Written evidence submitted by Citizens
Advice
Citizens Advice welcomes the opportunity to comment
on the proposals set out in the Government's White Paper, Universal
Credit: welfare that works. In 2009-10, Citizens Advice Bureaux
saw 2.1 million clients and helped with 7.1 million issues. Benefits
and tax credits and debt are the two biggest areas of advice,
and account for almost two thirds of issues advised on. We handled
over two million benefits and tax credit issues, which involved
helping people understand and claim what they are entitled to,
helping to resolve administrative problems, and helping to challenge
decisions.
The volume and nature of our enquiries indicates
just how complex the benefits system is, and shows the level of
demand for help from our clients. In a recent online survey about
policy ideas for the Government's spending review, over 3,000
CAB advisers and clients responded, and the need for a simpler
benefits system won the most support. In the response to the consultation,
21st Century Welfare, Citizens Advice welcomed the aim
of the Universal Credit to simplify the benefit and tax credit
systems and to make work pay. However there are a number of areas
in the White Paper that still require considerable development
and without significant resolution, threaten to undermine the
reforms. This response aims to flag up these issues, though there
will not be space to deal with them all in detail.
ALIGNMENT OF
RULES IN
BENEFITS AND
TAX CREDITS
Many of the problems highlighted below arise from
the merging of two systems with a range of different rules - some
of which are more generous in one system than the other. In order
to fulfil the government's aim of supporting people into work
that pays, the Universal Credit must be designed to incorporate
these numerous differences without simply adopting the cheaper
option.. The rules around "responsibility for a child",
for example, are different in DWP benefits from in tax credits
(and even different between child benefit and tax credits, both
of which are administered by HMRC). Careful thought must be given
to how these rules are aligned, and decisions made on which would
best fit with the policy objectives of the universal credit, rather
than which would be most affordable in the immediate term.
CHILDCARE
The Government remains undecided about how to
provide help with childcare costs. We cannot stress enough how
critical this issue is in helping low income parents into work,
or increasing their working hours.
If help with childcare costs are managed separately
from the UC, parents will face a second rate of withdrawal of
benefit, which is likely to result in very high marginal deduction
rates. With the UC taper rate set at 65%, those who pay tax and
NI will lose 76 pence in every £1 of extra earnings. Any
separate withdrawal of support for childcare costs would inevitably
result in lone parents (or couples where both are in low-paid
work) losing much more than this and - crucially - being unable
to predict their final net income.
We do not support proposals to deal with childcare
costs by disregarding them from income, as this will put many
families at risk of facing effective marginal deduction rates
of over 100%[202]—ie
to lose out financially when working more. The impact will depend
on the ratio of earnings in relation to their childcare costs.
The Paper appears not to recognise the help with
childcare costs currently provided through the housing and council
tax benefit system, which can cover up to 17% of childcare costs,
in addition to the 80% covered through the tax credits system.
We hope that this does not mean a reduction in the overall financial
help available for childcare costs.
Possible options for providing help with childcare
costs are limited by the desire to maintain the current level
of spending. If the purpose of welfare reform is to encourage
more people into work, and the intention is to extend support
to parents working fewer than 16 hours, it is difficult to see
how it will be possible to maintain current spending levels, and
ensure that work will pay for everyone with children. If lone
parents are expected to work when their youngest child is five,
support for childcare costs must ensure that work pays for a lone
parent on minimum wage with average child care costs. If the system
cannot guarantee that it can make work pay in these circumstances,
this must be made explicit, and the associated conditionality
regime must be consistent with this. Whilst the JSA conditionality
regime does not require a lone parent to take a job that does
not fit with school hours or for which affordable childcare is
available, the proposal to cut housing benefit for individuals
who have been claiming JSA for over a year may not allow them
to operate within these flexibilities, without being penalised.
The proposal to pay 70% of childcare costs in UC
is, in our opinion, the best of the options offered by DWP. However,
if it were adopted, it would fail the two tests of Universal Credit
for many claimants. It will not make work pay and will not be
simple enough for a parent to predict whether they will gain significantly
if they accept an extra shift at work.[203]
It will be difficult to find affordable and non complex
solutions, but we suggest the following could be considered:
- Paying childcare costs in full or at 95% (at
present 97% of childcare costs are paid for those on HB/CTB) up
to a given limit of say £100 beyond which only say 70% of
childcare costs were paid. The fixed amounts will need to be higher
in areas of high childcare costs and for children with disabilities.
