Work and Pensions Committee - Universal Credit implementation: meeting the needs of vulnerable claimantsWritten evidence submitted by the Confederation of British Industry (CBI)

1. The CBI is the UK’s leading business organisation, with offices around the UK as well as representation in Brussels, Washington, Beijing and Delhi. The 240,000 businesses the CBI represents employ around a third of the private sector workforce, a significant percentage of those that will be affected by HM Revenue and Customs’ (HMRC) move to a Real-Time Information payroll system (RTI). CBI members are therefore crucial to the government’s successful introduction of Universal Credit.

2. The CBI supports the introduction of the Universal Credit as a way to simplify the benefit system and increase claimants’ financial incentives to work. An overhaul of our overly complex benefit system was overdue and the improved labour market incentives the new benefit design brings are positive. By making it easier for existing employees to work more hours or begin work, the new benefit should help businesses resource effectively when demand rises. Our attached briefing note The Government’s Welfare Reform: Universal Credit sets this out in further detail.

3. However, the Universal Credit’s successful implementation at a business level is wholly dependent on how effectively HMRC handles the major transition to Real Time Information (RTI), the new payroll system where employers will tell HMRC about PAYE (Pay As You Earn) payments at the time they are made, rather than at the end of the year. This is a significant operational change for businesses. The CBI is concerned that the new system’s tight delivery timetable, coupled with low awareness among companies, is a risk to business and to the implementation of the Universal Credit. Government must take immediate action to ensure the system will be delivered without placing additional burdens on business.

4. In this submission, we argue:

Universal Credit must be as simple as possible and increase incentives to work effectively.

Successful implementation of Real-Time Information is critical to making the Universal Credit work.

Benefit reform needs to be underpinned by efficient welfare to work services.

Universal Credit must be a simple as possible and increase incentives to work effectively

5. The key strength of the Universal Credit is simplicity. As one single benefit, it consolidates the existing multitude of in and out of work benefits into one monthly payment. This represents a considerable improvement on the current benefits landscape, which is often complex and difficult to understand. Under the new single benefit, claimants will not have to calculate how much each individual benefit they claim would be reduced if they took up work and how this would impact on their overall income. Cutting through this complexity is welcome and should make it easier for claimants to understand the financial benefits of taking up work or working more hours.

6. However, there is a real risk that this simplicity is lost during implementation. Universal Credit has the potential to be a big improvement on the current benefit system, but complexity is starting to creep back in. A case in point is the Explanatory Memorandum for the Social Security Advisory Committee on the benefit’s regulations, which sets out the detail of the policy. The document spans 59 pages in total, with much of the detail on individual elements of the benefit in further supporting documents. If you have to be an expert to understand how the new benefit works to claim it, the new benefit won’t work as an incentive. For businesses, this means they will feel the additional burden of RTI but will not benefit from the additional labour market flexibility the Universal Credit could introduce. To avoid undermining the new benefit’s effectiveness, we therefore recommend that the DWP makes simplicity a key criterion in their introduction of the Universal Credit and its ongoing monitoring.

7. In addition to simplicity maximising incentives to work is essential. This reform is also a good opportunity to assess how key barriers to work can be lifted, specifically the availability of low-cost childcare and transport. These financial factors often limit people’s ability—and sometimes willingness—to find and hold down a job. The current design of the Credit does not mitigate against these problems, which have dogged the effectiveness of welfare-to-work for many years.

Childcare: The government should exclude Ofsted-regulated childcare costs element from the Universal Credit taper. Under the Universal Credit childcare costs are exempt from the benefit cap, but they are subject to the taper. This means that of the 70% of childcare costs households can theoretically claim back from government many families will effectively only be able to claim back 25%.1 With the cost of childcare representing a key barrier for women in taking up work, reducing the pool of labour employers can draw on, excluding childcare costs from the Universal Credit taper could help more women to enter the labour market.

Transport: The government should also reconsider the role of transport within the Universal Credit. Transport costs represent a significant barrier to work for most claimants. They can take up a substantial amount of average monthly earnings amongst workers in the lowest pay bracket, meaning taking up work often simply does not pay.2 It is therefore important that the government reconsiders the role of transport within the Universal Credit to ensure transport costs do not disincentivise claimants from taking up work.

8. The wider programme of benefit reform represents another opportunity to reduce complexity. In addition to the Universal Credit, a number of other benefits, so called “passported benefits”,3 will initially coexist alongside the new benefit. Given the scale of the challenge of introducing the Universal Credit it is however sensible that these benefits remain outside the new benefit for now to maintain the deliverability of the programme.

Successful implementation of Real Time Information is critical to making the Universal Credit work

9. Universal Credit’s success depends on HMRC smoothly implementing RTI under extremely tight timelines. To work effectively, Universal Credit needs to have access to good-quality, up-to-date claimant data. For the majority of Universal Credit claimants this will be sourced from HMRC, through its new RTI system. This means it is critical that RTI is working and in place before Universal Credit comes in.

10. While initial feedback from employers involved in the RTI pilot has been satisfactory, with officials providing adequate support when the system fails, we are concerned that such support will not exist when the programme is rolled out at scale. In addition, the implementation timetable for RTI is extremely tight, allowing no time for slippage. Businesses need to be reassured that RTI can be delivered and that plans are in place in case something goes wrong.

