Examination of Witnesses (Questions 39-71)
Chair: Welcome to our
next set of witnesses. As you've just heard, the reason that
you've been invited is that you actually represent organisations
that represent the range of things that perhaps have not been
decided upon with regard to the White Paper and Universal Credit,
and hopefully with the evidence session we're about to have, you
will be able to either shed some light, or perhaps shed some shadows,
on the things that still need to be decided and some of the pitfalls
that Government could find itself in if it doesn't come up with
the right decisions on that. So we've some questions on claims,
payments and administration.
Q39 Kate Green:
We were just talking a few moments ago about the challenge of
implementing and administering this new benefit. I wonder if
you could comment on some of the new ways in which it is proposed
the Universal Credit will be claimed, paid and administered, and
any of the pitfalls that you might see in relation to that? Perhaps
we will start with Sam.
Sam Royston: Yes,
absolutely. There are some concerns about delivery that we have
identified. One is a problem with what will happen if there are
problems with the delivery of the Universal Credit. At the moment,
you receive a package of several different benefits, which means
that in some cases, if there is a problem with one of your benefits—for
instance it stops being paid—other payments of other benefits
can continue. I spoke to one Family Action service user just
the other week who had her Housing Benefit stopped. It did affect
other benefits at a later point, but initially, at least, other
benefits carried on being paid. We're very concerned that once
you roll benefits together into one lump sum—so you are
having your Housing Benefit, Council Tax Benefit, Child Tax Credit,
Working Tax Credit, all paid together—there would be the
risk that one benefit stopping would lead to all benefits stopping,
leaving aside those that are currently outside the system, like
child benefit and Disability Living Allowance. That would be
absolutely catastrophic for families if they had all of their
money or almost all of their money stopped. They could potentially
be left with almost nothing to live on.
Other issues around that: we've also identified
issues with whom the benefit is paid to. I know that a number
of organisations, for instance Fran Bennett at the University
of Oxford, have identified concerns about benefits not being paid
to the main carer, and again, it's to do with the whole of the
Universal Credit being paid as one lump sum. If it's paid, for
instance, to the main earner, there'd be what is known as "wallet
and purse issues"; that the money is not necessarily being
kept or spent by the main carer—that is, intended to be
spent on the child or children in the household—and that's
also a concern. Those were two key concerns we had.
Kate Green: Any other
comments or concerns from other witnesses?
Emily Holzhausen:
No, nothing. The appeals system really, just to build on Sam's
point, is absolutely critical and it's not clear in the Paper.
But we support what Sam has just said.
Q40 Kate Green:
Do you have any comments on the proposal to move to monthly payments?
Sam Royston: Sorry,
yes, that was another thing I had. Family Action work with a
lot of people with quite severe mental health problems, and in
many cases people have expressed problems to me already that the
payment periods are often too infrequent, which can lead to budgeting
problems, problems of people getting into debt, and that is often
connected with budgeting problems created by mental health problems
directly. We are concerned that the move to monthly payment periods
under the Universal Credit would exacerbate these problems and
lead to potentially worsening people's problems of debt and things
like that, problems with budgeting, and probably put extra pressure
on Family Action service providers to help people with budgeting
correctly in difficult times.
Jim Vine: In terms
of the housing side of things, BSHF's a housing research charity,
and we are, I think, in the shadows, as you've indicated. There's
about one page on the whole of the housing component in the White
Paper, which doesn't provide a lot of guidance to work on. But
on the actual payments side of things, I think what would be important
would be to retain the option where appropriate of having direct
payment to landlords for vulnerable tenants in the private rented
sector, and in the housing association sector as well, to retain
the credit rating, so there's the tenant-side protection and the
viability of the organisations for the housing associations.
Q41 Kate Green:
Can you see that that can be possible in the design of Universal
Credit as we presently understand it?
Jim Vine: I think
there's a huge design issue still to be done. There's a lot of
complexity in getting that straightened out. The detail that we
have on the housing component so far is very basic.
Q42 Kate Green:
That leads me to my final question, Chair, which is picking up
a point that Family Action made—in your submission, Sam—about
firewalling the different components of the benefit. I wonder
if each of you would like to comment on the potential advantages
of that, some of which I think you're hinting at, but also on
whether there isn't then a danger that we contradict the objective
of simplification?
Sam Royston: I
think our key response to that would be that simplification is
important, but there have to be overriding concerns, and I'd suggest
that one of those overriding concerns would be concerns about
people being left with nothing in circumstances where there's
a problem with their benefits. It does not seem necessarily to
lead to tremendous problems. Having thought about the possibility
of that question, I think that one possible response to that in
terms of delivery would simply be to make sure that under the
Universal Credit the conditions under which the benefits are paid
are essentially kept separate within the computer system, so that
there are your conditions for receipt of Housing Benefit or the
housing component, there are conditions for receipt of the child-related
components, and as long as the information is correct and up to
date for those individual components, they would continue to be
paid. So, for instance, if there was a problem getting birth
certificates, the child component might stop for a while, but
the housing component might continue. If there is a problem with
working out the amount of rent, some problem with the landlord,
the housing component might stop but the child component would
continue. It's very important to firewall them in that way.
I don't think it will necessarily add a great deal to the complexity.
