White Paper on Universal Credit

Written Evidence Submitted by London Borough of Camden

Summary

1. This response is prepared on behalf of the welfare rights team in the Integrated Early Years Service of the London Borough of Camden’s Children Schools and Families department. We currently support families with children under 5 or expecting a child, families with disabled children, and families who are working or moving into employment or training. We advise many low income working families and have tried to consider the proposals for Universal Credit bearing in mind the experiences of the current system that these families have.

2. We are concerned that despite the rapid pace that reform seems to be taking place, there is still very little detail about the system. The Universal Credit white paper seems to pose more questions than it answers and we feel that more detail should be provided and consulted on before any decisions are made about Universal Credit. We would be concerned to see decisions being taken quickly that may have inadvertent and unexpected policy implications.

3. Below we have attempted to highlight some of the concerns we have about the proposals that have been included in the white paper and raise some questions that we feel should be addressed.

Core model

4. We think it is important that the current system of applicable amounts including premiums for disabled adults and children are maintained in the new system and not reduced. It would be unfair if the reforms of Universal Credit, designed to help people into work, ended up reducing premiums and therefore benefit entitlement for people with disabilities both in-work and out of work.

5. The system of differential disregards which depend on housing costs may perversely make the system more complex and harder to negotiate for many people than the current system. Currently, many working people on low incomes who receive both tax credits and housing benefits find that their tax credits are easier to understand and predict than their housing benefit. This is because awards are for a fixed period so people know what their payments will be, and know simply that if their income is below a certain figure, they will get their full entitlement, and entitlement will reduce if income rises above that figure. Under Universal Credit, it may be harder for people to know how their changing income will affect their entitlement, particularly given the varying disregards, despite the single taper. Especially for people with varying incomes, such as shift workers and agency workers, it will become harder to predict not only what their earnings would be but also what their Universal Credit payments would be.

6. People would also find it difficult to manage their household budgets with the UC. With the present system families may be getting separate payments for help with their rent, separate payments for their children and separate payments for themselves. In a lot of cases the money for their children may be going into a completely separate account or in the cases of couples one partner may be receiving the money for the children and another partner may be getting the Working Tax Credit or the money for themselves. This allows them to clearly allocate money for each household cost and it is much less confusing.

7. For some couples the current system may also ensure that one partner does not have full control and domination over the household income while the other partner struggles. We get a lot of cases where this happens (usually it is the mother who is left struggling to cope financially while the male partner has full control over the household income but is not willing to use the money to pay for important household costs). With the UC system there is a danger that this sort of financial abuse within couples will increase.

Childcare payments

8. The current system of childcare support in tax credits is too complicated and creates many problems for clients, particularly the need to work out an annual average and the requirements to report change in this annual average. Linking childcare support to a shorter frequency of payments is a good opportunity to simplify the system and reduce uncertainty, overpayments, underpayments, fraud and error. We also welcome the proposal to offer some childcare funding to families working under 16 hours per week as childcare is one of the chief barriers to doing low hours of employment currently.

9. However we are concerned by any consideration of a less generous provision than is currently available. Many families are already struggling with high childcare costs. Most childcare is extremely expensive and this is exacerbated in areas with high demand, including Inner London, and is also set to increase as further grants and subsidies are removed from childcare support through local authorities in the near future. The current rates already do not fully cover the true cost of childcare particularly when parents are claiming for very young children and when there are more than two children being claimed for. Many of the parents we have worked with have actually been dissuaded from returning to work specifically because they could not find childcare within the caps and could not afford to make up the shortfalls. Others have returned to work and faced shortfalls but have decided to struggle through despite being in severe hardship. Others have decided to work part time rather than full time because the daily rates of their childcare were only affordable where they limited their hours of employment. There are also many parents or carers of disabled children who would like to do some paid work but require specialised childcare which is even more expensive than normal. These are families who really should be being supported as much as possible given the Government’s goals of rewarding those who do as much work as they can. We believe that the childcare support system should be strengthened, not restricted if the Government is to achieve its goals.

o The decision to cut childcare support from 80% to 70% from April 2011 will already adversely affect many working families and is already affecting some of our clients’ decisions about returning to work and about their levels of hours. We believe that this restriction should be reversed under Universal Credit.

o We would suggest increasing the weekly caps above current levels, for some groups such as parents with very young or disabled children or more than 2 children, in order to increase the amount of parents who can gain financially by returning to work.

o We feel that an element added on to basic Universal credit entitlement – in a manner similar to the current childcare element – would be better targeted than discount vouchers or additional earnings disregards. Putting it in a form of a disregard may mean little financial benefit for low income workers whose income is not high enough to benefit from the disregards and the tapers. Discount vouchers may be hard to claim and may leave many people still unable to afford the portion of their childcare that they are expected to pay.

o We are concerned that many middle income families who currently receive childcare support may lose out on the new system. Because of the higher taper compared with families who currently receive tax credits only but no housing benefits, perhaps because their income is high and their housing costs are low, this support is likely to be withdrawn on the new system from those families, despite many of them facing huge childcare costs in order to work and relying on the current system to support them into work.

Self-employment

10. We are concerned about the announcement that a "floor of assumed income" is being considered for self-employed earners getting Universal Credit. In fact in general self-employed earners do not seem to have received much consideration in Universal Credit as much talk is made of linking payments to evidence of real time PAYE earnings. Self-employed earners on low incomes could get a raw deal on Universal Credit, as variable earnings and difficulty declaring earnings until the end of the financial year (on completion of accounts) could cause a problematic interaction with Universal Credit and a less sustainable system of support than is currently available on tax credits. Many self-employed people go through phases with lower and higher incomes and the "floor of assumed income" could work against many people, removing a vital element of support at a time of loss of income. Likewise conditionality for self-employed earners could pose difficulties as self-employment often takes many hours of effort for little remunerative reward, offering little time and energy for people to correctly comply with a conditionality regime. The combined effect of these features could put many people off becoming self-employed under the Universal Credit system, or could put people off remaining self-employed, even if there is the possibility their business could pick up in the future, leading to increased earnings and reduced reliance on Universal Credit.

