White Paper on Universal Credit

Written Evidence Submitted by Barnardo’s

Introduction

1. Barnardo’s works directly with more than 100,000 children, young people and their families every year in 415 services across the UK. These services are located in some of the most disadvantaged neighbourhoods. We work with children affected by today’s most urgent issues: poverty, homelessness, disability and abuse. Barnardo’s aims to reduce the impact of poverty on children, young people, families and communities through social, economic and community action – around one third of our work focuses on the alleviation of poverty, and it is an inescapable element of nearly all our services.

2. In early 2009 we published Below the Breadline, a year long study which followed 16 families, and provided a detailed insight into the day to day lives of children growing up in poverty. [1] Issues with the benefits system, and barriers to entering work, came out as significant themes from this research. Reform of the benefits system is critical if we are to break the entrenched culture of unemployment that can exist in some communities and ensure the Government meets its target of eliminating child poverty by 2020.

Summary

3. Barnardo’s welcomes the White Paper and the proposal to improve work incentives in the benefits system by the introduction of a universal credit. We believe the proposal could go some way to reducing complexity in the current system and ensure that families are always better off in paid work than on benefits, even if that work is only for a few hours a week. However, such a radical reform of the benefits system requires careful planning and consideration of a range of issues and while we are supportive of the proposals we have some concerns about the detail. Our main concerns are as follows:

· Help with childcare costs. Families should be provided with sufficient help with childcare costs, in a way which is transparent and that facilitates parents moving into and progressing in work.

· Changes to council tax benefit. The proposal to localise council tax benefit should not undermine the basic principles behind universal credit, particularly the aim to encourage paid work through the introduction of lower marginal deduction rates for most families.

· Means testing of child benefit. There should be a single mechanism for means testing benefits. As such we believe that child benefit should be paid and means tested through universal credit rather than through the tax system.

· Introducing harsh sanctions for families who do not undertake reasonable steps to find work. The White Paper outlines a significant increase in sanctions for families who do not take reasonable steps to find employment including a mandatory requirement to undertake work. While broadly supportive of these principles, changes to this regime should not be such as to make life worse for the most vulnerable children in the UK.

4. We would welcome the opportunity to give oral evidence to the committee.

Help with childcare costs

5. Evidence continues to show that access to affordable, good quality childcare is a key element in the decision to return to work for many families with children, particularly lone parents. A report by the Equality and Human Rights Commission [2] revealed that 28 per cent of all non-working parents said they are not working because of inadequate childcare provision, while more than half of non-working lone mothers say they would prefer to work if they could find good quality, affordable and reliable childcare. This same report revealed that the cost of childcare was a significant issue for families with around one in five parents who pay for childcare saying that they struggle to meet their childcare costs.

6. This research backs up findings from Barnardo’s which show that the availability and affordability of childcare are absolutely key in the decisions of parents to enter and remain in the workforce. In our response to the Green Paper 21st Century Welfare we highlighted the following case study of a family where the mother has had to give up work completely due to lack of help with childcare costs – which under the current system is only given to parents working at least 16 hours a week.

Michelle has four children aged 18, 14, 11 and 4. She left her job as a youth worker because her hours were cut from 16 to 7. This meant she couldn’t claim working tax credit and didn’t qualify for other benefits such as housing benefit and free school meals for her children. It no longer paid Michelle to stay in work. As Michelle explains, there are not many opportunities for youth work in the area:

‘Hours, not enough hours. Sometimes they start off with six or seven – depending on the funding they might be able to give you a couple more hours here. If the funding runs out you have no job.’

7. The White Paper remains vague on how the Government proposes support with childcare to be given under the new universal credit system. Current Government thinking suggests a number of options are under consideration, which include:

· Option one: allowing childcare costs to be disregarded for the purpose of calculating taper rates under universal credit

· Option two: adding a childcare element to the basic universal credit payment for families requiring help with childcare costs

· Option three: dealing with childcare support outside the system of universal credit, either through a voucher or discount based system.