Kate Green: From the client's
point of view.
Sam Royston: From
the client's point of view.
Q43 Stephen Lloyd:
This is directed to Carers UK. The White Paper is not clear on
what changes to Carer's Allowance might be under consideration.
In your view, what changes to the Carer's Allowance do you believe
will be necessary to take account of the introduction of Universal
Credit?
Emily Holzhausen:
Thank you very much for asking that question, and carers themselves
have been asking that question as well, having read the White
Paper.
Stephen Lloyd: I have
received numerous letters on it.
Emily Holzhausen:
Yes, I'm sure you have. If I can just explain about Carer's Allowance,
it's a nonmeans tested benefit and it's incredibly important.
It's the only thing that carers really have in the system to
recognise what they do: quite often giving up work to care for
somebody that they love. What would currently happen with the
system as we would see it is that about 255,000 carers currently
get Income Support alongside Carer's Allowance, and they would
go into the Universal Credit, and we see that there are a number
of advantages of that. There are certain caveats: for example,
your earlier experts talked about earnings disregards, and it's
not clear where the earnings disregard for those carers would
be in Universal Credit, and it's actually a good opportunity to
perhaps increase earnings disregards for carers and give them
more opportunities within Universal Credit. We would certainly
like that looked at. So if we move half of the carers on Carer's
Allowance into Universal Credit, what happens with the other half?
The White Paper is not clear on that. We believe that they should
stay outside of Universal Credit, because—
Stephen Lloyd: The whole
Carer's Allowance?
Emily Holzhausen:
Yes, the remaining 245,000 carers, it's vital they stay outside,
and the reason for that is, if you take them in, you will means-test
Carer's Allowance, which I have to say would be an enormously
retrograde step. Now having fought for the reform of Carer's
Allowance—well, we fought for its establishment—it
is a benefit that is in urgent need of reform, and I think the
Government very fairly recognised that governments of every political
party have struggled with this particular issue. So what do you
do with that benefit outside, because there's an earnings limit
on it, and there's a high penalty to pay. If you go 1p over that
earnings limit of £100, you lose all of your benefit. What
we're saying is: can you use some of the good elements of the
Universal Credit to apply to that earnings limit? Could you introduce
some kind of taper? There aren't that many carers who have earnings
with Carer's Allowance; probably about 40,000 to 45,000, but the
statistics are not terribly clear from the Department.
So we do need to look at that and carers themselves
really do want to still see reform. I wouldn't want the door
to be shut on the reform of that benefit, because I'm sure you
all get lots of letters from carers in your postbag about the
level of Carer's Allowance. We're obviously very aware of the
economic situation, but we do still think that that needs to be
looked at, particularly with an ageing population.
Q44 Stephen Lloyd:
To reiterate, from your perspective the key thing is that it should
be kept out of the Universal Credit, because as soon as it goes
into the Universal Credit, you are going to have issues around
means-testing. The key thrust of the Carer's Allowance, for obvious
reasons that go around the table, is it is not means-tested.
Then you mentioned a couple of areas of possible reform for Carer's
Allowance. If we maintain that it remains out of Universal Credit,
are there any others, while you're actually here, it would be
useful to put on the record?
Emily Holzhausen:
There are areas around the 21 hours' study rule, so you can't
get Carer's Allowance if you are studying for more than 21 hours,
and that's not studying in a classroom or a lecture room; it actually
includes marked work as well. So the number of courses that you
can take, particularly vocational courses, is very narrow.
Q45 Stephen Lloyd:
And how long has that 21-hour rule been on the books? A long
time.
Emily Holzhausen:
A long time. Again, if we are looking at helping people into
work, perhaps we should be looking at exemptions or perhaps changing
that definition of what 21 hours of study actually is.
Stephen Lloyd: And would
that 21 hours include, for instance, if I was a carer and was
doing an Open University (OU) course?
Emily Holzhausen:
Yes, quite potentially. The OU has been very good in trying
to get flexible options for carers, but as I say, there are quite
a few vocational courses that carers cannot attend, which seems
a nonsense. You see lots of parents of disabled children wanting
to get back into work but not able to because their skills are
outdated and they cannot get that toe back in the labour market
to upskill.
Q46 Stephen Lloyd:
Thank you for that. Now if I could address this to all of you,
please. The Government is considering what extra support may be
needed for disabled people in Universal Credit, over and above
the additional components and other benefits elsewhere in the
system. What are your views on this? Sam?
Sam Royston: Sure.
Under the current system there are a few different components
that people can receive. The key one that will be affected by
change, potentially, is the disability element of Working Tax
Credit, because essentially they're getting rid of Working Tax
Credit and replacing it with a series of earnings disregards.
Now one of our key points, and we hope that they will be taking
this into account, because it's very unclear in the White Paper,
is that the disability element of Working Tax Credit is currently
paid per individual with a disability, where most elements of
tax credits are paid per household. Under the Universal Credit,
again, in most cases it's clearly specified that the series of
disregards will be paid per household. It's unclear whether the
disability disregard, the disregard for disabled people, will
be paid per household or per disabled person. So for the sake
of households with more than one disabled person in them, we think
it's very important that that is replicated to ensure that people
are getting that disregard per disabled person in the household.