- Increased universal free/subsidised provision
during school holidays.
We would not expect the Bill to be passed without
these details being resolved. A PQ response
from Chris Grayling advised that the detail will be announced
over the coming months, after discussion with the sector. The
UC will succeed or fail depending on whether work really does
pay for parents reliant on childcare costs. We recommend that
the Bill should include broad provision, to prescribe that whatever
the solution, there should be no requirement for a parent with
childcare costs to work, unless they can be sure of retaining
at least 85 pence in the £1 after paying all their childcare
costs.
FINANCIAL SUPPORT
WITH COUNCIL
TAX
The current proposals for UC already mean that workers
above the tax and NI thresholds will lose 24 pence for every extra
pound earned. We are worried that the exclusion of council tax
benefit from the UC. We believe it risks adding complexity, reducing
support to many low income families and further reducing gains
from work. We recognise DWP's intention to negotiate with the
Department for Communities and Local Government, to ensure that
whatever financial support for council tax is agreed, will be
included in the single taper. The importance of this must not
be underestimated and we stress that if this cannot be achieved,
the Government should rethink the decision to localise support
for paying council tax.
EXTRA HELP
FOR PEOPLE
IN WORK,
WITH DISABILITIES/HEALTH
CONDITIONS
The white paper proposes to give extra support to
people who have been assessed as able to do some work, but who
are at a disadvantage in the labour market as a result of a disability.
There appear to be two mechanisms by which this support can be
given
- a higher personal allowance (equivalent to ESA
WRAG rate); and
- a higher earnings disregard.
It is not clear, however, who will be entitled to
receive this help.
Through the disability element of working tax credit,
the current system provides extra income for those who can work,
but are disadvantaged and likely to have a lower earning power
because of their disability. It also enables them to become eligible
for WTC when working fewer hours than those without a disability
- currently 16. The disability element is vitally important in
enabling people with disabilities and health problems to move
into, and stay in, work. At April 2010 125,000 adults were in
receipt of the disability element of WTC. We believe that take-up
is low as some of the current criteria are poorly understood and
are not well explained by HMRC. We have significant evidence of
the disability element being removed incorrectly, and cases demonstrate
negative impact on claimants' health and ability to work. We would
expect the new system to provide support for a similar group of
people but that access to the support should be simplified where
possible.
Current entitlement is based on the ability to fulfil
two criteria:
- they must continue to have a disability which
puts them at a disadvantage in the labour market, and
- fulfil a benefit condition - either through receipt
of DLA or complex criteria involving receipt of a sickness or
incapacity benefit for some time at any time in the last six months
before moving into work.
Entitlement to the disability income disregard must
not be limited to claimants in receipt of DLA or moving from the
ESA-equivalent into work, since many people currently entitled
to the disability element of WTC (on the basis of DLA lower rate
care) are likely to lose eligibility following the DLA review.
Secondly, many people coming off ESA because they are judged fit
for work, are still at a very significant disadvantage in the
labour market - and would currently be entitled to support through
the disability element of tax credits, if they find work within
six months. It is very unfair that the timing of a work capability
assessment could have such a long term effect on someone's financial
position.[204]
One possible option would be to extend the remit
of the WCA to separately assess disadvantage in the labour market,
as well as work readiness. Conditionality could then be tailored
to the client, but people assessed to have a disadvantage in the
labour market would still receive extra financial support related
to their disability.
The allowances proposed in the UC when tapered away
at 65%,will—at almost all points on the scale of hours worked—equal
the level of support currently provided by the disability element
of WTC.[205]
However, if the higher earnings disregard and the extra amount
in their personal allowance is not available to those who have
been found fit for work (but who have a very significant disadvantage
in the labour market as a result of a condition or impairment),
there will be many people who—even though they will be unable
to work more than 16 hours—will be denied the extra help
they need.
