CIH Briefing on the White Paper for Welfare Reform Universal Credit: welfare that works November 2010
1) Introduction The government has published its White Paper on welfare reform which sets out its proposals for a fundamental reform of the current benefits system. This briefing paper sets out the key points of the White Paper for the housing and communities sector, as well as providing comment and analysis of the measures proposed. Background, aims and objective of welfare reform The Welfare Reform White Paper sets out the government s proposals to reform the welfare system through the introduction of a new Universal Credit. Universal Credit will replace most of the benefits and Tax Credits that currently provide means-tested support apart from Council Tax Benefit. The proposals build on a range of measures already announced in the Budget and the Comprehensive Spending Review to reform the welfare system. The key objectives of welfare reform are: To put work at the heart of the welfare system so that it pays to work Make the welfare system fairer, sustainable and more affordable Make the welfare system simpler and more efficient and better able to tackle poverty, welfare dependency, worklessness whilst still supporting those in the greatest need To help reduce the public spending deficit To help reduce fraud, error and duplication. The government believes that multiple benefits will result from the introduction of Universal Credit including: More people claiming all the money they are entitled to, which will lift many working age adults and children out of poverty Wider benefits for society including better health outcomes, higher educational achievements and reduced crime A reduction in the number of workless households by up to 300,000 Savings made due to the improved administration Improving work incentives for around 700, 000 people. Overview of the CIH position Moves towards Universal Credit are welcome and in principle should help to address many of the challenges posed by the current welfare benefits system. The emphasis on improving incentives for work and protecting social landlords lending arrangements is positive, though they will need close scrutiny to ensure they will deliver what they intend to. Care needs to be taken around how help with housing costs is integrated into the new system to ensure that tenants ability to secure affordable housing is supported. Housing professionals will need to consider and understand the implications of the proposed reforms for tenants and those receiving housing-related support, as well as for housing providers as employers and businesses.
2) Universal Credit Overview Universal Credit will replace existing work-related benefits and provide a simple, integrated benefit for people in or out of work. It will bring together different income related support in place of Income Support, income based Job Seekers Allowance, income based Employment and Support Allowance, Housing Benefit, Child Tax Credit and Working Tax Credit. Government intends that simplification of the system administered by a single government department (Department for Work and Pensions) should increase the incentive for people to take up work by reducing the risk people currently face when moving in and out of work and the time taken to calculate adjustments of different tax credits and benefits. Government will introduce a Welfare Reform Bill in 2011. There will be a phased approach to Universal Credit with new claimants put on the new system in 2013 with existing claimants transferring over by 2017. CIH comment As a vehicle for addressing some of the problems of the means-tested benefit and tax credit systems, the proposed Universal Credit model is favourable. The key advantage of the Universal Credit model is the simplicity and transparency of design. We do have some concerns about moving to Universal Credit and will work constructively with government to address these. Most importantly, the transition needs to be properly managed. Every effort must be made to protect claimants from administrative disruption during periods of transition from one system to another. Key points Universal Credit is intended to further improve financial work incentives by: The introduction of a single taper The taper (the rate at which benefit is reduced to take account of earnings) will be set at a withdrawal rate of 65 percent so that the Marginal Deduction Rate for low-earning workers would be reduced to 65 per cent (currently at 96 per cent) for those earning below the personal tax threshold and to around 76 per cent for basic rate taxpayers Changing income disregards Some groups will be allowed to earn significantly more before their benefit starts to be withdrawn. The level of earnings disregards will reflect the needs of different families. CIH comment The proposal to combine in-work benefits so they operate on a unified system of taper and disregards is very welcome. CIH was one of the first organisations to advocate a unified taper as the most effective means by
which tackle the deepest part of the poverty trap (i.e. where the overall marginal withdrawal rates are highest). The reduction of the Marginal Reduction Rate to 65% below the personal tax threshold for low-earning workers will be very important for tackling barriers to work, though the incentives for basic rate taxpayers will be less attractive due to the higher Marginal Reduction Rate of around 76 per cent. Further analysis is needed to understand the real impact of this reform, in particular its relationship with support for housing costs. To produce the best outcomes, work incentives should be viewed as just one element in a comprehensive strategy to support individuals. They must go hand in hand with steps to create genuine employment opportunities through high quality employment services. Detailed operation of Universal Credit Universal Credit will consist of a basic personal amount with additional amounts for housing costs, disability, caring responsibilities, and children. Housing costs o To help meet rent and mortgage interest costs an appropriate amount will be added to the Universal Credit. The amount paid to those who rent will similar to the support provided currently through Housing Benefit o The provision for rent will be simplified so that people in the private rented sector will receive support at a level that will generally make the lowest third of market rents affordable o The housing component for tenants in the social-rented sector (including those who rent properties with the new affordable rent tenure) will be based on actual rents of housing providers o Housing Benefit payments to tenants who under-occupy social rented properties will be limited o Government will work with the devolved administrations, providers and lenders to consider how the housing component should be paid to recipients whilst protecting the financial position of social landlords o Government will consider whether changes are needed to the current approach to calculating help with mortgage costs to ensure it is consist with Universal Credit principles. CIH comment While housing benefit is only one component of the proposed reforms, it is particularly important. It would be difficult to support reforms if the housing costs element for private tenants was insufficiently sensitive to actual local housing costs. This is a complex area that needs careful consideration. CIH would strongly oppose any final proposals that severed the link between the payment of housing support and local housing costs unless there was a very substantial uplift in basic benefit levels.
