Written evidence submitted by Save the
Children UK
SUMMARY OF
OUR RESPONSE
- We welcome the principles of simplifying the
benefits system and ensuring people are better off in work.
- We also welcome the intention to implement earnings
disregards under the universal credit system for certain groups
of people (including lone parents and couple parents) that are
more generous than earnings disregards under the current system.
However we are concerned that earnings disregards for parents
would be as low as £20 for some couple parents and £40
for some lone parents.
- The proposed 65% taper may not be generous enough
to ensure work pays for parents, especially when travel and childcare
costs are taken into account. We would welcome a more generous
taper (including an indication that a more generous taper is a
longer term aim of the government) which maximises positive outcomes
for parents and children and not solely based on affordability.
- Serious consideration needs to be given to how
the universal credit works in respect of the following:
- Recipient of payments in couple families. There
is a strong case that payments should be made to the lower earning/main
carer within the household.
- The timing of payments. Evidence suggests that
low income households budget on a weekly or fortnightly basis
and that they would benefit from universal credit payments being
made on a more regular basis than each month.
- Delays or problems with payments. The introduction
of safeguards to ensure that households do not lose payments in
their entirety when there is an error or dispute.
- Council tax benefit. The devolving of council
tax benefit to the local level (alongside the localising of other
provision) will increase complexity for claimants and runs counter
to the overarching aim of the White Paper of a simplified and
less complex system.
- Whilst the White Paper argues that universal
credit will make a considerable number of people better off the
government must set out how it intends to compensate families
for the losses they will experience as a result of welfare cuts
and must ensure that child poverty does not increase before or
after 2012 as a result of welfare cuts.[75]
- We believe that government policies to-date contradict
aims to increase incentives to work. The government must set out
a clear strategy to increase work incentives ahead of the implementation
of universal credit.
- To address both the impact on incomes and on
work incentives ahead of the implementation of universal credit
we are calling for:
- Increasing the earnings disregard for lone parents
to £50.
- A commitment to increases in the minimum wage
and adoption of the living wage by as many employers as possible.
- Increases in child tax credit payments
- A strategy for ensuring maximum take up of benefits
and tax credits amongst low income families.
- Reversing the decision to increase the working
tax credit hours rule for couples to 24 and decision to cut the
amount of support available through the childcare element of Working
Tax Credit.
BACKGROUND TO
UNIVERSAL CREDIT
1.1 The Universal Credit (UC) will be phased
in over a number of years. It will replace Working Tax Credit,
Child Tax Credit, Housing Benefit, Income Support, JobSeekers
Allowance (income related) and Employment and Support Allowance
(income related).
1.2 Under the proposals in the White Paper, Child
benefit and Council Tax Benefit will lie outside UC as will contribution
based JobSeekers Allowance and Employment and Support Allowance.
However, we believe there is a strong argument for including Council
Tax Benefit within the Universal Credit system.
1.3 An earnings disregard will be put in place
for certain groups of people. This will make it easier for them
to move into short hours jobs.
1.4 UC will include additional payments for disability,
children, housing and caring responsibilities.
1.5 The first people to receive UC will do so
in 2013. This is likely to be limited to certain groups of people
and new claimants rather than existing tax credit or benefit claimants.
People will be moved onto UC over a number of years.
1.6 The White Paper also includes measures which
increase the amount of conditionality placed on jobseekers. These
include jobseekers taking up four weeks of full-time unpaid work.
Those who do not comply will risk losing JSA for three months,
six months for a second offence and up to three years for a third
offence.
1.7 The current benefit dependent thresholds
for access to a range of passported benefits (for example, free
school meals and health benefits) will no longer exist. These
will be replaced with an income or earnings-related system that
gradually withdraws entitlements to prevent all passported benefits
being withdrawn at the same time.
TAPER RATES
2.1 One of the cornerstones of the proposed Universal
Credit is that it tackles the extremely high Marginal Deduction
Rates (MDRs)[76]
faced by some low income households (these can be as high as 95%)
through the introduction of a more generous taper.