Regarding the other disability elements, the
disability premiums, we think that those need to be replicated
within the Universal Credit system, but don't think that should
necessarily be too much of a problem. I hope not. Similarly,
the disability elements of Child Tax Credit should also be replicated
within the system. One other concern that we have that relates
to the principles of the Universal Credit is that with changes
to Disability Living Allowance (DLA) and Employment and Support
Allowance (ESA) going on at the moment, we are concerned that
increasing numbers of people may lose entitlement to the disability
element of Working Tax Credit as they move into work. One thing
that a number of the organisations working in this field have
suggested is that, on top of the current work capability assessment,
which assesses whether people should be entitled to out-of-work
benefits on account of their disability or illness, there should
be a disadvantage in moving into work test, which would be less
strict, but take account of the fact that many people failing
ESA medicals, many people being denied the Disability Living Allowance,
still have a lot of disadvantage in moving into work, and a less
strict test could help to give them a bit of a boost and help
them to move into work, which is the key principle of the Universal
Credit.
Stephen
Lloyd: Presumably you put that submission
into the DWP?
Sam Royston: We
only started working on it as a section of groups of that interest
the other week, so not yet, but we will.
Stephen Lloyd: Okay, I'm
sure you will. Jim, do you want to add anything to that?
Jim Vine: On the
Housing Benefit, or the housing element side, the June Budget
last year extended the entitlement for Housing Benefit claimants
with a disability and a nonresident carer, so they are entitled
to funding for an extra bedroom. The White Paper is silent on
that, but if that was ported across into the housing component
of the Universal Credit, that would be welcome.
Emily Holzhausen:
I just wanted to add, agreeing with Family Action's position as
well—it's vital that they continue—that there's a
carer premium as well for the poorest carers to recognise the
extra costs of caring. That is mentioned in Universal Credit—that
it will continue—but we do really need to make sure that
it continues.
Q47 Stephen Lloyd: Presumably,
though, that would come under the aegis of wanting, from your
position, to stay outside the Universal Credit, or can that slot
in?
Emily Holzhausen:
It slots in, it goes with the carers who currently receive Income
Support, so it would go in, it would be part and parcel, but that
again is a very important way of recognising some of the additional
costs that the poorest carers have. So it needs to be kept.
Could I just add something else? There is also an
opportunity to iron out a bit of an anomaly with the disability
premiums and Carer's Allowance. At the moment there's only one
of the premiums, the severe disability premium, where, if you
claim it, the carer can't then claim Carer's Allowance and vice
versa: if the carer claims Carer's Allowance the disabled person
can't get the disability premium, and it is only one out of three
where you have that anomaly. We advise families every day and
it causes a lot of tension if you think, "I can't get my
own income because I really don't want to detract from what my
brother might get, even though I do help and support him."
So we would like to see that ironed out if at all possible.
Q48 Alex Cunningham:
I'd like to go back to the key areas of reform. I have a quite
heavy postbag from grandparent carers, and carers of people who
have drugs and alcohol dependencies. I just wondered whether
this is the opportunity now, as far as reform is concerned, to
look again at how we should be supporting these people and at
some of the barriers to the support that they actually don't get.
Emily Holzhausen:
We represent people who care for people with disabilities and
chronic illnesses. But we work quite closely with Grandparents
Plus, who have quite often advocated this, and there are quite
a few areas where grandparents who don't have legal parental responsibility
find themselves in very straitened financial circumstances, and
those families do need recognition within the system. As an organisation,
we would say perhaps you need a different payment than Carer's
Allowance rather than just stretching it out. But there is absolutely
a need and an opportunity, as you say, to look at plugging some
of those gaps in the system.
Alex Cunningham:
And drugs and alcohol dependencies?
Sam Royston: I
was going to say, we have been doing some work recently with a
group called the Kinship Care Alliance, a group of organisations
concerned about kinship carers, including grandparents who take
on care for children in often quite desperate circumstances—for
instance when family members die—and not under the formal
aegis as a foster carer, and the problems that they currently
face in the benefit system. One of the points that we raised
about the current reforms going ahead is that the welfare benefit
cap limiting benefits to around £500 a week to out-of-work
households could apply to households in that situation who are
taking on additional care responsibilities, and as a result requiring
additional benefits for the children whose care they are taking
on, which could push them over that cap and mean that they're
not entitled to keep that additional proportion of income. That
could have severe consequences for their ability to take on children
in those circumstances, and potentially mean that more children
are taken into care as a result. So that's just one related concern
that we have on that.
Q49 Glenda Jackson:
I have been very interested in what you are saying, but you don't
seem to be asking the questions of how it's going to be implemented.
You are putting up the ideas of those areas where you think people
might be excluded, and I share your concerns here. But are you
actually arguing for maintaining the present system of assessment,
for example, and who is going to carry it out? It is going to
be extremely difficult to get this to work, and from the previous
evidence we have heard it seems that the Government is actually
targeting specific groups; it is not a Universal Credit in as
much as it touches everybody who can justifiably claim some form
of benefit. But are you actually looking at this? It doesn't
seem to me that you are. It seems to me that you're looking at
the existing systems of assessing people and what may be the barriers
to their claiming that benefit. We are trying to find out how
it is going to be implemented in the first instance—we still
don't know that—and who is actually going to be responsible
for making these decisions in the first place. It is not going
to be the people who are making it now. So how would you like
to see that assessment being made much simpler than it is at the
moment for the bulk of your clients?