Detailed work should be carried out to assess the risks and potential financial costs of a single working age payment which includes housing support being paid directly to consumers regardless of their tenure. If government intends to proceed with this approach, they should produce a clear plan showing how this might be achieved and risks managed. One approach might be to deal with the easiest cases first (e.g. those who receive only partial help) and gradually work through to the most difficult (e.g. longterm unemployed) whilst building up systems of support to help consumers manage their payments. Disability o Government is committed to supporting disabled people to work when feasible and will consider what extra support may be needed for disabled people within Universal Credit in addition to support available elsewhere. Caring o The government will consider whether changes to Carer s Allowance will be needed to take account of the introduction of Universal Credit and provide clearer, more effective support for carers. Children and childcare o Fixed amounts within Universal Credit (based on current Child Tax Credit) will be provided for less-well-off families to cover children s living costs. These will be additional to Child Benefit o Government will consider how support for childcare can best be delivered as part of, or alongside, Universal Credit. Any help in Universal Credit will be restricted to those in work and working less than 16 hours per week. Other key points o The upper age limit for Universal Credit is the Pension Credit eligibility age, but government is inviting views on the possibility of allowing working pensioners to claim Universal Credit rather than Pension Credit o Younger people will receive lower rates of Universal Credit o The maximum award of Universal Credit will be set on the basis of median earnings after tax and National Insurance for working families Disability Living Allowance recipients and War Widows will be exempted o Government will work with local authorities and devolved administrations to develop a new approach to Council Tax Benefit o Local authorities will have the scope to consider the priorities of their own local people when determining support for vulnerable and low income households to meet council tax bills. Conditionality and sanctions
o Universal Credit will introduce more stringent levels of conditionality, where claimants of certain benefits are expected to meet particular requirements in exchange for benefit payments. o Government will introduce four weeks mandatory full-time work activity for some recipients where this is seen as beneficial to the claimant. Any requirements placed on claimants are to take into account their individual capabilities and circumstances. o A claimant commitment will be introduced for recipients of Income Support, Jobseeker s Allowance and Employment and Support Allowance to ensure that they are fully aware of their responsibilities. It will set out the general expectations, requirements as well as the sanctions for non-compliance with these. o Non-compliance will lead to tougher sanctions, as is currently the case. Recipients will continue to be able to show good cause as well as the ability to appeal. Safeguards for vulnerable claimants are to be maintained. As at present, the proposed sanction structure will only apply to the basic income replacement benefits and not to associated benefits such as Housing Benefit and are summarised in table 2. o Hardship payments for recipients subject to sanctions are to be continued, but government is considering replacing these with loans where possible. Those who persistently fail to comply with conditionality requirements will lose this recourse altogether for the entire duration of the sanction period. There is a commitment to ensure that vulnerable people and their dependants are protected and that hardship payments continue where relevant. o The above changes will be integrated into the existing benefit regime and carried forward under Universal Credit. o Conditionality (expectations of particular behaviour or circumstances) will be applied individually to each adult in a household. A conditionality threshold determines whether a claimant will be subject to conditionality requirements. The threshold will initially be set at around the same point at which people lose entitlement to the current out-of-work benefits. It is intended to raise or lower this threshold, as well as widen the group of claimants to which conditionality applies, once Universal Credit is in place. Table 1 Conditionality under Universal Credit Conditionality level Full conditionality Default option for recipients, including parents and couples with older children Work preparation Recipients who are disabled or have a health condition Conditionality Required to actively seek and be available for work as they would under Jobseeker s Allowance Expected to take reasonable steps to prepare for work
Keeping in touch with the labour market Recipients who are lone parents or lead carers in couples with a child over one but below the age of five No conditionality Recipients who are disabled or have a serious health condition which prevents them from working and preparing for work; lone parents or lead carers in couples with a child younger than one; have intensive and regular caring responsibilities. Those receiving Universal Credit, but earning above the relevant threshold. Expected to attend periodic interviews to discuss their plans for returning to the labour market No requirements Table 2 Proposed sanctions structure under the existing benefit system Conditionality Failure Sanction Low Includes failure to: 100% Jobseeker s Allowance / Jobseeker s Allowance; Attend an appointment Employment and Support Allowance open ended until re-engagement, then fixed Employment and Carry out a minimum period (1, 2, then 4 weeks) Support Allowance; Work related Activity jobseekers direction Advisers will retain the ability not to impose a sanction for first an subsequent Group Attend employment related programme failures where good cause applies Attend a workfocused interview (Employment and Support Allowance claimants) Carry out work related activity (Employment and Support Allowance claimants) Medium Jobseeker s Allowance only High Jobseeker s Allowance only Failure to: Actively seek work Be available for work Failure to: Apply for a job Accept job offer Tak part in mandatory work activity Recipient only Failure to: 1 st failure 1 st failure 100% Jobseeker s Allowance fixed for 4 weeks 2 nd failure 100% Jobseeker s Allowance fixed for 3 months 1 st failure 100% Jobseeker s Allowance fixed for 3 months 2 nd failure 100% Jobseeker s Allowance fixed for 6 months 3 rd failure 100% Jobseeker