2.2 For those currently receiving working tax
credit (but not in receipt of council tax benefit or housing benefit)
they are likely to face a higher MDR under Universal Credit
(76% rather than 70%). This will reduce rather than increase work
progression incentives making it harder for low income families
to break free from poverty. Family Action estimate that around
1.35 million households will be faced with a higher MDR under
Universal Credit.[77]
2.3 The proposed 65% taper rate may not be enough
to ensure parents are better off in work, especially when travel
and childcare costs are taken into account. The Centre for Social
Justice Dynamic Benefits report proposed a 55% taper. The
report concluded that: "This rate [55%] represents the best
compromise between improving incentives and containing costs".
2.4 Under the Dynamic Benefits proposals
an estimated 600,000 workless households would move into employment
and GDP would increase by £4.7 billion. Clearly a 55% taper
would yield greater benefits for claimants and ensure a more even
balance between improving the finances of low income households
and maintaining affordability. Despite the current fiscal situation
we do not believe it is unrealistic for the government to meet
the full additional cost to the welfare bill of a 55% taper.[78]
2.5 The government must reconsider the taper
rate proposed in the White Paper and find the necessary funding
needed to introduce a 55% Universal Credit taper rate.
EARNINGS DISREGARDS
3.1 Save the Children has long advocated higher
earnings disregards within the benefits system as a means of supporting
parents into work and ensuring they have more money in their pockets.
We welcome the more generous earnings disregards for parents proposed
in the White Paper.
3.2 Whilst there is acceptance of the need for
a more generous earnings disregard it would appear that based
on the detail provided in appendix three of the White Paper, some
parents would still experience disregards of less than £50.
Based on the "disregard floor" this could be £40
for a lone parent with one child and £20 for couple parents
with of one child.[79]
3.3 This appears to be a complex means of determining
the level of earnings disregard someone is entitled to. It may
not be clear to those people who receive help with housing costs
what level of earnings disregard applies to them. An alternative
approach would be reduce complexity by implementing a generous
flat earnings disregard for those groups which would benefit the
most as set out by the White Paper . This would make it easier
for claimants who are moving into work to understand how much
of their earnings they will keep before they lose any of their
universal credit payment.
3.4 In the meantime, having accepted the argument
for more generous earnings disregard in the future, the government
must increase incentives to work now so that out-of-work parents
are better supported to take up jobs. As a first step the government
should increase the earnings disregard for lone parents to £50.[80]
PRACTICALITIES
4.1 Budgeting is an important coping strategy
for people living in poverty. For those on low incomes budgeting
can be difficult. The importance of ensuring the practicalities
of universal credit meets the budgeting needs of low income households
should not be underestimated.
4.2 Regularity of payments
The proposal for one single monthly payment may not
meet the needs or fit with the current budgeting habits of low
income families. At present, benefit and tax credit payments are
made at different intervals. With some choice afforded to claimants
of some entitlements (for example tax credit payments are currently
made on a weekly or four weekly basis depending on the preferred
option of the claimant). There is some evidence to suggest that
receiving income on a weekly basis is the preferred option of
low income families and helps with budgeting.
Considerable work needs to be done to ensure universal
credit meets the needs of low income families. This should be
done through the direct involvement of low income parents and
through piloting specific aspects of the system.
Payments which are made more regularly than every
four weeks may also help reduce the impact of families should
their be a payment error or dispute.
Similarly people are used to managing their budget
based on receiving entitlements to meet specific costs and may
find it more difficult to manage their universal credit payment
if there isn't a clear breakdown.
4.3 Recipient of payments
The White Paper does not seem to consider the impact
of who receives the payment within the household. We know that
parents living on a low income prioritize their children's needs
above their own and that mothers tend to manage the household
budget and put their family's needs above their own.[81]
Therefore we would urge government to consider making payments
(or at least the children childcare? element) to the second/lower
earner in couple households or to the main carer. If universal
credit payments are made to the main earner, the second/non earner
would be left with no spending power.
4.4 Access to information and advice
Under universal credit "recipients will have
an online account through which they will be able to access information
about their claim and Universal Credit payments, much like the
options that online banking services currently offer. The financial
rewards from work will also be made clearer, with recipients able
to view online the positive effect of increased earnings on their
household income."[82]
Whilst this may be a welcome addition to the welfare support provided
to claimants, it must not be in place of existing face to face
support and advice provided by JobCentre Plus and non-statutory
services. It must not be forgotten that whilst in the highest
income decile 98% of own a home computer and 97% had an internet
connection, only 38% of households own a home computer and 30%
who had an internet connection in the lowest income decile group.[83]
4.5 Protecting
families from error and dispute
The use of "real time" information as part
of the universal credit system is designed to result in a faster
increase of reduction of universal credit than currently happens
under the benefits and tax credit systems. There may be instances
where the claimant or department dispute the amount of universal
credit being paid or where IT or administrative error result in
delays in payments being made. At present different entitlements
are paid in separate installments to claimants going someway to
protecting people from the loss of one payment or another. Safeguards
need to be put in place to ensure that families don't lose payments
in their entirety.
