Universal credit: what we know and don’t yet know
David Simmons considers what we do and don’t know about universal credit, following the passing of the Welfare Reform Act 2012.
Universal credit (UC) forms the centrepiece of the government’s welfare reform programme and Welfare Reform Act 2012, which passed into law on 8 March 2012. David Cameron described the passing of the Act as ‘an historic step in the biggest welfare revolution in over 60 years’, while Iain Duncan Smith proclaimed that ‘universal credit will mean that work will pay for the first time, helping to lift people out of worklessness and the endless cycle of benefit, while those people who need our help and support will know they will get it without question’.
The replacement of the current system of means-tested benefits and tax credits for people of working age by a single new benefit is certainly a radical step and huge undertaking, which will require the transfer of 12 million existing claimants onto UC between October 2013 and October 2017. Despite the scale of the reform and its potential repercussions on millions of claimants, its main provisions passed through Parliament with relatively little controversy and debate, and without any substantive amendments. This probably reflects the consensus that has emerged within the three main political parties in recent years that the current benefit system is not ‘fit for purpose’ because of its spiralling costs, complexity and insufficient work incentives and ‘conditionality’. The messages and ‘buzz words’ associated with reform – ‘simplification’, ‘one-stop service’, ‘reducing welfare dependency and worklessness’ and ‘ending the something for nothing culture’ – together with the underlying mantra that ‘work is the best route out of poverty’ are also perceived to be politically popular with the public and mainstream media. It is not surprising, therefore, that UC passed through the parliamentary process with broad support. Whether it will achieve its aims of introducing a simplified system, with enhanced work incentives which will reduce poverty, unemployment, ‘welfare dependency’ and the costs of welfare, remains to be seen.
The passing of UC into law is an apt time to take a step back and review what we know so far, and what we are still waiting to find out about UC. This is the focus of the remainder of this article.
What we know
As is generally the case, the Act sets out the framework of the scheme, with the details left for regulations. The government has yet to produce any draft or final regulations. As stated above, the main provisions relating to UC set out in the Act were substantially unchanged by the parliamentary process. The government has also published a series of policy briefing notes and explanatory memoranda (available from the DWP website), as well as making various policy statements. CPAG has produced a universal credit factsheet. We have also produced a substantive guide called ‘Universal Credit: what you need to know’ The book is available in our online bookshop.
The following comprises a brief outline of the scheme, based on the above information.
- UC is an integrated means-tested benefit for working age claimants, whether they are unemployed or in low-paid work.
- It will replace income support (IS), incomebased jobseeker’s allowance (JSA) income-related employment and support allowance (ESA), housing benefit, tax credits and social fund budgeting loans. Benefits remaining will include contributory JSA and ESA, child benefit, pension credit, carer’s allowance, disability living allowance (DLA) and the new personal independence payment (PIP). Council tax benefit and the discretionary social fund will be replaced by local schemes.
- UC will be introduced in October 2013, following ‘piloting’ from April 2013.
- Existing claimants of the above benefits will be transferred onto UC in a rolling programme from October 2013 to October 2017 (there will therefore effectively be two benefit systems running for a period of four years). New claims for existing benefits will not be possible after October 2013 (April 2014 in the case of tax credits).
- Transitional protection will ensure that existing claimants will not be worse off when they are migrated onto UC (this will include tax credits claimants who have more than £16,000 capital).
Claims and awards
- Claims must be made by single claimants, or jointly by couples.
- Claimants must be at least 18 (regulations may allow 16/17 year olds to claim in prescribed circumstances) and under the qualifying age for pension credit (PC) (couples with only one partner under the qualifying age will only be able to claim UC, rather than PC).
- Claimants must be ‘habitually resident’ and have the ‘right to reside’ in the UK and not be subject to immigration control.
- Students will only be eligible in prescribed circumstances (the rules are likely to be similar to currently).
- UC will be means tested on capital and income (couples will be jointly assessed), which are likely to be calculated in a similar way to current means-tested benefits. There will be an upper capital limit of £16,000, and ‘tariff income’ on capital between £6,000 and £16,000. There will be more generous earnings disregards (see below) and a 65 percent taper rate – ie, every £ of net earnings will reduce UC entitlement by 65 pence. UC can be claimed by people in or out of work, regardless of the number of hours they are working, subject to the means test.
- UC will be administered and paid by a single agency (the DWP) with one application process for all elements of the benefit. Claims will normally be made and administered ‘online’, and payments made monthly in arrears by direct credit transfer to the household (in exceptional cases, there will be provision for telephone or personal claims, weekly or fortnightly payments, and payments to one partner in a couple). There will also be provision for payments on account, including loans to meet one-off expenses.
- Changes in circumstances must be notified (normally online) and there will be a new civil penalty of £50 for failure to do so without reasonable excuse. Employees, however, will not be required to notify changes in their earnings, as this will be done automatically via ‘real time’ PAYE data provided by employers and the Revenue.
- All overpayments will be recoverable, but there will be a code of practice allowing for non-recovery in cases of official error or hardship.
- Most entitlement decisions will be subject to a right of appeal to an independent tribunal, but there is a power to require claimants to seek an internal revision before accruing the right of appeal (see below).
UC is calculated by adding up the elements to which a claimant is entitled to arrive at a ‘maximum amount’, and then deducting unearned income and 65 percent of net earnings (after disregards). UC will also be included in the ‘benefit cap’ which will apply to nonworking claimants (it is unclear where and how the work threshold will be set).
The maximum amount of UC payable will comprise the following elements:
- Personal allowances for single claimants and couples. The rates are yet to be confirmed but are likely to be based on the current IS and JSA rates.