11. HMRC must minimise the additional burden on businesses through RTI and clarify what information employers will be required to submit. Employers are still unclear what information they will be required to submit under RTI, making it impossible for them to prepare adequately for the new system. In addition to this an initial list of information to be provided under RTI includes a number of pieces of information that it would either be extremely burdensome—or legally impossible—to collect for employers. These include, among others, employees’ relationship status, partners’ details and up-to-date addresses. Therefore, government must clarify and streamline the information employers will be required to submit under RTI for Universal Credit claimants and other employees as soon as possible. Additional data collection, stretching beyond workplace issues, is not acceptable to business.

12. The DWP also needs to devise mechanisms for getting up-to-date data for those Universal Credit claimants for which no RTI data will be available. A potentially large number of businesses do not currently use PAYE because they pay their employees cash or they fall under the income tax and National Insurance threshold. These companies’ employees are highly likely to be eligible to claim Universal Credit, but as a result of the way in which their employers operate there will be no real time information available for them.

13. The draft Universal Credit regulations suggest claimants need to self-certify any income received outside RTI, however this clearly carries a big risk of fraud. Reporting employees’ income on a monthly basis to HMRC manually would, on the other hand, present an unacceptable extra burden for employers. We therefore strongly encourage the department to consider ways in which these employees can claim Universal Credit without imposing an additional monthly burden on their employers.

Welfare reform needs to be underpinned by efficient welfare-to-work services

14. The effectiveness of Universal Credit as a work incentive depends on its simplicity and the strength of the incentive. As a policy tool the new benefit will only work if HMRC’s move to a “Real Time Information” payroll system is successful. However, to move people into work Universal Credit will need to be complemented by efficient welfare-to-work services and holistic, face-to-face support for claimants.

15. The move to self-service online claims as the default should free up a considerable amount of resources within Jobcentre Plus (JCP). This represents an opportunity to re-think how claimants are supported. JCP needs to use the move to self-service online claims to shift its emphasis from a mere benefits audit to supporting people into work. The focus in JCPs is all too often on assessing a benefit situation, and not suitability for work. This is particularly damaging, given that an individual is most likely to return to work in the first months of unemployment, when they are not used to being out of the labour market.

16. To help address this, a comprehensive “readiness to work” assessment, which maps out a full range of issues affecting a person’s ability to find and sustain work, should be introduced alongside Universal Credit. Many workless people have a range of complex barriers to work and much of the existing research suggests that individual, personalised support has the best results in helping people back into work.4 The government is already taking this approach through its Work Programme, but only for long-term unemployed people. As we outlined in our report Action for jobs: How to get the UK working,5 the introduction of Universal Credit is a chance for JCP to do the same for people who have been out of work for a shorter time and, particularly in the current labour market, risk falling into a spiral of dependency. The new assessment would identify a claimant’s distance from the labour market and can be used as a tool to tailor individual support.

17. Claimant commitments need to be comparable, including frequent contact with JCP staff, and sanctions need to be applied coherently. The CBI wholeheartedly supports the Universal Credit principle of claimant commitments, with claimants having to actively look for (more) work in return for claiming benefit. Because every claimant is different, we welcome JCP advisors’ flexibility in designing claimant commitments. However, it is important that commitments for similar types of claimant remain comparable, so that the impact of Universal Credit on work outcomes can be monitored effectively. Similarly, the move to online claims and job search facilities should not lead to less contact with JCP staff. As we argued in Action for jobs, as services move online, there is a strong case to be made for people to sign on twice a week in person, and more often online, to make looking for a job resemble having one as far as possible. There is also a clear case for coherence in applying sanctions (eg in the interpretation of what counts as “good cause” for not complying), to ensure work incentives are effective and Universal Credit’s impact on work incentives can be measured effectively. The publication of guidelines for JCP advisers may help bring about greater coherence. The publication of statistics on decisions taken in different JCP district may help identify where decisions vary substantially.

18. Finally different organisations need to work together in supporting claimants into work. A relatively large number of organisations are involved in helping workless people back into work, in helping working people increase their hours or in making the introduction of the Universal Credit work. These include local authorities, which will administer the housing benefit cap and are responsible for delivering the prime minister’s problem families programme, Work Programme providers, JCP, the DWP and the HMRC. To deliver the individualised support necessary to help workless families back into work, these stakeholders need to work hand-in-hand and avoid a duplication of efforts. In particular, it will be crucial for the DWP and JCP to work with Work Programme providers on developing better ways of assessing a claimant’s barriers to work and the implications this has for referral to the Work Programme and providers’ payment levels for different types of job outcomes. The DWP should publish a guidance note for providers on how Universal Credit will impact on the Work Programme by November 2012.6

17 August 2012

1 This is because of the 65% marginal deduction rate.

2 Research by Centre for Cities, for example, shows that a bus pass in South Hampshire costs up to 16% of average monthly earnings in the lowest pay bracket. See: Clayton, N, Smith, S and Tochtermann, L (2011) Access all areas: Linking people to jobs. Centre for Cities: London. Data refers to 10th percentile full-time and part-time earnings.

3 These include, among others, Sure Start maternity grants; help with health costs; Healthy Start; free school meals; help with funeral expenses; help with court fees; and help with the cost of prison visits.

4 Green, A E and Hasluck, C (2009) “Action to reduce worklessness: what works?” In: Local Economy 24 (1), pp. 28 - 37

5 CBI (2011) Action for jobs: How to get the UK working

6 CBI (2012) Work in progress: fulfilling the potential of the Work Programme

Prepared 21st November 2012