4.6 Piloting and testing universal credit
Given the practical considerations (and the lack
of evidence/detail in the White Paper in addressing these issues)
there is a strong argument for undertaking work which directly
captures the views and experiences of low income families, including
piloting aspects of the new system with specific household types.
CHILDCARE UNDER
UNIVERSAL CREDIT
5.1 There is a lack of information on how support
with childcare costs will work under universal credit. Therefore
it is difficult to move beyond positions of principle at this
time.
5.2 According to the White Paper help with childcare
through universal credit will be provided to those in work. The
white paper suggests taking some of the support currently provided
to those on Working Tax Credit (the childcare element)[84]
and applying it to those working below 16 hours. This will inevitably
mean even less support for childcare costs for those working longer
hours.[85]
5.3 This is itself is a major concern. It could
mean the benefits of moving into a job (of 16 hours or more) or
increasing the number of hours worked is less clear than under
the current system.
5.4 Notwithstanding the fact that the government
should base the amount of support it provides parents to meet
childcare costs on need rather than a set amount of money we recognise
there are a number of different ways support with childcare support
could be integrated into universal credit. In addition it is important
that government considers the impact of childcare costs on the
MDR faced by parents.
5.5 Ideally government would reduce the universal
credit taper rate to 55% and provide support with childcare costs
at least similar to those currently provided through Working Tax
Credit (i.e. 80%). To ensure that the support provided reflects
the level of need families could be assessed on a regular basis
(i.e. more regularly than every 12 months). This would ensure
that some of the problems with the current proposed 65% taper
outlined above would be addressed whilst also limiting the negative
impact of childcare costs on MDRs.
5.6 Alternatively it may also be possible to
introduce a separate but simple system whereby families are provided
with a set amount (based on regional childcare costs and level
of need). Under this system we could expect to see money effectively
targeted at those with the greatest need such as lone parents
and also upfront so that parents are able to make an informed
choice based on affordability and quality when looking for childcare.
INCREASING INCENTIVES
TO WORK
6.1 The government has taken a number of measures
which increase disincentives to work ahead of universal credit
implementation. These include: reducing the amount of childcare
support available through Working Tax Credit (reducing the childcare
element of Working Tax Credit from 80% to 70%); increasing the
Working Tax Credit hours rule from 16 hours to 24 hours; scrapping
the planned extension of free school meals for low income working
families; increasing the Working Tax Credit taper from 39% to
41%.
6.2 These policies are at odds with the principles
or universal credit. We are extremely concerned that it will be
harder for parents to more into or progress in work in the coming
years. This is at the same time as which cuts and tax rises will
hit the finances of low income families.
6.3 Similarly we have not heard enough from the
government about tackling low pay. The prevalence of low paid
jobs acts as a disincentive to work and reduces the impact that
employment can have on poverty reduction. In the debate about
increasing incentives to work the government appears to be ignoring
the impact that increased wages can have on a) boosting household
incomes and b) providing savings the Treasury. Increasing the
minimum wage can help lift families out of poverty and save the
government money. In it's 2010 report the Low Pay Commission estimated
that the impact of a 13 pence increase in the adult minimum wage
(moving from £5.80 to £5.93) would gain the government
around £238 million through additional income tax and NIC
revenue and through reductions in working tax credits and benefits
bills.[86]
6.4 In addition we believe that it is wrong for
government to increase conditionality and sanctions on those not
moving into work at a time when they are making it harder for
people to take up work and unemployment is rising. The White Paper
describes a new contract between the state and claimant set in
the context of a critique of the current system. This contract
gives greater certainty and better incentives whilst expecting
more (increased conditionality). Given the critique of the current
system set out in the White Paper and 21st Century Welfare it
seems wrong that greater conditionality is being brought in ahead
of the greater certainty and better incentives that the universal
credit is designed to deliver.
