Written evidence submitted by Mary Campbell
1. INTRODUCTION
I attended some of the sessions of the 2001 Social
Security Select Committee's hearings on what was then called the
Integrated Child Credit (now "child tax credit") and
have written extensively on this and related issues. An analysis
I wrote before its introduction raised a number of issues that
subsequently turned out to be problems.[200]
This brief comment points to some of the issues that
I believe may become problems with Universal Credit (UC).
2. SUMMARY
Because the White Paper and its predecessors leave
so many questions unanswered and so many issues vague, it is almost
impossible to analyse it satisfactorily. When it brings legislation
to Parliament in January, the DWP will in effect be asking for
something close to a policy blank cheque to introduce huge changes
to the way that entitlement is calculated and money delivered
to the poorest and most vulnerable members of our society. A universal
credit is one of the two Holy Grails of policy-makers on tax/benefits
(the other is integrating the tax and benefit systems, which Labour
pursued with some success). If achievable without hardship to
recipients or bankruptcy for the Exchequer, it would be wonderful
simplification. But because the proposals have not been properly
piloted and examined, there are likely to be all sorts of unforeseen
effects. These may include the following:
- (i) Computerisation inadequacy: the
executive summary of the White Paper says blithely: "For
those in employment, Universal Credit will be calculated and delivered
electronically, automatically adjusting credit payments according
to monthly income reported through an upgraded version of PAYE….This
would involve an IT development of moderate scale, which the DWP
and its suppliers are confident of handling within budget and
timescale …" (no mention that I can find of how housing
benefits, house moves, mortgages, changes of relationship status,
and and and will be handled). In the light of the experience of
unfounded confidence expressed to the 2001 Social Security Select
Committee investigation of Child Tax Credit by HMT/HMRC spokesmen,
I suggest that the Committee should this time call for evidence
from computer experts who should approach the plans in a questioning
frame of mind to check that the DWP's confidence (complacency?)
is not misplaced. Successful computerisation, including inputting
of data, is fundamental to the whole UC project and therefore
to whether low income children get fed and housed.
- (ii) Assumptions about the way financial
incentives work: for example, by combining the introduction
of an earnings disregard for lone parents with the abolition of
the current incentive for them to work 16 hours or more, is it
possible that lone parents will reduce their hours? The DWP's
answer to this seems to be to extend compulsion from taking a
job to somehow making people work for more hours….
- (iii) Misleading data choice and presentation
in the White Paper: The examples the White Paper gives
assume the same level of rent (£80 a week) and of council
tax (£15 a week) for all types of family - whether single
people, lone parents or couples with children. In central London,
the idea that rent could be as low as £80 a week and council
tax £15 even for a lone parent, let alone a couple with children,
would be laughable anyway, if it weren't so serious for so many
low earning folk. Once one starts to put sensible figures into
the examples, the rosy picture painted by the White Paper begins
to look much more questionable. The White Paper does not seem
to show how many hours a two-adult couple would have to work to
get above the UC threshold.
- (iv) Position of women, especially with
care responsibilities or dependent children: Again, the lack
of detail is frustrating. But it looks as though the UC proposals
will increase the already existing disincentive for women in couples
to earn - in other words they will be encouraged even more than
at present to be welfare dependent (even though, as at present,
the welfare money is disguised as a payment for a second adult
in credits received by the man - all too often Government and
commentators do not classify taxpayer subsidies paid to a man
to have a woman at home doing his chores for him as "welfare").
This will increase child poverty both immediately (because there
will be less money to spend on children if mothers earn less than
at present and as children grow older) and because of women increasingly
losing touch with the labour market so that if their relationships
break down at any stage they will be claiming more in welfare
support for lone parents and pensioners than if they had earned.
If low paid women leave the labour market and rely (indirectly)
on welfare support, more migrant labour will be pulled in to do
the low-paid jobs.
- (v) Regional differences: Analyses
of tax credits have long suggested disincentive effects from the
cost of working being much higher in some parts of UK than others
(especially in London). Levels of UC will no doubt be based
on UK averages, and it looks as though there will be even less
allowance for regional variation in recipients' costs of living
and working than at present.
3. COMPUTERISATION
INADEQUACY
3.1 The 2001 Social Security Committee's acceptance
of assurances from HMT and HMRC that the computers would be up
and running well in time was one of the report's biggest failings.
This project is far more ambitious. It depends first on an upgrade
of PAYE systems (will this be fault-free - haven't a lot of PAYE
results been shown to be wrong recently). Second, it depends on
being able to transfer housing benefit from local authority systems
into the system. Third, it assumes that all low paid workers'
records are correctly included in PAYE. Imagine a cleaning lady
who works, at the minimum wage, for five different employers five
mornings a week. She lives with a man so she has no right to any
earnings disregard (he's already used up the household's access
to that). She is not recorded on PAYE or recorded as self-employed
because her earnings are below the tax threshold. One week, one
employer is on holiday - "don't come this week". The
next week she's too ill to go to work (but doesn't qualify for
sickness pay). Two weeks later her child is ill and she cancels
two days. Imagine this sort of work pattern, which will become
much more common as more and more people are forced out of their
regular jobs over the next few years and have to earn enough to
live in lots of "mini-jobs". She doesn't want to cheat:
presumably she'll have to feed in a different set of figures every
week or lose the family's housing benefit and be evicted. And
then there are the infinite changes of relationship status (about
600,000 a year according to one out-of-date estimate) and relationship
(from one person to another, also triggering a new application).
And that's on top of the millions who change employer or employment
status each year. On top of all this, apparently "Universal
Credit will merge out-of-work benefits with in-work support"
(para 11 of the Executive Summary)…. I urge you to call in
a sceptical computer expert to test the various systems that DWP
thinks will work.
