White Paper on Universal Credit

Written evidence submitted by Fran Bennett

Summary

· This evidence focuses on areas of concern. Broad acceptance of complexity and work incentives as key issues should not preempt critical examination of the proposals, or consideration of alternative ways of achieving desired goals.

· UC merges 3 different forms of payment, with differing implications for each.

· The Bill should not be rushed in while important decisions remain to be taken.

· Some language used in the White Paper (eg ‘welfare dependency’) labels claimants and seems to contradict its focus on financial disincentives to work.

· The UC encourages a combination of benefit and work, however minimal, with continued conditionality; ensuring progression in work will be critical.

· The focus is on getting one person in a household into work, rather than recognising the importance of access to independent income for all adults. It seems that some ‘second earners’ might face much higher withdrawal rates.

· ‘Real time information’ may make the ‘poverty trap’ more visible. Previous in-work support has been designed deliberately not to change immediately.

· Payment of UC elements for children to the ‘main carer’ would label them as being intended for children and help ensure they were spent as intended.

· Fortnightly UC payments would match low-income families’ budgeting.

· The makeup of the UC should be itemised, to ensure the various elements are clear; and if one element is in dispute, the others should continue to be paid.

· Plans to ‘localise’ various payments will compromise certainty of entitlement.

· Carer’s Allowance should be retained as a non-means-tested benefit and improved. Child Benefit must not be absorbed into UC in the longer term.

· The source of income, its recipient and its labelling affect how it is used; this must be discussed in relation to UC, especially insofar as it affects couples.

· Means testing is a source of much complexity and disincentive effects. Other important sources of complexity will remain (eg changes of circumstances).

· A ‘new contract’ is proposed. But this is rather one-sided for claimants. Conditionality is being tightened first. And time-limiting Employment and Support Allowance breaks the national insurance contract. Seeing the new contract as between the haves and have-nots, and the aim as freedom from financial support, betrays a narrow view of the functions of social security.

Introduction: need for more detailed scrutiny

1. This evidence focuses on areas of concern about the White Paper (Cm 7957). There seems to be broad acceptance of the significance of the two key concerns underlying it – the complexity of benefits/tax credits and the need to ensure positive work incentives. However, this should not preempt detailed critical examination of the proposals, or consideration of alternative ways of achieving the desired goals. (Alternative ways of achieving simplification from claimants’ perspective include such experiments as the In and Out of Work pilot and the Tell Us Once project; and work incentives can be improved by reducing the costs of working, such as childcare and/or transport.)

2. The White Paper proposes merging three existing forms of payment:

- out of work income replacement benefits for different groups;

- in work tax credits and benefits; and

- some support for additional costs (not yet clearly delineated).

Each of these three amalgamations has different implications, which are not always clearly distinguished in commentary.

3. The Welfare Reform Bill is due in January. But decisions on some policies central to the proposals have not yet been taken. And the government has said it is keen to hear from stakeholders. It would be better to delay the Bill until these issues are decided. This would also give time for consultation with claimants about relevant issues. Such a radical experiment as this should not be proceeded with in its absence.

Assumptions and language in the White Paper

4. It is unfortunate that the White Paper labels as ‘universal’ a payment which brings together various means-tested benefits and tax credits, as ‘universal’ is usually used to mean non-means-tested. This may create confusion in didscussions about different forms of social security payments and their functions.

5. The recognition that uncertainty about being better off, and anxiety about delays in in-work payments, [1] may be a barrier to entering and/or increasing income from employment is welcome (though its importance in relation to recent increases in social security spending and dependence on out-of-work benefits can easily be exaggerated; [2] there are many other barriers to participation in work). But in some sections of the White Paper, these financial factors seem to be downplayed in favour of assumptions about ‘welfare dependency’, leading to a disproportionate emphasis on conditionality and sanctions and a damaging labelling of claimants.

Stimulating progression in work

6. Some payments already cross the in/out of work divide (including eg Child Benefit, Child Tax Credit). But the UC abolishes the distinction entirely, encouraging claimants towards a combination of benefit and paid work, however minimal. Its impact on work incentives seems uneven. Proposed earnings disregards vary depending on household type, and single people will get none (whereas now even those on Jobseeker’s Allowance have £5 per week).

7. Stimulating progression once in work has hitherto been achieved by such means as giving extra income at 16 hours’ and 30 hours’ work per week, [3] and more recently through the In Work Credit, as well as the Retention and Advancement Demonstration scheme. In the White Paper this is achieved instead by continuing conditionality for those gaining some employment. It will be important to ask what plans there are to improve the position of those who move into ‘mini-jobs’.