6.5 Government must set out it's strategy for
increasing work incentives and tackling child poverty as soon
as possible. This should include the following measures:
- Increasing the earnings disregard for lone parents
to £50.
- A commitment to increases in the minimum wage
and adoption of the living wage by as many employers as possible.
- Increases in child tax credit payments.
- A strategy for ensuring maximum take up of benefits
and tax credits amongst low income families.
- Reversing the decision to increase the working
tax credit hours rule for couples to 24.
COUNCIL TAX
BENEFIT AND
THE SOCIAL
FUND
7.1 Council Tax Benefit withdrawal (on top of
the universal credit taper) will increase the MDR faced by low
income families. Not enough is known about a) the impact of the
devolving of Council Tax Benefit to local authorities and b) the
impact of the 10% cut to the Council Tax Benefit budget announced
in the CSR.
7.2 Devolving Council Tax Benefit to local authorities
is at odds with the policy of simplifying the benefits system
through universal credit. The potential is for Council Tax Benefit
to be administered differently between local authorities meaning
the true MDR faced by low income working people could differ from
area to area. The cut in Council Tax Benefit means it is more
likely that people in low paid jobs will face a steep and/or sudden
withdrawal of Council Tax Benefit than is currently the case.
7.3 Government should reconsider the decision
to devolve Council Tax Benefit to local authorities and instead
should subsume it with the universal credit.
7.4 There may be some advantages in devolving
parts of the social fund to local authorities if this means that
support can be more responsive to individual needs. The Social
Fund differs from Council Tax Benefit in that it is one off support
provided on a case by case basis. However, it should be noted
that this move and the decision to scrap Educational Maintenance
Allowance and replace it with locally administered support will
add complexity to the benefits and entitlements system.
LINKING WELFARE
REFORM TO
OTHER BARRIERS
TO EMPLOYMENT
8.1 Universal credit reforms need to be much
more closely linked to the wider context of overcoming the barriers
to employment faced by low income parents. Welfare reforms such
as those addressed in the White Paper must be linked to other
considerations around service user experience, barriers to employment
and skills development. It is clear that reform of the benefits
and tax credit systems cannot be done in isolation.
8.2 Efforts to support parents into work and
to "make work pay" through a reformed benefits system
must consider ways of achieving the following:
- Supporting parents to meet the costs associated
with going to work, including travel costs
- Tailoring employment support so that it encourages
sustainability of work and career progression
- Supporting parents who are considering skills
development, particularly in ways that encourage a long-term approach
to career development
- Ensuring greater availability of jobs which offer:
- Decent pay.
- Flexible and family-friendly working practices.
December 2010
75 In his budget and Comprehensive Spending review
statements the Chancellor set out plans to increase Child Tax
Credit payments so that child poverty wouldn't increase in the
next two years. Back
76
The Marginal Deduction Rate (MDR) is the amount of deductions
(through increased Income Tax and National Insurance and reductions
in means tested benefit payments) incurred on earning an additional
£1. Back
77
Family Action, 2010, The Universal Credit: Marginal returns?
- assessing the impact of the Universal Credit on Marginal Deduction
Rates Back
78
Under Dynamic Benefits reforms the cost of the welfare
bill would increase by £3.6 billion whilst yielding significant
social, economic and financial benefits. Back
79
The amount to be disregarded will be reduced to reflect support
people receive for rent or mortgage interest support. Back
80
Increasing the earnings disregard for lone parents to £50
would cost £350. (For further information please see Benefiting
from work - Addressing efforts to reform and improve the benefits
system, Save the Children, 2010) Back
81
R Lister, Poverty, Polity Press, Cambridge, 2004; see also Women's
Budget Group, Women's and Children's Poverty: Making the links,
WBG, London, 2005. Back
82
Department for Work and Pension, 2010, Universal Credit: welfare
that works page 34 Back
83
Office for National Statistics, Consumer Durables data: http://www.statistics.gov.uk/cci/nugget.asp?id=868 Back
84
488,000 families receive WTC support for childcare costs, with
64% of these being lone parents. Back
85
Parents in receipt of Working Tax Credit can currently receive
support of up to 80% to help meet childcare costs. This is dropping
to 70% in 2011. Back
86
Low Pay Commission, 2009 National Minimum Wage: Low Pay Commission
2010 Report Back
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