Emily Holzhausen:
We'd like it to be hugely simpler, and my apologies if we have
not made that overarching argument. It is so important to families
that we get this right, because the nature of calls to our helpline,
for example, has changed quite significantly. We are receiving
a lot of calls that are based on anxiety or calls where people
are worried about what will happen. One of the difficulties that
we have, because there isn't an enormous amount of detail, is
being able to reassure people and say, "This is how it is
going to work"; "Yes, you will be affected"; or
"We think you will be affected"; "Well, we think
it will come in like this." We need clarity very quickly.
We have welcomed, certainly, a simpler system. Carers say that
one of their frustrations that pushes them to breaking point is
frustration with bureaucracy, and any of us around this table—I
know your postbags will be full of people who are frustrated at
having to fill in form after form after form—
Glenda Jackson: Yes, absolutely.
Emily Holzhausen:
—the complexity, repeating information. It can only be to
all of our benefit if people don't have to do that. But of course
that goes alongside our concern: the risk of transferring to a
whole new system and designing a whole new system, where we need
good reliable assessments, as you say, a good reliable computer
and IT system, firewalling to make sure that people don't lose
all of their benefits. We do need a lot more layers of detail
for people to be able to work and feel confident that it is going
to work for some of our most vulnerable families.
Q50 Glenda Jackson:
I am speaking off the top of my head here, but what would be useful
for me when it comes to the point where one is actually questioning
Government on how they are going to implement these proposals,
is for you to present to us, for example, when you speak of the
bureaucracy, how many forms a family has to fill in to obtain
what may be the basis benefit and then the passported benefit.
These are the kinds of things we need to know, really, because
this system is going to have to change, and it would be how it
could be simplified in that way that I would find very valuable
to know.
Sam Royston: You
are absolutely right; there are a huge number of forms and phone
calls that people have to make. Just as an overview for you, as
people move into work, progress in work, it will have an impact
on their Housing Benefit, Council Tax Benefit, their tax credits.
If they are moving into work, they need to move off out-of-work
benefits. All of these different things will be affected by these
transitions, and we really welcome, to echo what Emily was saying,
that it does appear to be, for a lot of people, a simpler system.
At the moment, Family Action clients come to us and they find
it hugely difficult to make sure that they are claiming all of
the benefits they are entitled to, and that they are keeping on
top of the administration of them, particularly when they are
suffering from mental health problems. We do welcome that it
does look like it will be a simpler system. The exact details
of that will need laying out.
Q51 Glenda Jackson:
But how does it seem to you it's going to be a simpler system?
I can find nothing in what I have read from Government that makes
the system simpler. You are still going to have to go through
that whole process.
Sam Royston: Well,
they are moving together a variety of different benefits, so the
Housing Benefit and Council Tax Benefit, the out-of-work benefits
such as Income Support and Jobseeker's Allowance (JSA), and your
tax credits will all become part of one unified benefit.
Q52 Glenda Jackson:
Exactly, but the point is that is three separate areas. You have
spoken about local authorities when it comes to Housing Benefit
and Council Tax Benefit; you have spoken about HM Revenue and
Customs (HMRC) when it comes to tax credit—what was the
middle one?
Kate Green: Income Support.
Glenda Jackson: Which
is Jobcentre Plus. There are three separate areas there. Suddenly
the Government is saying, "We can just roll this into one
nice neat ball and away we go." I don't know how it is going
to happen, and I don't know how it's going to happen when people
have, as you said, changes in their families that may come overnight.
The flexibility that is needed, particularly for carers or people
with disabilities or mental health problems. How would you like
to make it simple? This is what I'm asking.
Sam Royston: As
I understand it, they are moving the responsibilities for tax
credits, for instance, over to DWP, so they will take over the
responsibilities for those benefits, which will potentially make
it a simpler system. That is what we mean. Also, it's simpler
in terms of the client's perspective in working out how much they
will be entitled to if they take on extra hours, because there
is a single rather than a multiple taper rate that will set various
different benefits being withdrawn at the same time. So instead
of a withdrawal of your Housing Benefit and Council Tax Benefit
and a withdrawal of your tax credits, you'll just have one single
withdrawal rate, which will make it easier potentially, in many
circumstances, for people to work out how much better off they
will be by taking on, for instance, an extra shift at work. That
is one key area in which, for the client at least, it will potentially
be simpler.
Q53 Chair: In
terms of the disability premium, it will prove too difficult to
put in a disability premium and so the temptation for the Government
would be just to ignore it and not do it. But if they do decide
to do it, what becomes the proxy to decide that you get a disability
premium? At the moment it seems like DLA and ESA, but we know
that with the reforms of both of those benefits there will be
fewer people on DLA, fewer people getting ESA and therefore fewer
people getting any kind of disability premium, and it's a triple
whammy. Some people who may have been on incapacity benefit for
20 years will suddenly find that all the benefits they have depended
on have gone—not quite in one fell swoop, because it will
happen over a two, three, four-year period, but it could be quite
a huge impact on a family income.