11. This is at a time when many people are becoming self-employed and in a climate with limited job opportunities many people are choosing to set up their own businesses and attempt entrepreneurship for the first time. Many of our clients have been unemployed for many years and make a difficult, stressful decision to set up their own business. It may take a considerable amount of time for the business to develop, but is often a route off benefits and into sustained economic activity that works very well for those people. The proposals about self-employed earners under Universal Credit cause us considerable concern that there may be less help available for such groups.

2. Conditionality

12. We are very concerned about increased conditionality under Universal Credit. Research has shown that conditionality has limited impact in comparison with the impact of support for claimants to find work and to overcome barriers to work. Most of the people that we work with are keen to come off benefits and into work and for most of them, the reason that they do not work is because of barriers such as low skills and confidence, lack of availability of jobs, lack of flexible working arrangements and lack of appropriate childcare. It would be more productive to focus on removing those barriers, both with claimants and employers, than bringing additional conditionality which claimants must comply with at extra expense both to claimants and to the taxpayer. Further, loss of additional income through sanctions at a time of long-term unemployment is likely to push claimants further still from the labour market, as a 2010 report has shown that poverty, debt, and financial worries act as a strong barrier and disincentive to take up employment ("Out of work and out of money," Manchester City Council, May 2010).

13. We are particularly concerned about the possibility of conditionality being extended to people who are already working to increase their hours and earnings. It would be very hard for many people to comply with this if they are already working; particularly claimants who may already be struggling to juggle work and childcare commitments. Putting such people at risk of non-compliance and sanctions would put undue additional pressures on people and may make it harder for people to remain in work. The risk of loss of benefits once people are working could also act as a work disincentive, increasing peoples’ concerns about the insecurity of their financial support once they are in work, and therefore going against the aspirations of this reform. We would strongly oppose any extension of conditionality to claimant groups not already covered.

Delivering Universal Credit

14. We note that the proposal is for Universal Credit to be paid monthly, in line with earnings, in order to encourage "personal responsibility." For many of our clients, having tax credits paid weekly is a real help when their incomes are being supplemented by tax credits, because earnings are normally paid monthly. Having some income that comes in every week helps them to budget and manage their outgoings in order to avoid falling into arrears. People may fall into problems if there is no option for Universal Credit to be paid weekly, as they may be waiting long periods of time for both Universal Credit and their own earnings. This is not about "personal responsibility" but an acknowledgment that outgoings need to be made at varying dates and often cannot be changed. Many of our clients are used to living on a low income and are adept at budgeting carefully and planning their income and outgoings, however they still rely on having weekly payments to ensure that they remain on top of everything.

15. We hope that having automatic payments made through the PAYE system will ensure more accurate awards. However, we are concerned that there is some scope for error within this system and believe that it is vital that there are sufficient support services within Universal Credit that can be easily accessed by claimants in case there are problems, and also that there are advice services available – both within the DWP and independently – for claimants to check if their awards are correct.

16. We are concerned that many of our clients would struggle to access online channels and believe that it is important that other routes, such as telephone and face-to-face access, remain available for anyone who needs it. Having less support services available and contact points for claimants may make savings in the short term but is more likely to lead to fraud, error, and other costly mistakes in the long term as claimants need to be have easy access to talk to advisers about their claims.

Treatment of earnings and income

17. It is unclear from the report how support with council tax would be factored into the system. The report suggests that help support with council tax could be fully under the discretion and control of local authorities and therefore outside of the scope of Universal Credit. If this is the case, we believe that the comparison between Universal Credit and the current system is not an accurate comparison. The current marginal deduction rates include loss of council tax benefit; yet if help with council tax is not included in Universal Credit, then the loss of support with council tax is not being included in the 65% taper proposed for Universal Credit. We would like to see clarification about this. If it is the case that loss of support with council tax is outside this scope, we would like to see research done to show how loss of support with council tax would affect the new marginal deduction rates under Universal credit.

Income and capital rules

18. We are concerned that the current provision under tax credits to ignore capital, and count only the income from interest from capital, will be lost under UC. This is a hidden change in which a specific group of claimants could substantially lose out, namely those who hold certain savings but are currently still entitled to claim tax credits to top up their income. A family with combined capital of £17,000 (which will return hardly any income with current interest rates) can currently claim tax credits if they have low earnings, although they cannot claim any means-tested benefits. Under the new system they will not be able to claim any support. This will act as a disincentive for people to save money.

Family assessment

19. We believe that it is important that not all the payments to a couple go to the same claimant. Under tax credits currently, working tax credit goes to the main worker and child tax credit goes to the main carer. This makes sense and also makes it clearer for families to understand what money they are getting and why. However, it also removes scope for financial abuse in relationships, which can easily occur when all payments are made to one member of a couple. In some cases where there is domestic violence, making all the payments to one member of the couple could have the effect of trapping the victim in that relationship, exacerbating the problems.

Additional payments helping people into work

20. We believe that payments such as the job grant and in-work credit should be retained under Universal Credit. Parents moving into work often find the initial period difficult as they adjust to higher costs, different daily patterns and changes to their weekly budgeting. They find that being given extra support for the first year in work greatly eases this process and makes it far easier for them to make the decision to move into work, and remain there once they have started working. The introduction of Universal Credit will not take away the need for this additional support, or the fact that this additional support is vital for helping people into work and remaining in work, and should therefore be retained.

December 2010