Universal credit

Universal credit is the government's attempt to simplify the welfare system. Its main purpose is to provide a greater incentive for people on benefits to work - even for short periods of time - by ensuring they do not lose out financially.

Question mark made of moneyIts supporters hope it will reduce in-work poverty by making it easier for people to move in and out of work and put an end to people being trapped on benefits, unable to risk taking a job for fear of being worse off. The government also hopes universal credit will cut welfare costs and prevent fraud, errors and discrepancies by creating a streamlined system where one payment replaces the current bundle of benefits.

But critics of universal credit worry that it might leave many single people and families worse off. And many people, including Mumsnetters, are worried about how the new system will actually work in practice.

Particular areas of concern include fears that there will be harsh assessments of people with disabilities and those who are currently unable to work because of illness, that the new benefit cap will hit larger families and people who live in places where the cost of housing is high, as well as there being unrealistic expectations for lone parents with young children to go out to work.

Here, we set out a brief outline of what universal credit is, who it will affect, and concerns about its implementation. The finer details are still being worked out, but it will give you the gist of the impending changes and how they might affect you.

What is universal credit? | How will it work? | Benefit capWho will be eligible?When is it happening? | The other elementsEarnings disregards and tapers | Payment | Other welfare changes
 

What is universal credit?

Universal credit will replace the following benefits:

  • Child tax credit
  • Housing benefit
  • Parts of the social fund
  • Working tax credit
  • Income support
  • Income-related employment and support allowance
  • Income-based jobseekers allowance

Concern: Council tax credit will be administered by local authorities. The Insititute of Fiscal Studies has predicted there will be problems with this because local authorities have been given less funding to administer the credit, which may lead to crude fixes and arbitrary means-testing. The IFS predicts poor families will end up paying 19% of their council tax.
 

Universal credit will not replace:

  • Attendance allowance
  • Bereavement benefits
  • Carer's allowance
  • Child benefit
  • Council tax benefit
  • Disability living allowance
  • Maternity allowance
  • Parts of the social fund
  • Contributory employment and support allowance
  • Contributory jobseeker's allowance
  • Industrial injuries disablement benefit
  • Pension credit
  • Personal independence payment
  • Statutory maternity pay
  • Statutory sick pay
  • War pensions

 

How will it work?

Universal credit will be paid in one monthly payment to a household, which may consist of a single person, a couple or a family. It consists of one basic element and five other elements, for which claimants need to qualify.

Universal credit will be paid to people who do not have a job and people who are in low-paid work to top-up their earnings. The amount of universal credit will reduce as working hours and earnings increase.

The age-related standard allowance is the basic benefit awarded. It will be lower for under-25s. If you are in a couple, you will be assessed as a unit.

The other elements are:

 

Benefit cap

On top of this there will be a benefit cap. This is designed to make it impossible for anyone to receive more on benefits than the average weekly wage after tax and national insurance.

  • For couples and lone parent households the cap will be £500 a week
  • For single adults the cap will be £350 a week

The benefit cap will be brought in nationwide in April 2013 and reductions will be made to housing benefit payments until universal credit takes over in October 2013.

Concern: The benefit cap will hit larger families who live in comparatively wealthy areas the hardest, and may result in ghettoisation of poorer working people and some people being forced to leave their homes. Estimates from Disability Rights UK have suggested that 67,000 households will be affected in 2013-14 and 75,000 in 2014-15, with 54% of these being households in Greater London.

Other benefits that will be included in the amount to be capped during the changeover to universal credit are:

  • Bereavement allowance
  • Carer's allowance
  • Child benefit
  • Child tax credit
  • Housing benefit
  • Income support
  • Jobseeker's allowance
  • Maternity allowance
  • Employment and support allowance (except where the support component has been awarded)
  • Guardian's allowance
  • Incapacity benefit
  • Severe disablement allowance
  • Widowed parent's allowance
  • Widow's benefit

Exemptions from the benefit cap

Some households will be exempt from the cap, including households where anyone receives disability living allowance or attendance allowance. The childcare element of universal credit will be exempt from the benefit cap calculations.

Until the changeover is complete, any household that receives working tax credit will be exempt from the cap. Those receiving working tax credits will know that a change in eligibility for working tax credits in April 2012 has meant that a couple have to work a minimum of 24 hours between them, rather than 16 hours, to qualify. 
 

Who will be eligible for universal credit and how do you qualify for each element?

Everyone must sign a claimant commitment to receive the basic element of universal credit. Refusal to sign will result in tough penalties; these are still being defined, but may include benefit being reduced or withdrawn for up to three years.

The claimant commitment is designed to show the claimant's willingness to work at short notice and that they are prepared to fulfil all requirements to get them closer to finding work or increasing their existing work hours.

Concern: This commitment will tie in to the workfare schemes, where people will have their benefits cut if they are unwilling to work unpaid for six months. This is called the community action programme or 'support for the very long-term unemployed', but critics say it could be an easy way for companies to get free labour and take advantage of people who have been unable to find work (not to mention the fact that it would essentially remove paid jobs from the labour market by converting them into 'free placements').

Exemptions from the claimant commitment

  • Claimants with limited capability for work-related activity (as defined by a work capability assessment)
  • Claimants who receive the carer element
  • Those who are responsible for a severely disabled person for at least 35 hours a week
  • A lone parent with a child aged under one
     

Concern: Reports on the new way of assessing fitness to work for people with disabilities has shown a 'tick-box' approach that doesn't consider individual needs and may disregard 'hidden' disabilities, such as autism and mental health problems. It is also feared there will be targets for private companies who carry out work capability assessments, which will reward them for declaring more people fit to work. This was the subject of a Channel 4 Dispatches programme: Britain on the Sick.