8. Barnardo’s believes the Government should establish a set of guiding principles when developing a system for supporting childcare costs. As a minimum we would hope for a system which:

· is transparent and simple to understand

· supports the provision of high quality childcare

· supports a move into and progression through work for parents.

As a minimum the Government should aim for a system which provides a level of support with childcare costs which is at least equivalent to the level provided under the current system. In the Comprehensive Spending Review the Government announced a reduction in support for childcare costs given through the working tax credit from 80 per cent to 70 per cent. Any further cuts to this budget will affect work incentives for many families at a time when the Government’s stated objective is to improve them.

9. Considering these principles we believe that option one provides the worst option for families as it fails to support a move into and progression through work for certain groups of parents, while making many others worse off than under the current system. Options two or three are more effective as they involve giving families a direct payment to help pay their childcare costs.

10. Dealing with childcare costs through the disregard would make many families worse off than under current working tax credit measures. This is because in reality even if childcare was disregarded at a rate of 100%, this would effectively give families a maximum level of help of 65% (the level of the taper rate), and many families would gain significantly less than that. This compares to a maximum level of help of 70% under working tax credit. This point is illustrated in example one below.

11. In addition we also believe that there are two main groups of families who would face particularly poor work incentives under this system (particularly in comparison to a system more in line with option two or three). Again this would be the case even if childcare was disregarded at the generous rate of 100 per cent; these are:

· families working only a few hours a week for a small amount of money i.e. those in "mini jobs"

· families with high childcare costs, particularly those with more than one child, those with younger children under the age of two, or those living in London.

Families working only a few hours a week

12. One of the aims of the proposals in the White Paper is to ensure families have an incentive to undertake some paid work, even if this is only for a few hours. We applaud that principle and look forward to it being implemented. However, under the current system many families face very poor work incentives for working less than 16 hours a week (when they become entitled to working tax credit). The Government recognises that childcare is an important part of this stating that "The aim would be to allocate some of the current support to those working fewer than 16 hours, so that all types of work are rewarded". However under a system which only gives support with childcare costs through the disregard it is highly unlikely that many of these families would qualify for any support with childcare at all as example two illustrates.

Families with high childcare costs

13. A second group disadvantaged by this system would be families with large childcare costs, particularly if they are earning only slightly more than the disregard. This will have a disproportionate impact on lone parents with more than one child, and those with children under two for whom the average cost of full time nursery care in England is £176 a week [3] .

14. Given the issues highlighted above we urge the Government to provide families with a specific additional benefit payment towards childcare costs. Given that the amount families receive would need to be means tested it would seem easiest to do this as part of their universal credit payment, and would represent an amount added to the basic universal credit award for working families. Alternatively, Barnardo’s would work with Government and other experts to consider how proposals to pay through a voucher system may work in practice. If childcare was added to the basic universal credit award at a rate of 70 per cent, this would provide a better take home income after childcare per week than under the disregard, for all of the examples given below.

· Example one: under the disregard the parent would have a take home income after childcare of £353, whereas they would have a take home income of £358 if childcare is added to universal credit

· Example two: Under the disregard the parent would have a take home income after childcare of £229, whereas they would have a take home income after childcare of £262 if childcare is added to universal credit

· Example three: under the disregard the parent would have a take home income after childcare of £280, whereas they would have a take home of £332 if childcare is added to universal credit

15. As a minimum the amount added to universal credit should represent around 70 per cent of childcare costs for the poorest families, equivalent to the support provided under working tax credit after the reforms announced in the Spending Review are implemented. In reality even this would result in a reduction in childcare help for many families since under the current system childcare can also be disregarded for the purposes of housing benefit payments; as such help at 80 per cent would reflect more accurately current levels of support for families.

Council tax benefit

16. Barnardo’s would be very concerned at any proposal to place council tax benefit outside the universal credit system. As a means tested benefit, the introduction of a separate system for applying for and calculating levels of council tax (including separate disregard and tapering system) could significantly undermine the Government’s intention to introduce a single coherent benefit system, introducing added complexity and the possibility of reducing work incentives for those who would otherwise have gained through the introduction of universal credit.

