Welfare Reform Bill 2011

Universal credit

Comment

A new benefit is to be introduced in October 2013, replacing six existing means-tested benefits and tax credits for working-age people.

• Support for adults and children, for rent and other housing costs will be in one benefit to be paid in or out of work.
• There will be new requirements on claimants to engage with work-related activity and stronger sanctions of up to three years' loss of benefit in some cases. These are also being introduced in the interim into existing benefits.
• It will be administered by the DWP. Couples will make a joint claim, normally online. The Revenue’s ‘real-time’ IT system will be used to identify earnings so that those paid through PAYE will have no need to report changes.
• Payments may change from fortnightly to monthly.

Part 1, Clauses 1 to 43

The Bill provides only an outline of universal credit with detail left to regulations still to be drafted – including, crucially, the amount of benefit, how childcare costs are to be included and the rate at which benefit will be withdrawn as earnings increase. The proposal is to set this taper at 65 per cent. Without more details it is hard to estimate accurately who will gain and who will lose from the new system, but it is clear that all claimants will be affected by the £18 billion of welfare cuts already announced that are to be built into the new system.

There will be less incentive for both members of a couple to work rather than just one of them. This increases the risk of child poverty, which is higher when only one parent is in work.

See CPAG’s briefing for more details.

Benefits being abolished

Comment

• Income support (IS)
• Income-based jobseeker’s allowance (JSA)
• Income-related employment and support allowance (ESA)
• Housing benefit (HB)
• Council tax benefit (CTB)
• Child tax credit (CTC) •
• Working tax credit (WTC)

Universal credit will take the place of all of these benefits except for CTB. CTB will become localised, with local authorities developing local rebate schemes.

Schedule 13, Part 1

It is still undecided whether council tax benefit (CTB) will be under full local control with potentially hundreds of separate systems across Britain introducing a new level of complexity into the benefit system. It is clear that there will be a 10 per cent cut in expenditure with, as yet, no commitment to ring-fence budgets.

Pension credit

Comment

There are three proposals:

• to introduce a new housing credit (because housing benefit (HB) is being abolished and its replacement, universal credit, is for working-age people)
  Clause 35 and Schedule 4
• to introduce a capital limit
  Clause 74
• to change entitlement conditions for the carer addition, removing the need for the claimant or her/his partner to be entitled to carer’s allowance.

Clause 73

The new capital limit is linked to the introduction of the housing credit. Currently, there is no upper limit on capital above which a claimant is not entitled to pension credit (PC) while there is for HB. If the new capital limit were to apply to other elements of PC entitlement, which the Bill does not preclude, pensioners with modest savings who would qualify under the current system will be excluded.

How pensioners will access support for children in their care once child tax credit is abolished is not provided for in the Bill.

Personal independence payment

Comment

This new benefit will replace disability living allowance (DLA).

• It will have two components: a mobility component and a daily living component, with two rates for each component.
• Assessment will be, for most people, by way of a medical examination of the impact of an individual’s health condition or impairment on everyday activities. The extent to which someone could carry out these activities will determine their eligibility for personal independence payment and the rate of their award.

Part 4, Clauses 75 to 92

The government has placed the reform in the context of making savings of 20 per cent on DLA expenditure. Estimates vary of how many people are likely to be affected, ranging from 360,000 to 750,000 people losing their benefit out of the 1.8 million working-age DLA claimants. DLA entitlement is a passport to other forms of financial and practical support,  which would also be lost for these claimants.

Income support for lone parents

Comment

Lone parents will be expected to claim jobseeker's allowance (JSA) rather than income support (IS) when their youngest child reaches age five (possibly from January 2012).

Clause 57

While the amount of benefit paid with JSA is the same as IS, lone parents will be subject to the full range of jobseeking requirements and sanctions as other jobseekers, although the system does allow for some flexibility for those with caring responsibilities.

Contributory employment and support allowance limitations

Comment

• Contributory employment support allowance (ESA) that is currently payable indefinitely will be limited to one year for those not in the support group.
• ESA in youth will be abolished. This currently affords access to contributory ESA to people disabled at a young age and therefore unable to build up a national insurance contribution record.

Clauses 51 and 52

Around 60 per cent of those affected by the one-year limit are estimated to have access to income-related ESA which will make up for some or all of the lost benefit. Those not entitled to income-related ESA, mostly where there is a working partner, are estimated to have an average loss of £81 a week. The estimated loss is £52 a week on average for those who can increase their means-tested entitlement, but not to the extent that it fully compensates them.

The rationale for removing ESA in youth is simplification of the system. An estimated 10 per cent of those eligible for ESA in youth will not be able to access income-related ESA as an alternative.

Benefit cap

Comment

A cap will be introduced on the total benefits that a claimant or her/his partner can receive in a particular period. The cap is linked to average weekly earnings of a working household after deductions for tax and national insurance.

