improved incentives through Universal Credit in exchange for imposing higher levels of conditionality on claimants. To increase conditionality before improved work incentives are introduced means that the contract will be one-sided initially.

5.6 The proposed Claimant Commitment should be two-sided, and not a diktat as it is currently framed. This should include a charter of claimants’ rights, and for the Commitment to be framed in the legislation as being a decision subject to appeal, in order to protect claimants from the arbitrary exercise of power, and from erroneous sanctions.

5.7 These proposed sanctions are, to a large extent, at the discretion of personal advisers. The government should outline how it plans to ensure that the rights of claimants within the system are upheld – for example through a contract of welfare rights for individuals – especially in the context of the greater responsibilities they are to be asked to fulfil. At present, many people are not aware of their rights or on how to complain. This needs to be flagged up to ensure there is equal responsibility on both sides of the relationship between society and benefit claimants if conditionality is to be expanded.

6. Child Benefit within Universal Credit

6.1 We were pleased to see that Child Benefit is not to be included in the Universal Credit, and therefore means-tested. Child Benefit is particularly important for women, as a source of independent income for individuals which is unaffected by a partner’s income. For that reason, we urge the government to refrain from further means-testing of Child Benefit, and to retract existing plans to means test. This and other universal benefits not only help to provide independent income for women in different family types, but also help to promote solidarity in social protection.

6.2 In order to protect the principle of universal Child Benefit, it must not be included in the overall benefit cap calculation. Child Benefit is intended to be ring-fenced as a universal benefit for children, and so should not be considered for purposes of capping income at the household level. We urge the government to give assurances that it will not introduce means-testing of Child Benefit through the back door through such a mechanism. Child Benefit must therefore be specifically excluded, as are pensions and pension credit, from the overall household benefit cap. [Clause 93].

6.3 Ideally we would like to see the benefit cap removed entirely from the Bill, as it is an inappropriate measure that will harm couples more than individuals, will act to deter people from forming couple relationships, and could break up families.

April 2011