Sam Royston: I
think that there's a huge problem with ESA, that people are failing
their medical assessments, but the medical assessments are also
being used when their Disability Living Allowance comes up for
review, and as a result they're having their DLA removed as well.
That's an enormous problem and relates obviously directly to
what you're talking about. The only thing I can think of to say
about that is that they need to improve the work capability assessment
for ESA, and they shouldn't, in my opinion, at the moment, be
using ESA medicals as evidence in assessing people's entitlement
to Disability Living Allowance, because the work capability assessment
at the moment is insufficient to be clear about that.
Q54 Chair: But
if we are not using ESA and we are not using DLA because people
who are disabled do not qualify for either of those because of
the changes, will there be another proxy for the disability premium,
or will the disability premium just go, or do you think there's
a completely new measure that should be put in place? I think,
Sam, you alluded to a slightly different test for disabled people
to get the premiums.
Emily Holzhausen:
I do think we have to consider the other changes going alongside
this, like DLA, as you quite rightly said, because we would need
to construct a new proxy test, otherwise we will see a gradual
increase in the number of disabled people who won't be getting
additional funds to help with the costs of disability, and that
is a big worry for us. Because it's running alongside we don't
have an awful lot of detail yet around Disability Living Allowance,
the levels that it's going to be set at, the tests that are going
to be required to really know how that will then impact on other
parts of the system; for example, there are lots of questions
around Carer's Allowance and its links to DLA.
Q55 Glenda Jackson:
Is the central point about that being missed? You've raised the
issue of the definition; people being excluded from ESA and DLA
on the medical assessment. Surely this is the issue. You should
be putting in ideas of how that assessment can be far, far more
accurate than it is at the moment. We all, as MPs, have letters
from constituents where they lodge an appeal and the appeal is
upheld, and this is going to become more and more complicated.
Emily Holzhausen:
We're making many representations.
Glenda Jackson: Good.
Q56 Stephen Lloyd:
I've brought this up with the Secretary of State in the Chamber,
and a number of us brought it up with the DWP and Ministers when
they came and gave evidence, and what they said is that they recognise
that the work capability assessment is flawed, they have set up
an independent panel where they've got, for instance, the chief
executive of Mind—I have particular concerns about fluctuating
conditions—and that panel is overseeing it and they are
determinedly improving the work capability assessment. Fine.
Now, I like what I hear from there. Obviously I will keep an
eye on it. Then, Sam, you obviously say it's still not working,
so can you clarify for me that you don't like the way it worked
before and see that the Government take it on board and try to
improve it, or do you still think it's rubbish?
Sam Royston: The
Harrington Review is ongoing, so I think that we'll have to wait
and see what reforms they do actually implement to the work capability
assessment. It does seem to have considerable problems with it
at the moment. I've seen cases where people have made multiple
suicide attempts and are getting no points for mental health problems.
It is just not fair.
Chair: We're getting a
wee bit away from the Universal Credit, but the point is what's
going to be used as a proxy for the disability premiums, and what
you're saying is we don't know and there could be problems, if
they use the old proxies, which are the DLA and ESA, because they're
not as sensitive as previously.
Q57 Alex Cunningham:
Looking at child care costs and passported benefits now. Lack
of childcare remains a tremendous barrier to work. The White
Paper suggests a number of possible approaches to child care support,
the child care element, the Universal Credit, vouchers, additional
disregards. Which, if any of these options, would provide the
most effective incentives for claimants to find work? I think
it's yours, Sam.
Sam Royston: We've
had conversations with officials again about what these options
are and asked them to lay them out in more detail, and they have
given some more detail than is in the White Paper about what things
they are considering. They set out three key options. One is
a child care element, similar to the Working Tax Credit child
care element. Another would be a child care disregard from Universal
Credit, and the third option that they suggested was a fixed payment
of help towards child care costs for anybody who receives child
care, and that would be in their view much simpler, which is true,
but would be disastrous. To deal with that third one, which I
think the Government appears to be moving away from, the reason
I think that would be a very poor option is that the families
who receive that child care element would have no incentive to
take on additional hours because they would get no additional
help with child care as a result. So by taking on additional
hours, an additional shift, and having to take additional help
with child care, they would have to pay the full additional child
care costs and lose out substantially.
The child care disregard appears very ungenerous.
In a paper that Family Action wrote on this, we suggested that
one possible solution would be to disregard child care costs from
both the Universal Credit but also from income tax and national
insurance, and that's more generous but still has problems. In
particular, the Government want flexibility, particularly at the
moment, when economic circumstances are quite straitened, and
there may be limited amounts of help with child care costs, potentially,
and a child care disregard has no opportunity for adding to it,
essentially; you've disregarded it, you can't go anywhere.
That brings us on to the third option, which in our
opinion appears to be the best and certainly seems to be the way
that the Government are heading, which is the child care element,
similar to the child care element in Working Tax Credit. However,
there are problems with that as well. Their proposal seems to
be to introduce a child care element akin to help with child care
costs through the Working Tax Credit as will be at the point of
introduction of Universal Credit. Help with child care costs
is being reduced from 80% to 70% of child care costs, and so there
will be significantly less help in that way through the Universal
Credit, potentially. But there's also another additional and
very important factor. It's hugely under-recognised at the moment
that families don't just receive help through the benefit system
through the child care element of Working Tax Credit. Households
on Housing Benefit and Council Tax Benefit also have their child
care costs disregarded for those benefits, and as a result can
get a substantial additional amount of help with child care costs
through those benefits. They can at the moment have up to 97%
of their child care costs paid, rather than 80%, because of that
additional disregard. We have seen no plans to replicate that
within the Universal Credit system, and in fact it would be very
difficult to replicate that within the Universal Credit system.
