White Paper on Universal Credit - Work and Pensions Committee Contents


Written evidence submitted by London Councils

SUMMARY

London Councils is committed to fighting for more resources for the capital and getting the best possible deal for London's 33 local authorities. We lobby key stakeholders, develop policy and do all we can to help our boroughs improve the services they deliver. We also run a range of services ourselves, all designed to make life better for Londoners.

We are committed to helping ensure that London local government has the freedom, resources, power and capacity to make life better for Londoners.

The proposals within the White Paper clearly demonstrate the Government's views on the role the welfare benefit scheme will play in social policy. There are practical implementation issues associated with these proposals that may lead to unintended outcomes. It is vital that the design and management of the new scheme is carefully thought through.

In many ways London is distinct, and this is reflected in the impact and effectiveness of current welfare provision. The Government should consider whether a national welfare benefit scheme can successfully tackle poverty and worklessness in the capital. Benefit provisions that reflect the unique circumstances found in the city are needed to both achieve the Government's objectives and meet the needs of Londoners.

The main points of London Councils' response to the Government's White Paper are:

  1. ¾  London Councils proposes that the Universal Credit includes provisions that:
    1. ¾  set financial support for those claimants living in the capital at a level that reflects the actual cost of living in London.
    2. ¾  withdraws benefit at a rate that makes work pay for Londoners; and
    3. ¾  ensures Londoners receive the same advantages from moving into work as those outside the capital.
  2. ¾  The Universal Credit needs to work in harmony with the wider reform of affordable housing and the new HCA "80% affordable rent" product to ensure that low income households are able to access suitable housing and work in London.
  3. ¾  London boroughs have, and will continue to have, a significant part to play in the delivery of welfare support. This role will change significantly. It is essential that the DWP engage with the boroughs at the earliest opportunity to plan and scope these changes. It is also essential that boroughs are properly resourced to manage the transition and ensure they continue to provide a good service.
  4. ¾  London Councils supports moving to a more simplified welfare benefit scheme. Complexity is a significant barrier to work; it causes concern about how benefits will be affected after a move into work and also results in a low awareness of in-work benefits.
  5. ¾  London Councils agrees that the primary route out of poverty is work. The welfare benefit scheme must encourage people into employment. London Councils supports increasing the financial rewards from employment and the rate at which benefit is withdrawn more consistent. We also recognise that there is a need for a "safety net" to support those who are either unable to work or have caring responsibilities that provide a wider benefit to the community.
  6. ¾  London Councils believes that the key to a sustained reduction in expenditure is to reduce the level of benefit dependency. It is essential that the welfare benefit system works with the wider work and skills agenda to ensure that all groups are supported into the labour market.

1.  INTRODUCTION

1.1  This document sets out evidence from London Councils to the DWP Select Committee on the impact of the proposals contained within the Government White Paper, "Universal Credit: welfare that works".

1.2  The effectiveness of the welfare benefit scheme has far reaching significance for London. In a city with 39% of children living in poverty,[220] over 24% of the working age population economically inactive[221] and with housing costs the highest in the country,[222] it is vital for London's economy that the scheme not only promotes the move into work and provides support to progress whilst in work, but continues to support those in greatest need.

2.  LONDON COUNCILS KEY PRINCIPLES ON WELFARE BENEFIT REFORM

2.1  The key route out of poverty is finding work and welfare provision should reflect this ambition. There will be families for which work is not a viable option and who will need continuing support.

2.2  A future welfare benefits scheme should be built on and guided by the following principles:

  1. Cost effective delivery.
  2. Transparent.
  3. Understandable.
  4. Minimises fraud.
  5. Increases incentives to return to work.
  6. Recognises and appropriately reflects London's higher living and housing costs.

2.3  The welfare benefit scheme must encourage people into employment. We also recognise that there is a need for a "safety net" to support those who are either unable to work or have caring responsibilities that provide a wider benefit to the community.