required to attend work-focused interviews Income Support; Employment and Support Allowance; Lone parents with a child aged over one but below the age of five Attend workfocused interview 20% (of the over-18 lone parents personal allowance) open-ended until reengagement 2 nd and subsequent failures Additional 20% (capped at 40% total for any subsequent failures) until reengagement CIH comment The general principle that individuals who are able to look for work, or able to prepare for work, should be required to do so as a condition for receiving benefit is appropriate. The approach to work conditionality should be proportional to the distance from the labour market rather than type of benefit received Work conditionality should perhaps be based on hours worked (subject to a limit) rather than whether a person receives benefit. The risk otherwise is that people with low skills and limited earnings capacity are penalised even though they may be working to the best of their ability. It would also result in unfairness for people living in higher cost areas. They would face the threat of sanctions merely because they are not being paid a living wage There is a risk that it will not be possible to design administrative rules that can fully take into account the efforts that a customer is taking to find work. Delivering Universal Credit Key principles of delivering the new regime are: The Department for Work and Pensions will be responsible for delivery of the Universal Credit. The internet will be the main administrative vehicle Claims will be made on a household basis, with couples required to claim individually Claims, as well as most other interactions concerning Universal Credit, are expected to take place online. In order to get people more used to interacting via the internet, there is an expectation that current claimants will make more use of online services in the run up to Universal Credit. Alternative access routes (such as face-to-face or via the phone) will be in place for those who are unable or cannot use online channels Applicants are only required to fill in one single application Claim, assessment and award calculations will be an automated process An online statement of account, akin to that provided by banks, will provide recipients with all the necessary information regarding their claim Any significant changes to a recipient s circumstances are also to be reported online and they will trigger an automatic re-assessment Existing information from relevant sources is utilised where possible in order to reduce the burden on recipients to repeat themselves when making a claim or reporting a change in circumstance. In order to ensure
Individuals no longer in receipt of Universal Credit will remain on the system for a fixed period of time. This is to ensure that a new claim will not be necessary if a household finds itself eligible for Universal Credit again within that period It is envisaged that assessment and payments take place on a monthly basis Assessment of Universal Credit will be in two stages. A gross entitlement will be calculated by DWP, based on information already held or provided by the recipient. If a recipient is not working and satisfies all relevant entitlement conditions, this will be the amount paid Claimants who are in employment will have their earnings automatically taken into account and the financial award calculated using the HM Revenue & Customs proposed real-time information system. This means recipients whose wages are taxed though Pay As You Earn are not required to inform DWP of any changes to their earnings for the purpose of calculating Universal Credit payments Universal Credit is set to go live for new claimants from October 2013, with the intention to complete the transfer to Universal Credit for all claimants by October 2017 (see Table 3). Universal Credit will be complemented by a labour market service to help people back into work. Jobcentre Plus will continue to take the lead in this area. It will be granted greater autonomy in the way resources are allocated and services designed, although there will be an expectation of partnership working with local authorities, charities and voluntary groups. The introduction of Universal Credit is expected to drive efficiencies and reduce unnecessary bureaucracy, such as the duplication of functions across a number of organisations. DWP will hold further discussions with local authorities about the detail and implications of Universal Credit for their Housing Benefit operations. This includes consideration of the role of local authorities in administration of non-mainstream Housing Benefit, such as people living in supported or temporary accommodation. Table 3 Provisional timetable for the introduction of Universal Credit October 2013 to April 2014 April 2014 April 2014 to October 2017 All new claims for out-of-work support are treated as claims for Universal Credit Customers transitioning from out-of-work benefits into work will move onto Universal Credit if they are eligible No new claims are made to Tax Credits Work through existing cases, moving claimants onto Universal Credit CIH comment A single point of contact to make a claim, the single income assessment, and the introduction of real time assessment of income are welcome.