Q58 Alex Cunningham:
So you're saying there are going to be considerable cuts?
Sam Royston: If
they introduced it simply at a 70% child care element and no additional
help, then it would be a considerable cut. I did a calculation
that indicated, for a lone parent with two children, £100
rent and £20 council tax, with earnings of £15,000 a
year, working 30 hours a week with no child care, they would be
about £15 a week better off under the Universal Credit.
For the same family with £200 a week of child care costs,
they would be about £35 a week worse off under the Universal
Credit. So it is a huge problem.
Q59 Alex Cunningham:
So what needs to happen?
Sam Royston: Well,
we have proposed a couple of things. We think that for a start
they basically need to work out how much money is being spent
on help with child care costs through Housing Benefit and Council
Tax Benefit, and they need to make sure that that money is fed
into the Universal Credit system. So it's not enough to just
replicate that Working Tax Credit element. We think, hopefully,
they should be increasing the child care element through the Universal
Credit, and we think it needs to be at least 80%. If it's 70%,
an additional problem is that other calculations we have done
suggest that for households with high child care costs, taking
on an additional shift at the supermarket would face an effective
marginal deduction rate not of the 76% that would be standard
under the Universal Credit for taxpayers but, taking into account
child care costs, could be over 100%. So, at the rate that they
are proposing, some families could actually lose money by taking
on additional work. That's just not fair. So, it needs to be
at least 80%, preferably higher.
One possibility for keeping costs down that we have
talked about, given that they are obviously concerned about cutting
costs, is an hours-based cap on help with child care costs, particularly
because they are reducing help with child care costs down to—or
planning to, it appears—families working under 16 hours,
which we think is a good thing; it would help a lot of lone parents
to move into those so called minijobs. But if there's just
a simple cap on the total amount of child care costs that can
be claimed for, as there is at the moment through Working Tax
Credit, you could potentially get overuse of child care for people
working very few hours with very high child care costs, which
would be economically inefficient. We wonder whether there could
be some form of hours-based cap introduced to child care costs,
so that families working, as they work longer hours, would be
entitled to higher payments of child care costs, potentially,
and that would be one way of keeping that. But we do think that
there should be a child care element of at least 80%.
Q60 Karen Bradley: The
child care costs you've been talking about, and the child care
element of the Working Tax Credit, is only the payment for formal
child care, and it's not helping particularly the low-income households
where actually they are relying on family support, particularly
grandparents, to help people to be able to go into work, and I
just question whether an earnings disregard—I accept the
point that it's very low at the moment in proposals—or perhaps
a higher earnings disregard might actually help more families
because it would help those households where they are reliant
on informal child care.
Sam Royston: In
a way I think we don't necessarily want to in all circumstances
encourage informal child care. There are a lot of advantages
for people taking on formal child care—the development issues
for their children—but for households with informal child
care, for instance, if they've got no child care costs, as I said,
there are actually already advantages through the Universal Credit
system. So if they actually don't have child care costs because
they're just using informal child care, the system does appear
to actually be, to an extent—for many families, at least—more
generous than the current system. With the system of income disregards,
as I gave in the lone parent case with no child care, they could
be using informal child care; essentially, free child care through
the lone parent's mother, for instance. Many of those families
do appear to be a bit better off than under the current system,
so it is a real problem about where people are paying for child
care.
Q61 Karen Bradley: Do
they tend to be, in your experience, the very low-income households,
or do they tend to be the more middle income?
Sam Royston: I
don't know; I wouldn't want really want to comment on that. I
think it depends really on family ties; that is the really big
thing. If people have coherent social networks of friends and
family who can take on child care of their children, then they
use them. That, I think, is the real distinction between people
who are socially isolated and aren't able to feed into those networks
of informal child care, and that could potentially be low or higher-income
households.
Q62 Teresa Pearce:
One of the major outgoings of anybody is their housing costs,
and presently if you're on benefits and you move into work you
still get Housing Benefit depending on your level of pay, but
if you are a homeowner you lose any of the benefit that you get
towards your housing cost if you move into work, and it's proposed
that the Universal Credit might take this into account. Jim,
I think it was in your report that you said, or the report said,
that "adopting this would be a bold new form of support with
housing costs". What would you envisage?
Jim Vine: Across
the piece I think it's important to get the support with housing
costs right. As you say, it's a huge amount of people's expenditure.
There's the inflexibility of moving, particularly in owner occupation,
the social and economic effects that are incurred if unnecessary
moves happen. So, if you want to talk first about owner occupation,
the current form of support with mortgage interest is not very
compatible with the Universal Credit. It's hours based, rather
than smoothly tapered, there are time limits at the beginning
and end for how long it can be claimed, and it's at a standard
interest rate rather than reflecting the actual expenditure of
the household, so it doesn't match into that model particularly
well. I don't think any of those points themselves are inherently
insoluble, but they might be expensive to do to bring it directly
within Universal Credit.