Clause 93

This is expected to affect, in particular, families with three or more children who are out of work and households in high rent areas – around 50,000 households in Britain. The DWP estimates that, on average, those affected will lose £93 a week in benefit.

Social fund

Comment

Social fund community care grants, budgeting loans and crisis loans will be abolished from April 2013. In the place of budgeting loans, a system of ‘payments on account’ – ie, an advance of benefit payment, will be introduced. Locally based provision will take the place of grants and crisis loans, and consultation is underway over what shape this might take.

Clauses 69 and 98

There is to be no new statutory duty placed on local authorities to deliver this provision, nor is funding to be ring-fenced. In the context of current spending pressures on local authorities, there are concerns that these proposals will result in a radical reduction or abolition of this vital support for vulnerable people on a wide scale.

Appeal rights

Comment

At present, claimants have a right of appeal to the First-tier Tribunal of the Social Entitlement Chamber on any grounds within a month of a decision on benefit entitlement. The Bill proposes introducing a preliminary stage so that only once the Secretary of State has first reconsidered a decision will the claimant have a right of appeal. Regulations will specify in what circumstances or cases there will not be an immediate right of appeal.

Clause 99

This is likely to deter claimants from pursuing cases to an independent appeal, at which their chances of success would be around 38 per cent on average.

Overpayment recovery

Comment

More stringent rules will govern recovery of the new universal credit, jobseeker's allowance and employment and support allowance and also, in prescribed cases, the new housing credit within pension credit. Instead of recovery in cases only where it is shown that the claimant has failed to disclose or misrepresented a material fact (ie, the test that currently applies to social security benefits other than housing benefit and council tax benefit), all overpayments of these benefits will be recoverable.

Clause 102

This system mirrors the current tax credit overpayment recovery regime, which has been heavily criticised and has caused hardship for many.

Benefit penalties and fraud

Comment

A number of provisions are included in the Bill including the following.

• It will be possible to opt for an administrative penalty (ie, instead of facing prosecution for an offence relating to an overpayment) in cases where there has been no overpayment – eg, where there has been an alleged false claim but no payment.
  Clause 108

• There will be civil penalties introduced for negligently giving incorrect statements or failing to disclose information without reasonable excuse.
  Clause 111

• The period of sanctions (loss of benefit) for benefit offences will be up to three years in some cases. The provision for sanctions will be more closely aligned across benefits and tax credits.
  Clauses 112 to 116

The government blurs the distinction between fraud in the system and official error. In fact, far more money is lost through official error than through fraud. Very little attention is given to the large amount of underclaiming that is acknowledged to exist.

Evidence shows that sanctions do not work and that they affect the most vulnerable. While voluntary participation with high quality, work-related support can be effective, the proposals do not include any entitlement to this support.

Industrial injuries disablement benefit

Comment

• Awards of disablement benefit to claimants aged under 18 will be paid at the adult rate instead of the current lower rate.
• Trainees will be treated as though they were employed earners and will be able to claim industrial injuries benefits as normal. Currently trainees are not eligible and must claim through a separate scheme.

Clauses 64 and 65

The change for under-18-year-olds is expected to give them 60 per cent more in disablement benefit.

Immigration status and benefit entitlement

Comment

For contributory employment and support allowance, contribution-based jobseeker's allowance and statutory maternity, paternity and adoption payments, a new restriction is introduced for people from abroad, limiting entitlement to those whose immigration status allows them to be in employment.

Clauses 60 to 62

This would disqualify people not entitled to work when they claim benefit even if they built up entitlement by paying contributions while legally working. The rationale for the change is ‘the risk of reputational damage’ to the system, although the DWP does not know how many people might be affected or the impact on other services if families are left destitute.

Housing benefit maximum rents

Comment

Many of the changes to housing benefit and, in particular, to the local housing allowance (LHA) within HB do not need primary legislation. The Welfare Reform Bill makes two further proposals.

• The Secretary of State will have the power to set LHA rates without reference to rent officer determinations. These rates determine how much HB a private tenant can receive depending on her/his permitted size of accommodation.
• The Secretary of State will have the power to restrict HB for tenants under PC age in social housing based on the number of bedrooms s/he is deemed to need.

• LHA rates were based on the median of local market rents as set out by local rent officers. From April 2011 the rates go down, based instead on the 30th percentile of rents. The intention in the Bill is that LHA rates will be set annually from April 2013, with increases limited by the level of inflation measured under the Consumer Prices Index. This breaks the link with the level of local rents. The DWP estimates this measure will mean a loss of benefit to claimants of £5.50 a week on average.
• Introducing size criteria to social housing from April 2013 is estimated by the DWP to result in a loss for one-third of claimants of between £11 and £21 a week.