However, it is important to maintain quality of service with new administration arrangements. This applies as much to reducing levels of fraud and incorrect payments as it does to standards of customer care. In this context it is possible that over-ambitious assumptions might be made about administrative savings that might be achieved in the long-term without affecting the quality of service. It may be beneficial to retain the elements of assessment and administration that relate exclusively to local housing costs at local level speed and accuracy can best be delivered through this route. Impact of Universal Credit on the wider welfare system Universal Credit will involve reform and change in other parts of the welfare system including contributory benefits, the social fund, passported benefits and Disability Living Allowance. Contributory benefits Under the new system, contributory benefits would retain an insurance element, but in most circumstances would only be paid for a fixed period, to facilitate a transition back to work Contributory Jobseeker s Allowance will continue in its current form but with the same earnings rules (such as disregards and tapered withdrawal) and administration aligned with Universal Credit Contributory Employment and Support Allowance will also continue, with administration and earnings rules aligned with Universal Credit, For those in the assessment phase and in the Work Related Activity Group their Allowance will be time-limited to a maximum of one year. Social Fund Reform of the social fund will be in two parts: Elements of the social fund which lend themselves to automated delivery will be incorporated into Universal Credit Elements which require more discretion will be reformed so that local authorities are responsible for their administration The devolved administrations will determine the most appropriate arrangements for Scotland and Wales. Passported benefits Access to passported benefits (free school meals, health benefits for example, free prescriptions) will be based on an income or earnings threshold the threshold is still to be agreed by government Government will consider devolved administrations taking responsible for passported benefits. Disability Living Allowance Disability Living Allowance will remain as a non-means-tested benefit outside of Universal Credit, but government will fundamentally reform DLA from 2013/14
Government will consult on proposals it is developing for an objective assessment to ensure that future support is targeted on those who face significant barriers. Devolved Administrations As social security is a devolved matter in Northern Ireland, government will work with the devolved administration in Northern Ireland to maintain a single system across the United Kingdom; Government will also work closely with the devolved administrations in Scotland and Wales to deliver the reforms in the White Paper. 3) Things for housing professionals to think about Implementation of the proposals in the Welfare Reform white paper will affect tenants and providers of rented housing and support services. In anticipation of implementation of Universal Credit, housing professionals should consider: Ways to inform tenants and residents about the proposed changes so they can prepare and so income can be maximised Use of customer insight to identify current and future tenants who could be affected by the changes The potential impact of new sanctions on tenants and businesses Whether their approaches to tackling worklesness can be strengthened or need to change Detailed training for benefits advice staff and others who provide practical advice and guidance to the public around benefits Capacity and need for financial and digital inclusion services to help tenants have the best experience of the new system.
4) CIH working for you CIH offers a range of tools and analysis to help you understand the government s welfare reforms and how they will affect your tenants and your organisation. In addition to this briefing, other CIH resources you may find useful include: Housing Benefit Impact Calculator CSR and beyond seminars Comprehensive spending review briefing (October 2010) Housing Benefit briefing (July 2010) Housing Benefit reforms event South East Housing Benefit reforms seminar South West Housing Benefit reforms seminar CIH also offers a range of information and resources to help you tackle worklessness among your tenants: New guidance on supporting tenants in running a business from home (November 2010) Tackling worklessness: A toolkit (2008) Available from our online bookshop South West Tackling Worklessness seminar Practice online (Rent arrears and other debt chapter) Project summaries of finalists from the UK Housing Awards 2010, including a number of initiatives to tackle worklessness: o Contour Housing Group o Shepherds Bush Housing Group o Southampton City Council ( these will be on our website shortly) Housing Practice issue 1 (March 2009) We will continue to work closely with DWP as the details of Universal Credit are developed, to ensure that the experience and needs of the housing sector and tenants are taken into account. CIH contact on welfare reform: Sam Lister sam.lister@cih.org