Correspondence: Further information on Universal Credit Administrative Earnings Threshold
Background
91.To receive Universal Credit, working claimants have to accept a “Claimant Commitment” which sets out what obligations the claimant has agreed with their Work Coach to improve their work prospects or earnings. The degree of work search required depends on whether the claimant’s earnings are above or below the Administrative Earnings Threshold (AET). Those earning below the AET enter the Intensive Work Search (IWS) regime, whereas those earning above the AET enter the Light Touch regime.
92.The AET is calculated as a number of hours times the current National Living Wage (NLW) hourly rate. A series of three Statutory Instruments doubled the AET between September 2022 and May 2024 from nine hours x NLW to 18 hours x NLW, bringing approximately half a million more people into the IWS regime.26 Our concern was that the Department for Work and Pensions (DWP) did not appear to have evaluated the effects on the claimants of this significant change in their conditions.
Correspondence
93.In correspondence in January 2023 the then Minister responsible, Guy Opperman MP, confirmed that the DWP’s focus had been limited to the administrative side of the process:27
“Our internal Management Information measures the process of moving claimants impacted by the AET rise from the Light Touch regime into the IWS regime, rather than looking at outcomes.”
94.Mr Opperman added that “we have robust evidence (which we plan to publish soon) that the IWS regime can support the lowest earning Universal Credit claimants to boost their earnings”. Yet the evidence promised had not appeared by the time further regulations were laid in April 2024.
95.On 14 May 2024, when we took oral evidence from the then Minister, Jo Churchill MP, it was still not ready. Under pressure from the Committee she agreed to publish the material by the end of June 2024,28 but the Dissolution of Parliament interrupted that.
Published evidence
96.On 28 August 2024, over 18 months after the ministerial commitment to publish information “soon”, the DWP published Universal Credit and Earnings Progression: Evidence from a Regression Discontinuity Design (“RDD study”).29
97.The RDD study compares the change in earnings of claimants who enter Universal Credit just below and just above the AET, and therefore estimates the impact of work search requirements on the earnings progression of working claimants. The study also splits the sample claimant group into subgroups to examine the impact along dimensions such as age and sex.
98.The study shows that claimants who enter Universal Credit on earnings just below the AET, and who are therefore in the IWS regime, have earnings of approximately £100 more per month, after 12 months, than claimants who enter Universal Credit on earnings just above the AET and who are therefore in the Light Touch regime. The subgroup analysis, which the study notes is tentative and should be treated with some caution, suggests that men and younger claimants may experience higher earnings progression as a result of being in the IWS regime, compared with women and older claimants, who may experience lower earnings progression.
99.The RDD study states that the impact on earnings progression may diminish for claimants earning more. The doubling of the AET pulls more claimants earning higher incomes into the IWS regime. This suggests that those entering IWS as a result of the increases to the AET may have experienced a lesser impact on their earnings progression. Furthermore, the study says that raising the AET would increase the number of meetings held between Work Coaches and claimants, which would require an increase in departmental expenditure.
100.The RDD study was based on research conducted between 2017 and 2020, with a sample range from 2,359 to 6,947 claimants who were earning just above or below the AET, then set at approximately nine hours x NLW. So whilst the study shows some evidence that placing claimants in the IWS regime led to higher earnings progression compared with the Light Touch regime at that time, it is of limited relevance to the series of three instruments which doubled the AET to 18 hours x NLW. Indeed, the study itself notes that the larger the increase in the AET, the less confidence there is in applying the results from the study.
Further evidence expected
101.During the oral evidence session, Ms Churchill indicated that all the qualitative data that we sought would be in a longitudinal study that is due to be published in 2025. We commented that that is of little use to Parliament, which has 40 days to scrutinise new Regulations, and offers members no means to hold the DWP to account for any negative effects or unintended consequences in the previous two phases. The Committee therefore asked the Minister for an undertaking that the AET would not be raised again until the appropriate evidence about how the policy has affected claimants is in the public domain, which she gave.30 We wish to draw that undertaking to the attention of the new Minister, Alison McGovern MP.
102.Despite the publication of the RDD study, we remain concerned by DWP’s approach in this matter:
- First, because without proper evaluation, there is a risk of certain groups of claimants being disadvantaged, particularly those in part-time work who also claim benefits because they have health issues or caring responsibilities.
- Second, because the DWP has maintained a monopoly on the information about this policy’s impact on claimants. The Department’s failure to publish the data alongside SI 2024/536 prevented Parliament, and other interested groups, from performing their legitimate scrutiny functions.
- Third, because of the concerns it raises about the DWP’s relationship with this Committee and with Parliament more generally, because undertakings given to provide information were left unfulfilled for unsatisfactorily long periods of time.
103.We are grateful for Ms McGovern‘s decision to publish the RDD study and trust that further appropriate evidence on the policy (the longitudinal study) will be considered and published before any further legislation on the AET is brought forward.
26 Explained in more detail in our 26th Report (Session 2023–24, HL Paper 120), paras 1–23.
27 Published in Appendix 2 to SLSC 27th Report (Session 2022–23).
29 Department for Work and Pensions, ‘Universal Credit and earnings progression: evidence from a regression discontinuity design’ (28 August 2024): https://www.gov.uk/government/publications/universal-credit-and-earnings-progression-evidence-from-a-regression-discontinuity-design [accessed 29 August 2024].