8. It is important to support second earners in couples, because two earners are much more likely to lift the family out of poverty, but also because both partners then have an independent income. The government’s interest seems to be in helping at least one person in a household into employment, rather than in the work opportunities of both partners as individuals. [4] But our qualitative research with members of low/ moderate-income couples in the Within Household Inequalities and Public Policy (WHIPP) project showed that independent access to income was clearly important for some women in particular. [5] Family Action calculates that some 1.35 million households on tax credits only could see their marginal deduction rate (MDR) increase from 70 to 76%. [6] It also appears that, for couples already above their earnings disregard, the change could increase the MDRs of potential/actual second earners under the tax and NI threshold from the current 39 (soon 41)% to 65% under UC. If this is correct, it would be a detrimental change for a group (‘second earners’) who are known to be more sensitive to work (dis)incentives, and would encourage a more uneven division of gender roles.

9. Previous in work support has had fixed-term awards, or a high annual disregard, in effect operating almost like a non-means-tested benefit for people to build on with additional income. But the faster adjustment of UC in response to earnings increases achieved by the ‘real time information’ which will be available under planned PAYE reforms may make the ‘poverty trap’ much more visible, with an impact on work incentives.

Money for children

10. It is proposed that (jointly owned) UC should be paid in one payment to one person in the household. It is unclear how this will be decided for couples; and the White Paper leaves open the possibility that payments for children could be made to the mother/’main carer’. The previous government decided that Child Tax Credit (CTC) should be paid to the ‘main carer’ for families in or out of work.

11. It is crucial to pursue this option. Research has shown that money paid via the ‘purse’ rather than the ‘wallet’ is more likely to be spent on the children. [7] In low/moderate-income families it is still the mother who tends to take the main responsibility for meeting children’s day-to-day needs. [8] Yvette Cooper MP recently cited evidence that 86% of CTC payments for families in work go to mothers.

12. Moreover, paying the means-tested element for children to the ‘main carer’ means it is more likely to be labelled explicitly – as Child Tax Credit is – as intended for children. This reinforces the message that it should be spent on children, and makes this more likely. Research by Goode et al. (1998, chapter 2) showed that how money was labelled influenced the way it was perceived and used.

13. The prevalence of joint bank accounts may be thought to make this less necessary. But our research with low/moderate income couples for the WHIPP project found that, whilst joint accounts were a powerful symbol of trust for couples, their presence was not necessarily an accurate indicator of their togetherness in terms of finances. In several cases, women felt uncomfortable accessing the joint account, in particular when children from a previous relationship were living with them. The existence of a joint account is no guarantee of equal access to money by both partners.

14. Leaving aside Child Benefit, the other payment for children paid to the ‘main carer’ is the childcare element of the Working Tax Credit - done because research (eg by Jan Pahl) showed that childcare costs were more likely to be paid by mothers. The White Paper leaves undecided future support for childcare costs - via a voucher system, an earnings disregard or (as now) partial reimbursement of costs. Relevant recent developments include the reduction of help from 80% to 70% of childcare costs; the White Paper proposes that those working under 16 hours per week should also receive help with their childcare costs, but from the current total – so others would receive less. As Family Action has pointed out, [9] withdrawal of childcare support may add to the marginal deduction rates (MDRs) under the UC, in some cases resulting in over 100% MDRs. But if childcare support is subsumed within UC, many mothers/’main carers’ in couple families could lose out. Payment should continue to be made to the ‘main carer’.

Monthly payment

15. The White Paper suggests that UC may be paid in one monthly lump sum. [10] The government recognises this may cause difficulties and suggests people could be given help with budgeting. But there is no indication of where resources for this might come from, especially given current spending pressures; and it does not seem sufficient to deal with the problem. Currently, many benefits can be paid fortnightly rather than monthly; and research suggests that low-income families value payments made more frequently than once a month for budgeting reasons. [11]

16. Among the low/moderate-income couples in our WHIPP research, [12] spending often took gendered forms; the commonest pattern was for the man to be responsible for bills which were more likely to be monthly, whereas the woman tended to do the weekly shopping (food etc.) and to be responsible for spending on everyday needs. The pressures created by the need to manage resources on a monthly timescale are therefore likely to fall in particular on women (lone parents, largely women, and women in couples). Payment of UC should be fortnightly.

Single payment

17. The White Paper perceives advantages in paying UC in one payment, bringing together different benefits and tax credits. There is evidence that claimants can currently find the interaction of benefits and tax credits problematic [13] - though there will still be interaction between help with housing costs and the UC (eg see Annex 3, White Paper). Amalgamation of benefits is not the only answer, however. In the Netherlands, for example, claimants agree that changes in ceratin circumstances reported to one authority can be conveyed to others too.

18. Lessons should also be learned from the lack of specification of tax credits awards, which has caused many problems. The makeup of the UC should be itemised (ie how much each element, such as housing, extra help for disability costs etc. is) , so that claimants can understand its composition. If an MDR is applied, there should also be a specified order in which elements are withdrawn (as there is currently).

