Next stop, universal credits

Posted in: Finance Last updated: 27 Mar 2013

Having worked with the benefits system since the mid 1980s, it has always been interesting to see how arguments have raged over the decades about the culture of claiming, and whether benefits claimants respond to sticks or carrots.

Welfare reform

Claimants are getting a bad press at the moment. There is a lot of discussion about ‘shirkers’ and ‘strivers’, but much less is made of the fact that billions of pounds are also spent on benefits for people who are in work, such as working tax credit, and help with rent and council tax.

The Welfare Reform programme intends to change the benefits culture once and for all, and to put a radical new system in place which blurs the boundaries between ‘workless’ and ‘in-work’ benefits. It’s certainly the most innovative attempt I’ve seen in all these years to shake it all up and (kind of) start again.

Universal Credit is the new benefit everyone’s talking (and worrying) about, which is due to start this year. It’s the flagship of the Government’s welfare reform proposals: the vision is to simplify the current system of means-tested benefits for working age people, and remove the so-called ‘poverty trap’.

It's simple!

The principles of Universal Credit are straightforward enough. As I explained in my previous blog, all the current benefits that are based on income, will be rolled up into one monthly payment, with the intention of mimicking payment of a salary. The amount paid will be based on a list of ‘allowances’ and ‘elements’, which reflects the amount that a household needs to live on according to the law. The total is then compared to any income from sources such as earnings or benefits (not child benefit, don’t worry). If you don’t have enough to live on, then Universal Credit will make up the difference, and in many people’s case, will provide their sole source of income. Most claimants will have to pay all expenses out of this money, including rent or mortgage costs.

The move to digital self-sufficiency

The timetable for the roll-out of Universal Credit has recently slowed down, as the Government grapples with both the regulations and the complex IT systems on which UC will stand or fall. The first pilot projects will start in Manchester in April, with a slow regional rollout from October. The guinea pigs will be single jobseekers, as their claims are usually the most straightforward, with the new caseload gradually increasing in complexity.

"Universal Credit has several upsides and one of them concerns childcare."

The implications of UC cannot be overstated. The next four years will see the biggest transformation in welfare for sixty years, as 12 million people are slowly transferred from the current system to UC. The shift to digital self-sufficiency (as virtually all claims will have to be made and maintained online) will in itself create a cultural shift, along with the requirement to have independent budgeting skills.

On the upside

Universal Credit has several upsides and one of them concerns childcare. Help can be given with childcare costs even on only a few hours of work a week, as long as the hours claimed reflect the hours worked. Parents will still have to find at least the first 30% of their childcare costs themselves, but at least there is no artificial distinction between full and part-time work. Parents may also be able to get help with childcare costs in the month before they start work, to cover deposits and settling-in, and possibly, for the month after they leave work. Parents will, however, need to make sure that their childcare costs are not ‘excessive’.

Another upside to Universal Credit is the relatively generous system of earnings disregards for people with children or disabilities – claimants will be able to keep substantially more of their earnings than under current rules.

A flexible realtime system

Whatever public reaction is to the details of the new regime, the success or failure of Universal Credit may well hinge on the success of the IT systems being developed within HMRC. The intention of the ‘Real-Time’ information system should eventually ensure that earnings details are sent on a monthly basis from employers to HMRC to the DWP, who will then use these details to work out that month’s Universal Credit entitlement. If it works, that would be amazing, as people will no longer be caught by overpayments and underpayments, with all the hassle and bureaucracy that entails.

In future blogs, I will explain how Universal Credit is likely to be calculated, paid and administered. At the moment, we are waiting for Parliament to give its final assent to the draft regulations, and then the pilot schemes can begin. As the year unfolds, and the pilot schemes start to report back on the glitches and hassles, then we will have a better idea of the likely timetable for the rest of the country, and I will let you know when Universal Credit will be coming to a town near you!

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