PENSIONERS
The introduction of Universal Credit will have implications
for the system of financial support for people who are over state
pension age (SPA). Currently, people who are over women's state
pension age may be eligible for pension credit, housing benefit,
council tax benefit, help with mortgage interest, child tax
credit and working tax credit. With child tax credit and housing
benefit no longer existing outside the UC, a system of support
for pensioners with children and housing costs must be established.
The white paper proposes adding allowances in pension credit for
pensioners with children and housing costs, but there will also
be the need to provide support to families not eligible for pension
credit. Current pension credit claims can include a partner who
has not yet reached SPA. The white paper raises the possibility
that people over SPA who are still working could choose to apply
for UC rather than pension age benefits, but gives no details.
It appears to us that the pension age benefit arrangements
will need to be modified so that older people will continue to
receive the same level of support as they do at present. We hope
that the government will bring forward specific proposals in the
near future and will consult upon these proposals before legislation
is finalised.
IN WORK
CREDIT/RETURN
TO WORK
CREDIT
The current in-work credit amounts to £40 a
week for the first year of moving into work. It is not yet decided
whether equivalent extra financial support for those moving into
work will be reflected in the UC. With the removal of hours rules
for many people, the move into work will be a gradual one and
the logic of providing extra support at a specific point becomes
less clear. Evaluations of the value and impact of the in-work
credit on lone parents return to work has found that other factors
were generally more important than financial gains.[206]
It was found to provide extra support for those who would have
moved into work anyway, while for some lone parents who had been
out of work longer, it provided an important safety net, and removed
some of the risks associated with a return to work - particularly
if work was temporary, part-time or low paid. It proved particularly
useful in helping lone parents adjust to a new way of budgeting
on a monthly wage, and by providing an additional income and helping
them deal with debts.
A much higher earnings disregard will help remove
some of the risks from moving into work, while the reforms should
mean people are less likely to be out of work for such long periods.
We would therefore recommend that the money might be better spent
supporting parents to provide up-front childcare deposits, or
to enable people to continue paying for childcare when temporarily
out of work.
PASSPORTED BENEFITS
Current proposals are that passported benefits are
lost at set thresholds, not all at once, so there is no cliff
edge when households lose all the extra benefits. However, different
benefits are of different value to different households - the
fact that free prescriptions are not lost at the same time as
free school meals means nothing for someone who only needs prescriptions,
whereas the value of free school meals is by far the greatest
benefit to a family on low income.
We would welcome further consideration of the proposals
for dealing with passported benefits as set out in Dynamic
Benefits
SAVINGS RULES
There are no savings limits in the tax credit system.
Only the interest earned on savings is taken into account when
calculating claimants' entitlements. If the UC has savings limits
of £16,000, it will extend means-testing to thousands more
families in low-paid work. This will have a significant impact
on these families - not least because it will prevent them from
being able to save for a deposit for their own property. As soon
as their deposit savings hit £16,000 they will lose their
entitlement to UC.
We welcome the extra disregards for those with a
mortgage who are working and not eligible for housing costs. While
we welcome this help for those with a mortgage, we feel it is
unfair that many of those who are struggling to save a deposit
to buy a house will be excluded because of the savings limit,
whilst others are supported whilst building up a much greater
equity in their property.
We feel that it is similarly unfair on couples in
their fifties who have been on a low income and have been unable
to buy a property (and therefore benefit from increased equity),
but have made modest savings for their old age. It will particularly
affect couples where a man has worked in a manual occupation all
his life, becomes seriously ill in his fifties and suffers a significant
drop in income. This group will also be affected by 12 month time-limit
on contribution-based ESA for those in the WRAG group. People
in this situation can currently claim working tax credit, but
will get no help under UC.
We also believe it will increase error because it
will create a new client group who are in work, but are not used
to having to monitor their level of savings, and maintain it below
£16,000.
HOUSING COSTS
It is important that the housing element in the UC
must reflect rent paid. The White Paper acknowledges the need
for local variations to be taken into account, but does not provide
detail about how the housing element will reflect local housing
costs. How these areas are defined will be crucial if local variations
in rent are to be reflected in the housing element. We already
see problems with the setting of the BRMA areas. We are also concerned
that the move to up-rate LHA rates in line with the Consumer Price
Index (CPI), rather than by using local Rent Officer data will
also break the link between local rent levels and housing benefit
over time, causing problems for claimants in areas which, for
local reasons, may experience an increase in rent levels above
the average.