19. In addition, if payment is from only one source - ‘all the eggs in one basket’ - the consequences of disruption are far more serious, especially for those on low incomes. Whilst the White Paper recognises that there must be some fall-back provision, this will inevitably take time and effort to be activated. It is crucial that if one element of UC is in dispute, the others continue to be paid.

20. These points about the design of UC all have implications for children living in low-income families, ie for child poverty in practice.

Certainty of entitlement

21. The UC is intended to bring about greater certainty about entitlementt. But the government is considering ‘localising’ Council Tax Benefit. In addition, those affected by Housing Benefit cuts may be able to access a discretionary fund administered by local authorities. The Educational Maintenance Allowance is being abolished, with some cases to be helped by existing local learner support funds. The government is also seeking to delegate Social Fund crisis loans and community care grants to local authorities. This is all likely to make entitlement less rather than more certain (or to replace entitlement with discretion with similar effects).

22. If these localised benefits are withdrawn using a taper, they will add to the marginal deduction rate proposed for the UC. [14] And how passported benefits, such as free prescriptions and free school meals, are to be awarded and withdrawn is still unclear.

Non-means-tested benefits

23. The White Paper raises questions about Carer’s Allowance. Carers UK [15] has said: ‘we are pleased the White Paper does not currently subsume Carer’s Allowance within the UC, as this would have introduced means-testing after thirty four years of carers having an independent income. Carers UK has made it very clear that we would not accept moving carers’ benefits away from this universal principle’ (2010, p. 3). In our interviews with individuals in couples for the WHIPP project, Carer’s Allowance was crucial for several women in giving them an independent income or helping to give more of a ‘say’ in decisions about the household income. Carer’s Allowance should be retained and improved.

24. The White Paper states that Child Benefit will not be part of UC. Yet the Secretary of State was reported as having hinted that it might be absorbed into UC in future. It is crucial that Child Benefit – which is simple to claim and pay and does not cause work disincentives – is also retained as a separate universal benefit for children’s needs.

25. Contributory benefits will rightly continue to be paid to the claimant themselves. But in a couple, this should not automatically mean that UC is paid to the same person.

Conclusions

26. Many issues above are often not visible in economic modelling but are critical to the ways households work (or do not work) as financial units. They relate to the ‘social meaning of money’ within families, demonstrating

‘... the significance of the source of income, its recipient, and the way it is

"labelled", for shaping both perceptions and allocation of financial resources’.

(Goode, J., Callender, C. and Lister, R. (1999), ‘What’s in a name?

Gendered perceptions of benefit income amongst couples receiving IS/JSA

and Family Credit’, Benefits, p. 11).

More consideration needs to be given to these important issues.

27. The two key concerns of the White Paper (see above) are complexity and work disincentives. Means testing is implicated in both. The most complex benefits rely on assessing income (and often assets), especially as this may involve joint assessment and therefore someone else’s income and assets. The more the system can be based on non-means-tested and individual benefits, the simpler it will be; and the more easily it can provide a floor for people to build on by their own efforts, whereas means-tested benefits are usually reduced when income increases, inevitably creating some disincentive. For these and other reasons, the remaining non-means-tested benefits should be preserved and improved.

28. Other key sources of complexity will remain under UC – including changes in circumstances (eg a partner moving in, or a couple separating), which are not much discussesd in the White Paper but can trigger complicated adjustments. The frequency of changes in low-income families’ lives seened to surprise some policy makers when tax credits were introduced. This must not be allowed to happen again.

29. The White Paper says it is proposing a new contract – giving greater certainty and improved work incentives, and so expecting more from claimants (in increased conditionality). However, conditionality is being tightened up before UC is introduced. The contract has in any case always been rather one-sided in terms of power relations between the individual and the state; [16] and with UC, control over most of a household’s income will rest with only one department rather than several.

30. The clearest example of a contract in the social security system is the national insurance scheme, in which risk is pooled through paying contributions in return for protection in adverse circumstances. However, the wider context of the White Paper includes time-limiting contributory Employment and Support Allowance for the work-related activity group to one year, representing a disruption of the existing national insurance contract.

31. The White Paper also describes its proposed contract as being between taxpayers and claimants - between the haves and the have-nots; and it endorses an ambition for individuals to be free of financial support from the state. But this is a narrow view of the multiple functions of social security, which does not just relieve poverty or help people back to work, but also prevents poverty, enables risk sharing, provides compensation, distributes the cost of bringing up the next generation between parents and the community, facilitates saving etc. In addition, benefit claimants are also taxpayers, via indirect taxes but sometimes also paying income tax. And all of us are in practice dependent to some extent on financial support from the state, through tax allowances and reliefs or in other ways.

December 2010