Universal Credit implementation: meeting the needs of vulnerable claimants - Work and Pensions Committee Contents

1 Introduction


1.  The Government is in the midst of a major overhaul of the welfare benefits system. It believes that the current system is too complex and that the incentives to move into work are poor. The overall objective of its reform programme is to help people to move into and progress in work, while supporting the most vulnerable. The Government aims to make the system fairer, more affordable and better able to tackle poverty, worklessness and welfare dependency. It also aims to use the reforms to promote greater personal responsibility.P0F[1]P

2.  The key legislation underpinning welfare reform is contained in the Welfare Reform Act 2012 which received Royal Assent in March. The Government stated then that the Act introduced a wide range of reforms to make the benefits and tax credits system fairer and simpler by creating the right incentives to get more people into work; protecting the most vulnerable in society; and delivering fairness to those claiming benefit and to the taxpayer.P1F[2]P One of the key policies within the Welfare Reform Act is the introduction of Universal Credit.

Key features of Universal Credit

3.  Universal Credit is a new benefit for people of working age, whether they are in or out of work. It will replace Income-based Jobseeker's Allowance (JSA), Income-based Employment and Support Allowance (ESA); Income Support; Child Tax Credits; Working Tax Credits; and Housing Benefit. The Government says that Universal Credit will help claimants and their families to become more independent and will simplify the benefits system by bringing together a range of working-age benefits into a single streamlined payment.P2F[3]

4.  Universal Credit will be based on a standard allowance to which the following elements can be added for households which meet the criteria: limited capability for work/limited capability for work-related activity elements; child element; disabled child addition; childcare costs element; housing costs element; and carer element.

5.  The Government plans to achieve its aim of ensuring work pays, and therefore increasing work incentives by using a single taper rate for deducting benefit as earnings increase and by putting in place a range of earnings disregards. Universal Credit is also intended to remove "cliff edges"; these are thresholds which exist in the current benefit and tax credit system that mean benefit is sometimes lost if a claimant works for more than a certain number of hours or only becomes eligible for certain payments if they are able to work a certain number of hours (usually 16 hours a week).

6.  At the same time as replacing six separate benefits with one new single benefit, the Government is planning a number of other changes within Universal Credit to encourage greater digital inclusion, financial inclusion and personal responsibility among benefit claimants. These changes will mean that, once someone is transferred to (or makes a new claim for) Universal Credit, they will at the same time be required to move to online claiming; they will receive a single monthly payment; and housing costs will be included in the single payment rather than being paid direct to landlords.


7.  Universal Credit is expected to be paid to an estimated eight million households when fully implemented. There will be three main implementation phases from October 2013 through to the end of 2017, at which time the legacy benefits of the current system will end.P3F[4]P The Government has decided on a limited early roll-out of Universal Credit, "the Pathfinder", which will begin in April 2013 with the objective of testing the system with local authorities, employers and claimants in a live environment. This Pathfinder will involve about 1,500 new benefit claimants per month in the North West of England.P4F[5]P

8.  Implementation of Universal Credit will require the passage of several sets of detailed Regulations. Draft Regulations were published in June and the Social Security Advisory Committee (SSAC) carried out a consultation on them, at the request of the Government. DWP has indicated that it plans to lay the final version of the Regulations before Parliament in December.P5F[6]P The Regulations will be supported by detailed guidance for DWP decision-makers; the Government has now started consulting stakeholders about the content of this guidance.P6F[7]

9.  The Government has said that it will provide transitional protection to Universal Credit recipients whose circumstances remain the same, in order to ensure that they do not receive less benefit as a result of their move to Universal Credit. However, the cash protection amount will not be uprated over time along with the rest of Universal Credit, and the protection will stop if a claimant is reassessed following a significant change of circumstances (such as moving house where housing costs form part of the claim).P7F[8]P

Related policy and administrative changes

10.  Universal Credit implementation is taking place in the context of other significant policy changes. Housing Benefit reforms announced by the Coalition Government in June 2010 have already been implemented or will come into effect soon; a benefit cap, limiting the total income from benefits which a household can receive, will be introduced in April 2013; Council Tax Benefit will be abolished and replaced with localised council tax support schemes in April 2013; the discretionary Social Fund will be localised from April 2013; Disability Living Allowance is being replaced by the Personal Independence Payment from April 2013; and the migration of Incapacity Benefit claimants to Employment and Support Allowance, which began in 2011, is continuing.

