White Paper on Universal Credit

Written evidence submitted by J Millar and T Ridge

1. Our main points refer to the administration and delivery of the proposed Universal Credit, in particular the discussion in Chapter 4 of the White Paper. Our concerns relate to whether it will be possible to deliver the Universal Credit as proposed, and to the likely impact of the delivery model on those families for whom this will be a substantial component of the family income.

2. We are academics at the University of Bath and have many years of experience of researching the support for low-income families through the social security and, more recently, the tax credit systems. Our evidence here draws upon our recent study examining the challenges that face lone mothers in seeking to sustain employment over time [1] . This project includes three rounds of in-depth interviews with a sample of 50 low-income working lone mothers conducted between 2003 and 2008 [2] .

3. The main aims of the study were to examine the impact of paid work - and for some job loss - on family life and living standards for lone mothers and their children over time; and to explore how lone mothers and their children negotiated the everyday challenges of sustaining low-income employment over a period of around five years.

4. The research has given us a rare opportunity to understand the dynamics of employment from the standpoint of the families themselves and to explore how they manage financially and in other ways. These lone mothers and their children are very much representative of the ‘hard-working families’ that the Universal Credit is intended to support. These women made the commitment to work in order to improve their situations and to create better lives for themselves and their families. But low wages and insecure jobs can make it very difficult to stay in work and, even after four to five years, many of these women were still struggling to achieve an adequate and secure standard of living in work.

5. The experiences of our sample of lone mothers clearly illustrate the importance of the working and child tax credits to the incomes of these, typically low waged, lone-mother families. The women could not have entered, or sustained work, without the financial support they received from the tax credit system. Tax credits made a huge difference to their incomes. But our findings also highlighted some of the tensions and practical difficulties that the women faced in coping with the tax credit system.

6. These problems with the delivery of tax credits were ongoing over the whole period of the study, not just when the women started work. The difficulties included late and incorrect payments, payments that varied in inexplicable ways, reductions in awards for overpayments, and lack of detailed information to enable recipients to understand their awards. These failures of the tax credit delivery system led families into debt and caused great anxiety for some. This was especially true for those women who were very low paid, as would be expected, as these families were particularly reliant on their tax credit awards.

7. The White Paper argues that the current system is complex and that the radical reform is needed ‘to improve work incentives and make the system genuinely simpler’ (Cm 7957, page 12). The main features of the proposed Universal Credit include:

· A single system covering people both in and out of work, with no need to claim different benefits in and out of work.

· Claims made on the basis of households rather than individuals.

· Online claims with a single application form.

· ‘Recipients will report significant changes of circumstance online. For changes of circumstance such as moving into work, losing a job, having a child or becoming sick, in most cases there will be an automatic re-assessment, providing a faster and more reliable experience than at present.’ (page 34)

· Monthly payments.

· ‘Recipients who have earnings from employment will have those earnings automatically taken into account. We intend to use HM Revenue & Customs proposed real-time information system to identify earnings and to calculate the net Universal Credit payment due by applying the appropriate taper to the gross payment. This means that those recipients who receive earnings through Pay As You Earn will not need to inform us for payment purposes if the amount of their earnings change. Recipients will, though, still need to tell us about other changes to their circumstances which affect their entitlement to benefit, or the conditions they must meet.’ (page 35)

8. There is clearly much detail still to be worked out about how this will operate in practice, and the changes in IT and other systems that will be required. Based on our research we have two main concerns about the proposals. First, it may prove very difficult to deliver the Universal Credit effectively. The experience of the delivery of tax credits does not appear to have been fully taken into account and in particular the extent to the Universal Credit system will have to cope with changes in circumstances seems to be somewhat underestimated.

9. Even if HMRC can provide real-time information on changes in earnings, it will still be necessary for recipients to notify other changes that might affect entitlement. This will be substantial and the Universal Credit system will have to manage a large volume of changes in circumstances. This was one of the factors that hit the tax credit system hard. With hindsight, Baroness Hollis, former DWP Under-Secretary of State, recognised this: ‘It is fair to say that when we introduced the Tax Credits Bill we did not predict that 50 per cent of lone parents would undergo more than a dozen changes in circumstance a year [3] .

10. Past experience as well as research shows that people do not always notify changes in circumstances immediately these happen, for a range of reasons, including lack of knowledge of the rules. Some changes are themselves short-lived or unstable. For example, in our study some children moved between living with their mothers to living with their fathers, and back again, in relatively short periods of time. People, including partners, may move in and out of households over a period of time. Childcare arrangements often vary over the course of a year.

11. There is a balance to be struck between taking account of changes in circumstances and simplicity of design [4] . The White Paper does not provide sufficient information on this important point. But if the intention is to take changes in circumstances into account as fully and quickly as possible, this will severely undermine administrative simplicity. As with tax credits, there will inevitably be underpayments and overpayments, as changes in circumstances work through to awards and payments, and these will have to be reconciled in some way. It is hard to see how the delivery problems of the tax credit system will be avoided or overcome by the White Paper proposals.

12. This lead onto our second set of concerns, which relate to the impact of the proposed delivery of Universal Credit on families. Obviously the most important aspect of this is the level of award – it is the amount of money that families receive that is most important in supporting their living standards. But our research has also shown that security and reliability of income is very important to poor families. Managing on a low income is made much more difficult if that income is subject to change and instability.

13. Transparency and clarity in rules and regulations are particularly important. Our study shows that many of the mothers did not clearly understand the rules of tax credits and were unsure about how much they were entitled too and in particular why payments changed. This made it very difficult for them to budget for changes and also made them wary of even small employment changes - such as taking on extra hours - due to uncertainty about the impact of such changes on their tax credit payments. The Universal Credit will encompass a wide range of entitlements in one payment and will therefore need to be very transparent and straightforward for claimants to understand, negotiate and if necessary appeal against award decisions.

14. As noted above, if the system is highly responsive to changes in circumstances, recipients will find their payments very volatile. It was problems caused by that sort of insecurity in tax credits that created so many problems for the families in our study, sometimes to the point of putting at risk their capacity to stay in work.

15. The Universal Credit will be a single system, replacing Income Support, income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit. That does provide for greater administrative simplicity [5] but it also means that it is all the more essential that the system works properly, accurately, reliably and efficiently. If it does not then the impact on the families, and especially the poorest families, could be considerable hardship. The families in our study coped with the problems caused by tax credits either by juggling other sources of income, including other benefits, or by going into debt. But if there is only one system, and that lets you down, then debt is the only alternative.

16. Finally, the Universal Credit will be paid monthly, which will be very challenging for many people in terms of family budgeting. Many of the women in our study were managing on what were often low incomes for relatively long periods of time. Some expenditure, including in some cases child care, could not be easily postponed or met over longer time periods.

17. We think that it is important for the Select Committee to consider these crucial issues in the design and delivery of the Universal Credit and to stress to the government the importance of learning the right lessons from the tax credit system, and using these to design a system that really can cope with the volume and nature of the demands placed upon it. If not, we will face the same sort of problems as tax credits, but probably on a larger scale. It is important, and socially just, that the support available to those ‘hard-working families’ in low-paid work is reliable, stable and secure.

December 2010