- Allowances for children and ‘qualifying young people’ based on the current child tax credit rates. There will also be additions for disabled children (controversially, the lower rate is likely to be significantly less than the disability element of child tax credit).
- Childcare costs for working claimants (including those working less than 16 hours per week). The rules and amounts will mirror the current provision in working tax credit – ie, 70 percent of eligible weekly costs of up to £175 for one child and £300 for two or more children.
- Additions for claimants with ’limited capability for work/work-related activity’. Controversially, UC has no disability, enhanced or severe disability premiums (the government asserts they are confusing and overlapping). Instead, additions equivalent to the current ‘work-related activity’ and ‘support’ components will be paid to claimants who satisfy the ‘work capability assessment’, although the government has pledged to raise the level of the support component to around £77 per week, ‘as resources allow’.
- Carer’s addition for those with ‘substantial and regular caring responsibilities for a severely disabled person’ (likely to be linked to qualification for carer’s allowance and DLA/PIP).
- Housing costs to cover rent and associated payments for tenants, and mortgage interest payments, service charges and other home loans for owner occupiers. In practical terms, all the main elements of the current housing benefit scheme (including local housing allowances and new restrictions for tenants in social housing) are likely to be imported into UC, plus some elements of support for owner occupiers (see below).
Income is likely to be calculated in a similar way as currently for means-tested benefits, with the following significant changes.
- There will be a more generous but more complex system of earnings disregards, based on family circumstances and UC housing costs.
- Net earnings will reduce UC entitlement by a taper rate of 65 percent.
- A minimum level of self-employed earnings will be assumed, if reported earnings are less than this.
Conditionality and sanctions
Entitlement to UC will be subject to a new and rigorous regime of ‘personalised conditionality’ and tougher sanctions for non-compliance, with all claimants having to accept a ‘claimant commitment’ which will set out their requirements and duties. The details of the new scheme are set out in an article in Bulletin 225 (‘Escalating conditionality’). It includes ‘in-work conditionality’ which will require people in part-time work to prepare, look and be available for more or better paid work.
Still to come
As stated above, the government is yet to publish regulations setting out the details of UC. Given that UC is a means-tested, conditionality based benefit, which brings together provision for adults (whether jobseekers, workers or those incapable of work), children and housing costs, we can expect a plethora of regulations covering areas such as:
- 16/17 year olds, ‘relevant education’ and students;
- residence and immigration;
- couples, cohabitation and temporary separation;
- ‘responsibility’ for children;
- income and capital (including calculation, disregards and ‘notional’ resources);
- earnings disregards;
- personal allowances, child allowances and childcare costs;
- limited capability for work and work-related activity, including all the current rules relating to the work capability assessment;
- conditionality and sanctions (including all the work-related requirements, ‘in-work conditionality’ and hardship payments);
- all the current housing benefit rules relating to liability for rent, occupation of the home and temporary absences, eligible rent and the local housing allowance and non-dependant deductions;
- housing costs for mortgages and other loans;
- the ‘work’ threshold for the application of the benefit cap and in-work conditionality, and the provision of help with housing costs for homeowners;
- claims, payments, changes of circumstances, overpayments, revisions and appeals (including mandatory revisions prior to appeal – see below);
- the migration of existing claimants and transitional protection.
Most of these areas are likely to replicate the current system (given the tight timetable for the introduction of UC, there is likely to be a lot of ‘cut and paste’ from current regulations), and advisers will be aware that many of them are hugely complex and difficult to administer, resulting in high levels of dispute, appeals and litigation. This brings into question the alleged ‘simplicity’ of UC. It is an easy message to ‘sell’ to politicians and the public in terms of the outline of the scheme. In the words of the old cliché, however, ‘the devil is in the detail’, and the detail is yet to come.
Particular areas of significance and concern to look out for over the coming months include the following.
- Confirmation of the rates of personal allowances, additions, childcare costs, earnings disregards and the taper rate will clearly be crucial to issues relating to adequacy and work incentives.
- Details of the proposed online administration of the system, including the ‘real-time’ data arrangements, the information available to claimants about the calculation of their awards, and provision for vulnerable groups of claimants will underpin the workability of the new scheme.
- The government recently consulted on proposals to significantly restrict help with housing costs for homeowners by only providing assistance to non-working claimants, recouping help with mortgage interest payments made to long-term claimants by putting a legal charge on their property, and returning to a 39-week ‘waiting period’ and £100,000 limit. There is also a proposal to make payments directly to claimants, rather than to lenders.
- The government is currently consulting on proposals to require claimants who wish to dispute a decision to seek an internal revision before accruing a right of appeal. CPAG believes this is a highly retrograde measure which will result in more delays, periods without payment, and complexity for claimants.
- The Social Security Advisory Committee has recently published a DWP commissioned report on ‘passported benefits’ under UC, including free school meals and milk, health benefits (eg, prescriptions, eye tests, dental treatment, wigs and glasses), legal aid and court fees, and funeral, cold weather and maternity payments. Within a ‘cost neutral’ framework the Committee was only able to highlight various eligibility issues and options. The government’s response suggests that in the longer term, provision could be made via additional components of UC. In the short term, we can expect different eligibility criteria for different benefits, administered by various government departments, local authorities and the devolved administrations.
Rather like an iceberg, only a surface outline of UC is currently visible. The mass of detailed regulations remains below the surface and is yet to be revealed. Let us hope that we are not heading for any ‘titanic’ difficulties when the new benefit is launched next year.
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