2.4  London Councils acknowledges the need to reduce welfare benefit expenditure. We believe that the key to a sustained reduction in expenditure is to reduce the level of benefit dependency. It is essential that the welfare benefit system works in parallel with the wider work and skills provision to ensure that disadvantaged groups are supported into the labour market. In London, those with low skills face an added difficulty in securing employment in the face of competition.[223]

2.5  London Councils also supports the proposal to increase the financial rewards from employment. London has a higher rate of in-work poverty than any other region in the UK.[224] As well as making work a more attractive option, by slowing the rate at which earnings reduce benefit entitlement, low earners will have more incentive to increase their skills and experience, and consequently the potential to increase their income.

2.6  London Councils supports the creation of a Universal Credit as a significant step in reducing complexity. Complexity significantly inhibits the move into work. This complexity also inhibits the take-up of benefits, particularly in London, which has a diverse and highly mobile population.[225]

2.7  London Councils supports the simplification of the taper system that withdraws benefit at a slower rate. Income related benefits currently attract a considerable marginal tax rate with upwards of 85p in the pound being clawed back. When the additional costs associated with moving into work are taken into account, the financial reward from moving into work is, in some cases, perceived as insufficient incentive. These additional expenses are significant in London. Apart from the higher rent levels, child care costs are around 25% higher than the national average and can exceed the maximum childcare support allowances by up to £60 per week.[226] Transport costs in London are also high. Londoners spend on average £10 per week more on transport costs than anywhere else in the UK. Fares in London are 63% more expensive on average than fares for similar distance journeys in other metropolitan areas.[227]

2.8  The level of in-work poverty in London is higher than in any other region. Slowing the rate at which support is withdrawn will help to provide financial stability for those entering employment. This in turn should allow time for low earners to use the skills and work experience acquired to trade up into better employment, rather than slip back onto benefit. Both low earners and employers can then actively engage in training and advancement initiatives and have more opportunity to increase their skills and experience, and consequently the potential to increase their income.

3.  THE IMPACT OF THE UNIVERSAL CREDIT IN LONDON

3.1  There is a strong argument to be made for separate London benefit provisions within the scheme, not just with regard to payment levels, but also as to how the scheme is delivered. The design of the Universal Credit is predicated on benefit levels set using a formula based on national parameters. However, these national parameters do not reflect the actual cost of living in London, which is significantly higher than in the rest of the UK. Benefit levels should not be set nationally but calculated on a regional cost of living index. London needs a welfare benefit scheme that is flexible enough to prevent undue hardship but that does not act as an attractant or makes the scheme unduly costly.

3.2  Providing financial support that is relative to the local economic situation and the local labour market can act as a further steer towards employment. London has greater competition for entry level jobs. Coupled with this are the capital's higher transport costs, inhibiting a move into employment where travel is a significant factor.

3.3  In a similar vein, many of the low entry jobs do not include a London weighting to reflect the higher in work costs in the capital The benefit budget can be adjusted to provide more support for in work claims rather than for those seeking work.

3.4  London Councils believes it is time that Government consider whether a more local approach to welfare provision offers a more effective solution to tackling worklessness and benefit dependency.

3.5  Welfare support is currently centralised in a one-size-fits-all package. This clearly does not reflect differences in the cost of living between areas. From a market perspective, varying rates of benefits, to reflect local labour markets makes perfect sense. Introducing the flexibility to reflect these differences will allow:

  1. benefit awards to be at a level that reflects the actual cost of living in the capital;
  2. for a slower rate at which benefit is withdrawn when moving into work, to adjust for the incidence of entry level jobs that do not attract London weighting or a London living wage;
  3. benefit rates should take into account the higher cost of renting larger "80% affordable" homes in the RSL sector. Modelling by both the Homes and Communities Agency and Communities and Local Government indicates that, in the social sector, the full cost of the new HCA "80% affordable rent" product will not be wholly covered by the universal credit, particularly for households living in larger homes in London; and
  4. the conditions attached to benefit awards to be flexible, such as payment direct to landlords to encourage them to remain in the market.