What we talked about in our paper was a model called
SHOP, which was first developed by some academics working for
the Joseph Rowntree Foundation. SHOP is the Sustainable Home Ownership
Partnership. Basically speaking that is a form of mortgage protection
insurance, and where the partnership part comes in is that it
is 50% funded by the borrower, and 25% each by the state and by
the lenders. This resolves some of the issues. It's quite a
substantial change from the current situation, but it probably
provides a more affordable means of providing a better safety
net for homeowners than is currently provided by support with
mortgage interest (SMI), although it doesn't necessarily address
all of the issues, and I think probably what we'd urge is that
Government should fully cost out the two options of either making
a form of SMI that's properly compatible with Universal Credit,
or moving over to the SHOP model and properly assessing all of
the benefits, because we do not have the data to do that modelling
that hopefully Government would have access to.
Q63 Teresa Pearce:
How hopeful are you that people who are homeowners will be looked
at fairly in this?
Jim Vine: We'd
certainly welcome the statements that are contained within the
White Paper that say they are going to bring home ownership within
the Universal Credit, if it was done in a method that provided
a decent level of support. Because as well as providing that
support to the individual homeowners, I think there's a good case
from the perspective of the state; having a decent safety net
for homeowners has very beneficial effects in terms of moderating
house price crashes. If you've no safety net, you'd end up with
a lot more repossessions in recession and things like that, which
causes larger fluctuations in house prices, which has negative
economic effects. So there are benefits to both sides. I'm relatively
neutral about the exact model that you use to provide that safety
net.
Q64 Teresa Pearce:
Moving on generally about the issue of housing and the Universal
Credit, as we've heard there's still a lot of detail required
in all parts of Universal Credit, but I think we need more detail
on housing in particular. One of the things that concerns me
is that, if you go to a centralised credit, at the moment Housing
Benefit is paid through local authorities, so there is a lot of
local knowledge and expertise, and we will lose that knowledge
and expertise. Do you think that would be a problem?
Jim Vine: On the
rental side, where the Housing Benefit comes in and particularly
the private rented sector—I believe it's a phrase in the
White Paper—certainly the desire would be to cover reasonable
housing costs for people. But that isn't necessarily the same
thing as providing them with unlimited support, or even necessarily
their exact support, be it the exact cost that they're paying.
So, in response I suppose to the question earlier about where
we can bring some additional simplicity to this system—simultaneously
working around some of that loss of local knowledge—it would
be to look at a system whereby you have a series of flat rates
based on household composition in each local area. This is a
system that they have in the Netherlands. What that provides,
in terms of simplicity for the claimants, is that you know your
household composition, so you can go to a table and look up your
local area. There might be five or 10 different household sizes
or shapes that are allowed, but it's very simple then to look
up, rather than current Housing Benefit calculations, which is
one of these forms that runs to pages and pages of information
that you have to feed in. So it's perhaps a way of working around
some of those issues of knowing all of the details in a local
area.
Broadening that out about how you might then
set some of these rent levels, there is a desire within the Universal
Credit to broadly make a third of the market accessible to claimants,
which doesn't seem unreasonable, but I think there's probably
a bit more nuance required, which adds some complexity on the
side when you come to set up these tables, but that is not experienced
by the claimants themselves. So in areas with particularly large
numbers of claimants, you might need to set your levels a bit
differently, and where there are particular problems at the low
end of the private rented sector, again you might want to address
that in setting those levels.
Taking that forward, the other issue in setting these
is how you uprate them over a period of time. As you know, the
Housing Benefit, as it currently stands, is being moved to a system
of uprating by Consumer Price Index (CPI), which I think Lord
Freud, when he appeared before you, said is a measure that is
running to the end of the Spending Review period and should not
be taken as a long-term indication and extrapolated out too far.
I think if you take that as a commitment that you can uprate
according to an index for a short period but then you need to
revalue according to real rent, it's not too much of a problem.
It gives simplicity to the state in setting those levels; it
doesn't have to acquire rent data quite so often. But you need
to really have that commitment in from the beginning that you're
going to revalue it according to actual rents in a given area
once a year or perhaps once every two years. If you stretch it
much beyond two years it's starting to get a bit tricky and drifting
too far away.
Q65 Chair: Is
there a case, if you want simplicity and you want it to fit in
with Universal Credit, that the DWP itself should take over the
administration of Housing Benefit and take it completely out of
the hands of local authorities?
Jim Vine: I think
that, yes, some of that would be possible. I think where you
might have difficulties is if you port over a system from the
current Housing Benefit system where you need to check rent levels,
see people's rent books or contracts, things like that. That
is going to be much harder to administer through a central system.
But if you did go to a system of more flat rates being paid to
people, then potentially that is quite possible. There'd be some
edge cases, I think, where you'd want to carefully consider how
you handle the data for non-traditional housing types: gypsy and
traveller caravan sites, perhaps hostel accommodation, and in
those cases it would make sense to think about whether you want
some sort of knowledge system within DWP to track those. They
would require special treatment, but that could potentially move
to the centre as well.