More significantly, use of the CPI seems likely to
depress LHA rates over time, as rent inflation is traditionally
higher that the CPI. During the period 1991-2009 ONS data shows
that CPI averaged 2.86% pa whilst "rent only"inflation
was 5.43%.[207]
This will therefore lead to a steady shrinking in the sector of
the market which is affordable within LHA rates, and moreover
appears to be in contradiction to the proposal to set LHA rates
at the 30th percentile. In practice it would seem that uprating
by CPI will mean that LHA rates will steadily reduce below
the 30th percentile. In our submission to the Committee's inquiry
into the HB changes in the budget we argued that at the very least
it will be crucial that the regulations provide for regular corrections
to be made so that LHA rates continue to reflect the reality of
local rents.
SMALL EMPLOYERS
WHO CURRENTLY
FAIL TO
COMPLY WITH
EMPLOYMENT LAW
Bureaux currently report the difficulties faced by
clients in accessing their employment rights: paid holiday entitlement,
minimum wages or even getting payslips. This causes difficulty
in reporting their income for housing benefit purposes. How will
claimants be able to get their UC paid accurately if their employer
doesn't comply?
SELF-EMPLOYED
PEOPLE
It is not clear how the new system will work for
self-employed people who will presumably have to report their
own income. Compliance with the system may be difficult for this
group. We are already concerned because bureaux evidence shows
us that many employers already force people to register as self-employed
when they are actually employees, because the employers do not
want the responsibilities of employment conditions. We are concerned
that the added administrative responsibilities required by the
UC system will exacerbate this problem.
We are very concerned at the proposal to assume an
income equivalent to the minimum wage. Current rules limit how
long the system will support a self-employed person before they
are established and paying themselves an income. It is very helpful,
however, to have a basic income to rely on in those early stages.
Citizens Advice Bureaux see many people enabled to set up in self-employment
as a result of this help. If they are assumed to have an income
of about £200 /week, it will significantly restrict the ability
of many to set up in self-employment.
Self-employment can be a particularly useful route
back into employment for disabled people - particularly those
with a fluctuating condition - as they can control when and how
long they work. An employer is much less likely to be as accommodating
to good and bad days. It therefore seems very short sighted to
remove this help when there is such an emphasis on helping disabled
people back into work.
PAYING ELEMENTS
SEPARATELY
The universal credit represents a high risk of people
losing all their benefit income if the calculation of one element
is delayed. It is important that a mechanism is found to ensure
a minimum level of income if there are delays in delivering the
benefit.
Furthermore, we recommend the ability to split payments
between adults in a household, in order to retain a balance between
"wallet" and "purse".
December 2010
202 Though technically the MDR will be less than this,
because a parent will always pay some of the childcare costs not
met by the UC (the suggestion is for 70% to be covered up to a
cap), their experience will be to lose money for every extra hour
worked/pound earned. Back
203
Someone offered an extra shift at work say worth £48 will
have to work out 24% of this which is what they will keep (£11.52).
They will then have to find out how much extra childcare they
will have to pay for - if it will cost an extra £35 in childcare
they will then have to work out what 30% of this is (£10.50
and then if any extra expenses such as fares will eat further
into the remaining £1. Back
204
If twoople become partially sighted at the same time, both are
awarded ESA in the WRAG and both gradually adjust to their impairment.
The person with the better qualifications is offered a job whilst
still on ESA, the other person spends a year on JSA before finding
a job. Both obviously have an ongoing significant disadvantage
in the labour market. Back
205
There is a cliff edge in the present system where someone can
earn more under the permitted work rules. Back
206
http://www.dwp.gov.uk/newsroom/press-releases/2010/nov-2010/dwp165-10-261110.shtml
http://www.dwp.gov.uk/newsroom/press-releases/2010/nov-2010/dwp164-10-261110.shtml Back
207
Moreover this may be an underestimate of private sector rent inflation
as it includes all rents (i.e. RSL and LA). Back
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