17. The key difficulty with keeping council tax outside universal credit is that it will require a separate tapering system. Under current universal credit proposals no family would face marginal deduction rates of more than 76 per cent. However if separately for every £1 earned the family would lose not only 65p of universal credit but 20p of council tax benefit (a taper rate similar to that in place now), then overall including tax and NI once a family income reached the disregard level then for every £1 earned the family would keep only 4p of it giving a marginal deduction rate of 96 per cent significantly decreasing work incentives.

18. While we understand the Government wishes to give local authorities more control over council tax benefit payments we would strongly urge that this is not allowed to undermine the very valuable principles outlined in universal credit. As a minimum we would suggest that even if overall eligibility and level of council tax benefit is decided at a local level, it is still added to basic universal credit payments, thus enabling it to be amalgamated into the proposed system of disregards and tapers already in place. This would ensure that the proposal doesn’t interfere with the objective of improving work incentives and reducing marginal deduction rates for poor families.

Child benefit

19. Following proposals outlined at the Conservative Party conference and confirmed in the Spending Review the Government has made the decision to means test child benefit by removing this payment from families with a higher rate tax payer. Barnardo’s has been supportive of restricting child benefit payments to higher income families. In difficult fiscal circumstances we believe that the best approach to reducing the cost of the welfare system is to ensure better targeting of the limited resources available, thus protecting those most in need while redistributing benefit payments currently given to higher earning families.

20. We feel that the proposal to remove child benefit payment from households with higher rate tax payers was a step in the right direction. However there are a number of policy anomalies with this decision, particularly in that the benefit is not tapered but given either in full or not at all. This means that for individuals whose income is approaching the higher tax band they would be better off not earning more money, refusing extra hours, or a promotion, rather than earning slightly over the threshold since the extra income earned will not make up for the benefit lost, particularly in households with several children. This runs in direct contradiction to the policy of ensuring that work always pays and that earning more pays more.

21. The introduction of universal credit provides the ideal opportunity to simplify the issues surrounding child benefit, by paying it alongside other means tested benefits. This would remove current anomalies and allow for further targeting. At present some households earning £80,000 can still qualify for the benefit. We have always stated that the savings which could be achieved through means testing child benefit could amount to around £5 billion - this is £2.5 billion more than the savings proposed by means testing through the tax system. Saving a further £2.5 billion would provide valuable extra income which could be used to increase benefit payments to the poorest families and possibly lift significant numbers of children out of poverty.

22. The payment of child benefit through universal credit would simplify the system of payment for families and would remove the need for low income families to make a separate claim for child benefit.

Changes to the conditionality regime

23. It is entirely reasonable that long term recipients of unemployment benefits should be required to work when a suitable job is identified for them and this is a well established principle in the current system. Many conditionality requirements proposed in this White Paper are not new and there have always been sanctions for non compliance. We know from the current system that the number of times sanctions are applied are small (about 3% of all JSA cases).

24. However we do have concerns about elements of some of these proposals and how they could impact on vulnerable families:

· Will lone parents with a child under the age of 13 be exempt from the requirement to undertake full time work even when placed in the active job search group? At present these parents are only required to look for a job covering normal school hours (not full time) and it would therefore be unfair to expect them to undertake mandatory full time work in preparation for getting a part-time job. Childcare costs could also be an issue for this group, depending on the Government’s final decision on how help with childcare costs should be determined.

· Will proposals to reform the hardship payments take away vital support to families most in need? Even if a family has conditionality applied to them they are still able to make a claim for a hardship payment to avoid serious destitution. The Government proposals for hardship payments in the new regime are vague. The White Paper suggests that in certain circumstances the payments may be given as loans and perhaps taken away from some people all together if there is an overreliance on them. Barnardo’s would be very concerned if these payments of last resort were not available to families who could be in desperate financial circumstances. While we support the Government in its desire for parents to work, some protection should be provided to prevent vulnerable children suffering as a result of the conditionality regime.

December 2010