Q66 Glenda Jackson:
Can I just ask you a question on mortgage rates before I move
on to that? There are implications within Universal Credit, for
example, where people are excluded from certain benefits if they
have savings of £16,000, and if one looks at other aspects
in the benefit system, where the ownership of a house is deemed
to be money in the bank, and when looking at social care and things
like that, there are implications, are there not, in what is being
proposed there? The other imponderable is interest rates. At
the moment, interest rates are very low, but we're being told
that they are going to go up over time, so the variations for
mortgages in that sense are on a par, it seems to me, with some
of the changes that the Government is proposing as far as Housing
Benefit is concerned. The vagaries of the market; I think that's
what I mean.
Jim Vine: Support
with mortgage interest—I think it was ISMI at the time—I
think dates back over 10 years. They used to pay that support
based on actual mortgage rates; the rate that an individual claimant
was paying. I think it's 10 or even 15 years ago that they moved
that over to paying a flat rate. The issue was it was very difficult
to keep track of people's mortgage rates if they were on a variable
rate and they had to renotify. I think some of the ways
around that would be to say to the lenders, "This support
is being provided by the state, so it's pretty cast iron, so this
is the rate that we are going to pay," and you accept that.
At the moment they pay a flat rate, but if the borrower's rate
is higher than that, the borrower's losing out. Conversely, if
the borrower's rate is below that, you are actually paying off
some of their capital, as well as making the interest payments.
So yes, the market is important.
Q67 Glenda Jackson:
Thank you. This is actually for Family Action first, and BSHF.
They've specifically left Council Tax Benefit out of Universal
Credit, and you've both stated there's a risk that local authorities
could set up schemes in ways that risk undermining Universal Credit.
Could you expand on that for us?
Sam Royston: The
Government seems, at least to us, on the face of it to have two
apparently contradictory aims. One is simplifying the system and
giving clear work incentives, and the other is localising the
system, in particular in terms of Council Tax Benefit. The key
aim of the Universal Credit, as I alluded to earlier, is that
you have a single withdrawal rate that helps make it much easier
for clients to understand clearly how much they're going to lose
if they take on additional hours. If you remove Council Tax Benefit
from the Universal Credit system, there will need to be some way
of means testing it, assuming they're not giving full Council
Tax Benefit to everybody. If you means-test it separately, outside
of the Universal Credit, you're going to introduce a second withdrawal
rate, potentially, which will lead to both additional complexity
in understanding how the Universal Credit and the Council Tax
Benefit are being withdrawn together, but also could reduce work
incentives, because you'd not only have your Universal Credit
withdrawn, but you'd also be having your Council Tax Benefit withdrawn
separately. So it undermines those key intentions of the Universal
Credit system, potentially, and we argue that it's very important
that Council Tax Benefit should be included in the Universal Credit,
along with Housing Benefit and other benefits, to ensure that
it does avoid that second tapering to the second withdrawal rate.
Q68 Glenda Jackson:
So you are actually arguing, as you did on another issue, for
proxy, as far as council tax is concerned?
Sam Royston: I'm
arguing that Council Tax Benefit should remain as it is: a means
tested benefit but integrated along with Housing Benefit into
the Universal Credit system, so it's withdrawn as your income
increases, but as part of the Universal Credit.
Q69 Glenda Jackson:
And how is that going to equate with the variability of both of
those? Nationally, I'm speaking.
Sam Royston: They
seem fairly happy to have variable housing costs integrated into
the Universal Credit, so it doesn't seem a huge problem.
Glenda Jackson: Well,
if they're low they do, they're not happy if they're high.
Sam Royston: If
they're high, you'd still receive that additional element within
your Universal Credit; it just affects the amount of disregard
you get, because they don't want your disregard to reduce below
a certain level. So it seems that they're happy doing that with
housing, with rents. I don't see why they shouldn't be able to
take into account variability in the Council Tax Benefit.
Q70 Glenda Jackson:
Would you essentially still leave it with local authorities?
Sam Royston: I'm
not sure that that's the key problem. I think the key issue is
about delivery of the Universal Credit as an integrated benefit.
Q71 Glenda Jackson:
So you'd just automatically include that in your assessment of
claimants?
Sam Royston: Exactly.
Jim Vine: I think
the description of the problem is entirely accurate: about how
you can have these different withdrawal rates stacking up one
atop the other and undermining the key objectives. I suppose
I saw two alternatives, as Sam said: you can take it within the
Universal Credit and then just apply the same taper, and that
would be fine; the alternative is that you localise it, but you
give local authorities a very strict framework within which they
have to work, and in some way the specification that you give
to local authorities is such that it doesn't create that additional
tapering. Maybe they can't withdraw it until they get past the
taper, or you put limits on it or whatever it might be. I think
that's theoretically possible, but I don't see much advantage
to doing that over and above just taking it within the Universal
Credit, which would be simpler.
Chair: As you heard, the
bell has gone and so our time is up. We did have a couple of
questions on conditionality and sanctions and things. I think
from your evidence there are still a lot of questions that still
need answers, and I think Glenda's frustration was the fact that
nobody seems to have the answers for some of those questions.
I think she's looking to you to come up with some of them, but
it's obviously for the Government as well to address some of these
very thorny issues, and we look forward to that. But thank you
very much for coming along today. It was very useful and very
interesting, and thank you very much for your help this morning.
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