Degrees of conditionality

Claimants for the basic part of universal credit will be divided into different groups:

  1. No work-related requirements - because they may already earn enough or they may not be able to work at all.
  2. Work-focused interviews only - designed to keep people in touch with the labour market. This group would include a lone parent of a child between the ages of one and five.
  3. Work preparation group - claimants need to prepare to move to work or better paid work and may include people with a limited capability for work.
  4. All work–related requirements group - need to be looking for and available to do any type of work, usually full time. There will be concessions for parents of children aged 5–13 (where work hours would be limited to school hours), although it appears there may be concessions regarding work hours for parents who care for children aged 13–16, too.

There will be a three-month period where claimants will be able to look for work in a specific area and at a level of pay they have previously had, after which they must be willing to accept anything.

Concern: These requirements may be designed to help people into work, but the tough sanctions (fixed period sanctions of 91 days for the first failure; 128 days for the second failure, if it occurs within 52 weeks of the first; and three years for third and subsequent failures, if they occur within 52 weeks of the previous failure) mean that people will be forced into low-paid jobs.

Other sanctions will be applied if:

  • There is a failure to undertake mandatory work activity without good reason
  • There is a failure to apply for a particular vacancy without good reason
  • There is a failure to take up an offer of paid work without good reason
  • Paid work ceases by reason of misconduct, or voluntarily without good reason
  • Pay is lost by reason of misconduct, or voluntarily without good reason
     

Concern: Creating a workforce that lives in fear of losing low-paid jobs may lead to abuses and erode employees' rights. The fact that universal credit will not top-up payments for claimants involved in pay disputes may indicate a bias towards the rights of the employer. 
 

When does universal credit begin?

Universal credit has been trialled since April 2013 in areas of Greater Manchester and Cheshire, so that any problems that arise in these areas can be ironed out in time for the national changeover.

From October 2013, six centres in Harrogate, Bath, Rugby, Shotton, Inverness and Hammersmith in London will begin taking universal credit claims. The government says the entire process will be complete by 2017.

There is a universal credit transitional payment designed to help those in the interim when the universal credit is less than their current benefits. The circumstances for this are 'currently being defined'.
 

The other elements

Separated parents need to decide between them who will receive this part. There will be one higher rate for first or only children and a reduced rate for subsequent children. There are two rates for disabled children, which is reliant on whether they receive disability allowance. There is one rate for a child having any component of the DLA and a higher rate for severely disabled children who receive the higher rate of the care component or are registered blind.

The childcare element will be given to parents, regardless of the number of hours they work, towards the cost of childcare. The costs will continue one month after a period of work ends, so that a childcare placement can be secured and it will be easier to move to other work. Claims can also be made for deposits and advance costs. The childcare element will pay 70% of costs up to £760 for one child or £1,300 for two children per month. Both members of a couple have to be in work for this to apply, unless there is some reason that the person who is not working is unable to look after the children. This amount will be exempt from the benefits cap.

This will be awarded to people who are caring for a severely disabled person for 35 or more hours a week. It is limited to one per household and one per severely disabled person.

This will be decided by a work capability assessment (WCA) and is divided into limited capability for work element (LCW) or the higher limited capability for work and work-related activity element (LCWRA).

Concern: Heavy-handed tick box assessments may be too harsh and may miss hidden disabilities and not look at the claimant's needs. 

The housing element will be given instead of housing benefit and will be fixed at a rate that will make the lowest third of market rents affordable. The support will be 'fair but not excessive'. There will be limits to the housing element for people who are considered to be under-occupying social housing. 

Concern: People will not be able to pay the rest of their rents and will be forced to move to different areas. It is possible that the housing element will be restricted to four-bedroom houses, which will penalise larger families.
 

Earnings disregards and tapers

If a claimant starts work, they will be able to keep some of the money they earn before there are any deductions to their universal credit payment. This is the earnings disregard.

Once the disregarded earnings have been taken into account, universal credit will be withdrawn at a rate of 65p for each £1 of net earnings. So, after the disregard, claimants will be £35 better off for every £100 they earn.
 

When will universal credit be paid?

Universal credit is supposed to be responsive to changing circumstances. Claims will be managed online, so that if a claimant does a week's work during the month, they will be able to add this information to their 'account' and their benefits will be adjusted accordingly. The government hopes that universal credit will be wholly managed online or over the phone.

Concern: The idea of paying benefits monthly is to reflect the world of work where wages are often paid monthly. But for those receiving a low income, there may be a lot more month left at the end of their money. This could trigger a proliferation of pay-day loans, or benefit-day loans, which would leave vulnerable people worse off.

Concern: This assumes everyone is online and able to update their 'account'. There is also an option to make claims on the phone and possibly at high-street shops, but the way universal credit is administered may deter some people from claiming it, and it will certainly be difficult for some people to manage their accounts.

Concern: Critics have concerns about the IT capabilities of the new system. The benefits system is supposed to work alongside PAYE tax details, and employers are supposed to feed payment details into the system to make the benefits system 'dynamic'. Reports suggest the system is not ready and there have been large delays in processing information. The system relies on real-time information being provided to track claimants' earnings. All employers are supposed to submit wage information, but it may prove difficult for smaller companies to do so.  
 

Other welfare changes

  • Child benefit - if one partner earns between £50K and £60K, only a proportion of child benefit will be paid. If one partner earns more than £60k they will receive nothing.
  • Disability living allowance is not changing for under-16s, but for over-16s it is changing to a personal independence payment.

  

 

Disclaimer: Any content in our family money section is intended as general information only. For specific advice about your personal financial situation, get advice from qualified, independent, regulated professionals.

Last updated: 19-Feb-2014 at 11:59 AM