3.2 The White paper states that "the quality
of the on-line service will be important to get right". This
is important not least because, under UC, people will normally
be expected to apply on-line for every penny they get. It seems
that responsibility for correctly inputting the information on
which the payment of the correct amount of money will depend will
now fall to the claimant. Never mind if there is no effective
broadband in your area and it takes you five days, never mind
you're living in a hostel where the only free access to a computer
is in the local library which is 10 miles away because others
have been closed because of the local government cuts, never mind
that, according to some reports, literacy and numeracy amongst
the poor who most need the money are far too low to expect them
all to be able to cope with the computer input systems, never
mind the ethnic minority mothers whose English will not be good
enough for them to claim. The DWP states: "…we do not
underestimate the challenge of changing customer behaviour to
use new channels (which will include smart phones and automated
telephony as well as PC-based services)…" (para 4:26).
Just as well, since online will become the default and it is this
that determines the DWP's capacity to "free up more advisor
time to deliver valuable face-to-face back-to-work support".
Suppose someone genuinely inputs the wrong information - is this
fraud?
3.3 Fraud and security: The DWP seems to think that
a Universal Credit available via online application will reduce
opportunities for fraud and that personal data security will not
be at risk….I suggest you ask a computer expert to try to
hack into a system or get a job in the DWP computer department.
(How about the US guy who downloaded Wikileaks?)
3.4 If the computers or the inputting systems fail,
who will suffer? The answer is the most vulnerable - and to a
much worse extent than in the case of the tax credit problems
because the poor will be relying on UC for ALL their income, not
just a part. The Exchequer may also suffer, since it may not be
possible to get back overpayments or fraudulent payments.
4. ASSUMPTIONS ABOUT
FINANCIAL INCENTIVES,
MISLEADING DATA
AND GENDER
4.1 One of the Coalition Government's first acts
(see Emergency Budget) was to increase the numbers of low earners
who face very high 'marginal deduction rates' (the equivalent
of marginal tax rates for the better off). Very reasonably, the
White Paper points out that these high MDRs are likely to be a
deterrent to earning. And they want to reduce them not only from
the higher levels that the new Government has itself just introduced,
but to lower levels than Labour policies entailed. A laudable
aim. So, the White Paper proposes a universal taper rate of 65%
for everyone. This may well work for single people: because they
can see the point at which 65% will fall to a tax rate of 20%
+ NI and because they can work longer hours than parents or carers.
But for couples or lone parents it's more problematic because
reducing the average taper to 65% means that, in a lot of cases
where both adults are earning the minimum wage or not much more,
they will both need to be working more than the Working Time Regulations
permit before they can get beyond the 65%. This was evident (though
not made clear) from charts shown in presentations the DWP made
after the Green Paper publication. Once you factor in sensible
figures for rent and council tax, the problem gets far worse.
4.2 Will a return of 35% on earnings be enough to
tempt people to take jobs or work more hours? The response of
high earners to the 50% marginal tax rate suggests that higher
earners wouldn't work for that - we are repeatedly told that even
50% is driving bankers abroad (actually most bankers' marginal
tax rates are generally lower because of their ability to claim
tax reliefs to the tune of £tens of thousand each year, reducing
their taxable incomes below the 50% threshold).
4.3 But it's more complex that that. There will be
an earnings disregard. In a two-adult household this will apply
only to the first earner, so second earners will be taxed at 65%
from the first £1 they bring in: not much of an incentive,
given that payments to the man to support a woman at home to do
his chores for him will not be counted as "welfare dependency"
once he's earning above the JSA basic level.
4.4 But it's more complex than that. In order to
make it more attractive for low earners to work short hours, another
laudable aim taken by itself, the DWP is proposing to abolish
the various thresholds of 16, 24 and 30 hours a week - points
where, under the current system, the MDR rate falls way below
the proposed 65%. These have acted to increase employment for
hours just above these thresholds (see data in tax credit statistics).
It is arguable that what will happen under UC is that a lot of
people will just reduce their hours from 16 or more to the earnings
disregard level or just above, costing more in welfare payments
than they do at present.
4.5 But it's more complex than that. Because a whole
new compulsion system is being introduced that will apply to the
number of hours people work as well as whether they work at all.
Again, there is very little detail about how this will be applied:
will you be penalised if you work ten hours instead of 11, 20
hours instead of 30? How is this going to be applied and implemented
and by whom - will it not need a lot of people to supervise and
implement the new compulsion regime, effectively doing the job
that incentives to reach certain hours thresholds does at present?
4.6 But it's more complex than that. Gender rears
its ugly head. The people who are most likely to reduce their
hours are women, not least because if they earn nothing they will
be more highly subsidised by the taxpayer than before. This means
less labour market attachment and women not being expected to
earn provided they live with a man (the taxpayer will support
them). This in turn means less money to spend on children, less
labour market preparedness if their partner loses their job or
the relationship breaks down - certainly more child poverty. Once
you factor in the 20% or more of childcare costs that mothers
will have to pay, the 35p in the £ that they may expect to
take home will be reduced to a negative.
5. REGIONAL DISPARITIES
5.1 Universal Credit will apparently be universally
the same: the DWP White Paper does not appear to recognise that
the costs of taking a job (and working more hours) vary hugely
and are especially high in London. If you add in the costs of
commuting (let alone childcare) in London, then the effective
MDR will be above 100% for most people. I suggest that a regional
earnings disregard should be included in UC. This would be very
easy to implement (although there would be geographical cliff
edges).
December 2010
200 Child Tax Credit and the Family, Oxford
University Family Policy Briefing 2 Back
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