11.  There is also a range of major administrative, IT and staffing changes associated with Universal Credit implementation. HM Revenue & Customs (HMRC) is developing a new system for collection of PAYE taxation, called Real Time Information (RTI). From October 2013, employers will be required to provide monthly information online about salaries and other payments made to their employees. DWP will use the information from RTI to calculate monthly Universal Credit entitlement.P8F[9]P

12.  There will be significant staffing and organisational changes as a result of Universal Credit. At present HMRC staff are responsible for the administration of tax credits and local authority staff administer Housing Benefit, but all of these responsibilities will move to DWP under Universal Credit. Some HMRC staff are expected to be moved to DWP to work on the administration of Universal Credit. DWP has said that the future for local authority staff will not be clear until more is known about arrangements for the local delivery and support of Universal Credit, and the impact of other changes in local authority responsibilities (such as localised council tax support and the localised discretionary Social Fund).P9F[10]

Our inquiry

13.  We received a large volume of written evidence from a range of organisations and individuals including local authorities, housing providers, providers of welfare advice, professional bodies, academics and other interested organisations. We held three oral evidence sessions with local authority and union representatives, professional bodies, academics, advice agencies and Government Ministers. A full list of witnesses is set out at the end of the Report. We are grateful to all those who contributed to our inquiry.

11414   T It was clear from the evidence received in our inquiry that there is widespread support for the principles of welfare reform, the general direction of policy development for Universal Credit, and the aim of strengthening incentives to work and facilitating the move from benefits to work. We share this support for the Government's aims for Universal Credit. It was equally clear, however, that there is considerable concern about the ambitious timetable for introducing Universal Credit; whether there will be sufficient time for the Government to learn from its pilots; and whether it is desirable or necessary to implement so many changes at once. Concerns raised in the evidence centred very much on the impact the changes might have on the most vulnerable claimants, such as some people with disabilities, homeless people and those who already struggle to manage their finances. This report therefore focuses on the nature of the risks for these vulnerable groups and on the Government's plans for protecting them.

15.  The introduction of Universal Credit is a very complex process with wide-ranging implications. There are still many decisions to be made, including setting the levels of awards. It has not therefore been possible to explore all the elements of Universal Credit in a single inquiry and report. We expect this report to be the first in a series exploring different aspects of Universal Credit as the implementation progresses.

Structure of this report

16.  The next chapter will look at how Universal Credit will be delivered. Chapter 3 examines the arrangements for claims and payments. In Chapter 4, we consider some of the main elements which will contribute to Universal Credit entitlement, including housing costs, childcare costs and payments to disabled people. The way earnings will be calculated and treated within Universal Credit is analysed in Chapter 5. Chapter 6 assesses the implications of related policy and administrative changes. In Chapter 7, we examine the implementation timetable and process.

1   For a summary of the Government's objectives for welfare reform, see for example : DWP ,Universal Credit: Welfare that Works, Cm 7957, November 2010; DWP Impact Assessment for Universal Credit, February 2011; and DWP, Explanatory Memorandum for the Social Security Advisory Committee on the Universal Credit Regulations 2012, June 2012 Back

2   DWP Press release, 8 March 2012, " Iain Duncan Smith: Welfare reforms realised" Back

3   DWP, Explanatory Memorandum for the Social Security Advisory Committee on the Universal Credit Regulations 2012, June 2012, Introduction [Draft Universal Credit Regulations, Explanatory Memorandum] Back

4   DWP Press release, 1 November 2011, "Iain Duncan Smith sets out next steps for moving claimants onto Universal Credit"; see also Ev 90 paras 5-8 Back

5   DWP Press Release, 24 May 2012, "Iain Duncan Smith: Early roll out of Universal Credit to go live in Manchester and Cheshire" Back

6   Qq 371-373 Back

7   Draft Universal Credit Regulations, Explanatory Memorandum, para 245 Back

8   Ev 90 and 101.  Back

9   Ev 90 Back

10   Ev 90 Back

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Prepared 22 November 2012