4.  HOW SHOULD THE UNIVERSAL CREDIT BE DELIVERED IN LONDON?

4.1  There are potential issues for Londoners with the Universal Credit portal, particularly for new Londoners. Accessing the Universal Credit and maintaining an account will require online access. Of the 10 million people in the UK who have never been online, 47% are from low income families.[228] For a city with a diverse and highly mobile population like London this could cause difficulties, especially when the possibility of a £50 civil penalty being imposed for failing to report changes is factored in.

4.2  For households where online channels are not appropriate, it is essential that alternative arrangements are available. There is likely to be a significant call on these alternative options particularly when the Universal Credit is introduced. There is potentially a role for the London boroughs in providing this alternative provision; however there will be a need for the DWP to adequately resource this.

4.3  There is an ongoing need for face-to-face contact and some paper transactions for those with benefits outside the current universal credit scheme. London boroughs are ideally placed to provide this service, if properly resourced.

4.4  London boroughs have had a significant part to play in the delivery of welfare support through Housing Benefit payments. As support for housing costs will be included within the universal credit, this role will cease. Transitional arrangements will need to be put in place to wind down this activity and reduce the service accordingly. There will be an ongoing role in rebating local Council Tax and, pending reformation of the Pension Credit scheme, some residual Housing Benefit responsibilities for pensioners. There will also be a new role for boroughs as discretionary payments, previously dealt with as part of the Social Fund will be devolved to local authorities. London boroughs also have an ongoing responsibility to support their more vulnerable residents, who may find themselves at the margins of the Universal Credit scheme.

4.5  It is therefore essential that the DWP engage with London boroughs at the earliest opportunity to properly plan and scope these changes. It is also essential that the boroughs are properly resourced to not only manage the transition, but are able continue to provide a good service to those benefit recipients not covered by the Universal Credit and for whom they maintain a responsibility.

4.6  The government should look at the wider provision of welfare advice, particularly financial management. Low income families and those on benefits have difficulty in obtaining affordable credit when it is most needed, for example, moving into work. The Government should help develop a range of accessible credit products, at fair and transparent rates, where consumers have the appropriate information and capability to make informed borrowing decisions.

4.7  London boroughs have a proven record of providing efficient and effective services, and have been at the cutting edge of innovation to improve the welfare benefit scheme. As the reform agenda moves onto the next chapter, there is a continuing role for the boroughs which should not be overlooked by government.

December 2010



220   See the London Child Poverty Commission Monitoring Report June 2010
(http://www.londonchildpoverty.org.uk/docs/LCPC-legacy-report-06-2010.pdf) 
Back

221   Annual Population Survey Sept 2009 (https://www.nomisweb.co.uk/) Back

222   City Parochial Foundation and New Policy Institute, London's Poverty Profile. Analysis based on DWP data (Households Below Average Income, average of 2005-06 to 2007-08). Back

223   Recent research shows that there are three low skilled London residents for every low skilled job in London - see "Employment Opportunity for All: Tackling worklessness in London", (2007), HM Treasury. Back

224   For example, the proportion of children in low-income households is double that of the UK as a whole - about 10% of children in "all-working" families in Inner London and Outer London, compared to 5% in the rest of England (see City Parochial Foundation and New Policy Institute publication, London's Poverty Profile). Back

225   Estimated caseload take-up of working tax credit and child tax credit could be as low as 57% in London. This is the lowest estimated take up rate among all the English regions by some margin; the next lowest estimate of case load take up is 72% - HM Revenues and Customs Analysis Team, Child Tax Credit and Working Tax Credit, Take Up Rates, 2004-05, 2007. Back

226   In a survey carried out on behalf of the childcare charity Daycare Trust, The highest childcare costs in the survey were found in London and southeast, with a nursery place for a child under two typically costing £197 per week in inner London, compared to the national average of £144 per week. Back

227   2006 DfT analysis of Train Operating Company fares. Back

228   See "Manifesto for a Networked Nation", Digital Inclusion Task Force, July 2010. Back


 
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