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:
- ¾ London
Councils proposes that the Universal Credit includes provisions
that:
- ¾ set
financial support for those claimants living in the capital at
a level that reflects the actual cost of living in London.
- ¾ withdraws
benefit at a rate that makes work pay for Londoners; and
- ¾ ensures
Londoners receive the same advantages from moving into work as
those outside the capital.
- 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.
- 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.
- 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.
- 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.
- 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:
- Cost effective delivery.
- Transparent.
- Understandable.
- Minimises fraud.
- Increases incentives to return to work.
- 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:
- benefit awards to be at a level that reflects
the actual cost of living in the capital;
- 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;
- 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
- 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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