Universal Credit Making Work Pay

Transcription

1 Universal Credit Making Work Pay Lindsey Lewis Department for Work and Pensions, UK Brussels, 8 November Department for Work and Pensions

2 What s the problem? The UK working-age income-related benefit system is complicated difficult to understand for claimants, and difficult and costly to administer for Government. There are separate in-work and out-of-work benefits: Jobseeker s Allowance for those seeking work, and Tax Credits for those in work on a low income. Moving from unemployment into employment means stopping a claim to one, and having to claim another. It s hard for claimants (and officials!) to calculate how much better off someone will be in work. Work incentives are currently often weak and sometimes non-existent; complexity and uncertainty makes work appear a risk rather than an opportunity. 2 Department for Work and Pensions

3 What s the solution? Universal Credit: a new single system of means-tested support for workingage people who are in or out of work. Support for housing costs, children and childcare costs will be integrated in the new benefit. It will also provide additions for disabled people and carers. Universal Credit aims to reduce the number of workless households by reducing the financial and administrative barriers to work that exist in the current system of benefits and tax credits. By removing the distinction between in-work and out-of-work support, Universal Credit will remove the need to claim different benefits and reduce the risks associated with moves into employment that exist in the current system. Universal Credit will deliver a fairer system, by removing inconsistencies that exist between different benefits and tax credits in the current system. 3 Department for Work and Pensions

4 Principles of Universal Credit Work will always pay. Universal Credit will be withdrawn gradually at a consistent rate as claimants start work or increase their earnings - meaning their total income goes up. Universal Credit will be for everyone on low income. This means it will be safe for a claimant to try a job, or increase their earnings, without losing their benefit. Claimants should be able to understand how their award is calculated. It should also be simpler to administer. Standard rules, concepts and definitions should be intuitive and apply across Universal Credit. 4 Department for Work and Pensions

5 Improving Work Incentives: Making Work Pay Single Taper a single taper rate (65%) to withdraw support as earnings rise reduction in Marginal Deduction Rate / Participation Tax Rate Earnings Disregards will reflect the needs of different families and ensure that work pays will reflect support people receive for rent or mortgage interest support Supporting Small Amounts of Work In and out of work benefit minimising the risk of moving into work Safe for a claimant to try a job, or increase their earnings, without losing their benefit. It helps people to work just a small number of hours, or to take multiple jobs to make up their earnings 5 Department for Work and Pensions

6 Total Net Income A simpler system with clear work incentives Universal Credit: lone parent with two children Disregard Total In Pocket Income 100 Universal Credit Payment Gross Earnings 6 Department for Work and Pensions

7 MDR (%) Making work pay Marginal Deduction Rates (MDR) - calculate how much of a small increase in earnings is lost through benefit withdrawal and taxation. 100% 80% 60% 40% 20% 0% % -40% -60% -80% Current system Universal Credit -100% Hours w orked (custom er) 7 Department for Work and Pensions

8 Making Work Pay - Childcare Childcare costs will be supported through an additional element in Universal Credit. The Government has committed to investing an additional 300 million into childcare support on top of the 2 billion already spent in the current system. Support for the costs of childcare within Universal Credit will be available to all lone parents and couples, where both members are in work, regardless of the number of hours they work. It will mean that for the first time around 80,000 extra families will be eligible to receive support through childcare. 8 Department for Work and Pensions

9 Universal Credit Delivery Universal Credit will be paid monthly in one single direct payment, like a salary, and should mirror the experience of work more generally. Some households may need more help to budget; arrangements will be put in place to support them during the transition to monthly payments. Universal Credit will be digital by default being designed from the outset to be delivered by online self-service. There will continue to be other ways to claim for those who are unable to use the online service. We are testing all aspects of design with end users on a frequent basis (fortnightly) to ensure the system is simple to understand and easy to use. 9 Department for Work and Pensions

10 Summary and Impact Universal Credit increases the rewards of work and makes them more transparent, as well as removing the risks of moving from benefits to work. The greater simplicity of Universal Credit is expected to lead to a substantial increase in the take-up of currently unclaimed benefits, with most of the impact being at the lower end of the income distribution. Universal Credit will help tackle poverty. It s estimated that the impact of Universal Credit will be 900,000 individuals lifted out of poverty, including more than 350,000 children and around 550,000 working-age adults. 10 Department for Work and Pensions

11 Thank you! Questions? 11 Department for Work and Pensions