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REGION: Ireland Paul Herbert December 2012

UNIVERSAL CREDIT BRIEFING PAPER

Universal credit is planned to be introduced in Northern Ireland from April 2014. The information contained within this paper may be subject to change. It will replace the following benefits:      

Income Support Income Based ESA Income Based Jobseekers Allowance Child Tax Credit Working Tax Credit Housing Benefit

Universal Credit is designed to simplify the benefits system and make it easier for people to move into and out of work. Long Term the government believe it will save money, in the short term it will be expensive to set up. Northern Ireland has parity with the UK when it comes to Social Security Legislation. Lobbying form the advice sector and disability groups has resulted in minor changes to Universal Credit as applied to Northern Ireland, namely:  

Payment of the Housing Element would be payable to the Landlord directly. Payments could be split between two people where necessary

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And two payments in a month could be made where it is deemed necessary.

Universal Credit will be based on a Standard Allowance to which the following elements can be added for households that meet the criteria: limited capability for work/limited capability for work related activity elements; child element; disabled child element; Severely disabled child element; child care costs element; housing costs element; and carer element.

DISABLED CHILDREN The reduction in the support for disabled children may impact those families where no one can work because of caring responsibilities and those working and paying higher childcare for a disabled child. Under tax credits the disabled addition would have been £57 a week whilst under Universal Credit it will be £28 a week. This can be higher if child on high rate care but for those on middle rate care it will be a concern.

SEVERE DISABILTY PREMIUM The removal of the Severe Disability premium, currently payable with Income Support, Income Based JSA and Income Based ESA, will have an impact on around 230,000 severely disabled people, who do not have another adult to help them, of between £28 and £58 a week. This could also potentially impact on the children of lone severely disabled parents as children may have to take on the extra caring roles that they may not be able to afford.

CHILDCARE COSTS Child care costs will broadly remain the same with the same 70% limit. However it will mean the loss of the disregards under the old Housing Benefit scheme. It is widely recognised that the high cost of child care and jobs paying the minimum wage does not make it economically viable for mothers to take up work. It could be argued that rather than investing money in this expensive scheme the money would be better invested in highly affordable non means tested support for childcare.

HOUSING COSTS Universal Credit will include an amount for eligible housing costs to cover rent or interest payments on a Mortgage.

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SUPPORT FOR MOTGAGE INTEREST Universal Credit claimants will be entitled to support for mortgage interest though there will be a zero earnings rule so any work done will mean claimants lose help with mortgage interest. This could be a disincentive to take up part time work and goes against the ethos of the government to remove barriers preventing people taking up employment. This could affect single parents living in the matrimonial home after a separation and those who are making a phased return to work after illness. Lord Freud stated that it was on the grounds of cost alone that the zero earnings rule was applied. This zero rule may have unintended higher spending consequences if people move from owner occupied to private rented accommodation where rental assistance would be given.

INCOME EARNINGS DISREGARD Earnings disregards are the amount of money you can keep before it affects the level of Universal Credit you receive. If you are single and have rental costs and you: are not responsible for a child or qualifying young person - £1,330 (£110.83 a month) are responsible for one or more children or qualifying young persons -£3,159 (£263.25 a month) have a limited capability to work - £2,306 (£192.16 a month) If you are single and have no rental costs and you: are not responsible for a child or qualifying young person - £1,330 (£110 a month) are responsible for one or more children or qualifying young persons - £8,812 (£734.33 a month) have a limited capability to work - £7,759 (£646.58 a month) If you have a partner and you have rental costs and: neither of you are responsible for a child or qualifying young person £1,330 (£110 a month) you are responsible for one or more children or qualifying young persons £2,660 (£221.66 a month) one or both of you have limited capability to work - £2,306 (£192.16 a month) If you have a partner and you have no rental costs and: PH12/3


neither of you are responsible for a child or qualifying young person £1,330 (£110 a month) you are responsible for one or more children or qualifying young persons £6,429 (£535.75 a month) one or both of you have have limited capability to work - £7,759 (£646.58 a month You are only allowed one disregard whichever is the highest. After tax and national insurance and the disregards then as your earnings rise the Universal Credit will be withdrawn at the rate of 65p for each pound of net earnings. For those people who have low housing costs then the decision to claim a different disregard could be confusing and will certainly mean more enquiries for the advice sector. The lack of a disregard for a second earner would act as a disincentive for the second earner to return to work. In terms of child poverty this may be significant as many women will be second earners and therefore have no incentive to work.

EMPLOYMENT EARNINGS The government plan to use RTI [Real Time Information] to calculate Universal Credit. Under RTI employers and pension providers will provide details of payments, tax, national insurance and other deductions on a monthly basis when or before payments are made instead of waiting until the end of the financial until the end of the financial year. Currently RTI is running in GB but no indication when it will be implemented in Northern Ireland. With such a huge piece of work the ability of the system to cope has to be questioned. The cost of installing this new system for Small Businesses could be crippling and those industries that do not have computers will be penalised. In GB the contingency plan if the system goes down is for claimants to enter there own monthly earnings on their own account. There is no information as to the cost of verifying monthly information personally logged on by claimants

SELF EMPLOYMENT EARNINGS The self employed will input their monthly earnings onto their online account. Failure to provide this information would result in the claim being suspended or even terminated. Self employed will be assumed to be earning a minimum amount this is to encourage them to develop their employment and increase income. It is proposed that for the first year this Minimum Income Floor would not apply. The treatment of self employed earnings is a retrograde step from Working Tax Credit and will make those thinking of using self employment as a way into work; think twice. PH12/4


DIGITAL BY DEFAULT Universal credit has been designed with the expectation that claims will be made and managed on an online account accessed via the internet. It is envisaged that there will be telephone support and face to face support for those having difficulties using the system. The idea behind the on-line claims is to get people used to using the internet and thereby making them better prepared for work. The availability of high speed broadband will affect the use of online claims. There will be problems with those claimants suffering from physical or mental health difficulties as well as those with cultural and age barriers to change. It is not clear how the system will deal with the need to produce documentation. Recent OFCOM research found that 22% of the UK population did not use the internet. Government had a target for 80% online applications for JSA by 2013; it currently stands at 19.6%.

CONITIONALITY AND SANCTIONS Universal Credit claimants will have the following four requirements placed on them: 

  

No work related requirements – claimants who cannot reasonably be expected to work or prepare for work and those who are already earning all that could reasonably be expected of them above their conditionality threshold. Work focussed interviews only – claimants are only expected to stay in touch with the labour market and begin to think about moving into work, more work or better paid work. Work preparation – claimants expected to prepare for a move into work, more work or better paid work by for example participation in a work programme but not expected to look for work yet. All work related requirements – claimants expected to move into work, more work or better paid work.

It is imperative that the support for claimants is put in place by government with good quality work programmes and skilled advisers able to understand the individual needs of the claimants. This is the area where Universal Credit will potentially fail to deliver any meaningful jobs. The drive is to get people into work then harass them into taking on more hours and move into jobs with better pay but probably with less job security. For the first time conditionality will be applied to those in work. There may be unintended consequences to this drive for claimants to increase hours and pay as employers may not want to employ those on Universal Credit, as they may not stay.

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SANCTIONS There are three levels of sanctions:  

Low – for failure to undertake specific action required by an adviser. Benefits withdrawn for one month for a first offence and three months for second and subsequent failures. Intermediate - for failures to actively seek and be available for work. The sanction is disentitlement to benefit. If the claimant makes a new claim there will be no entitlement to benefit for a month for first offence and three months for second and subsequent offences. High – for failures to comply with the most important job-seeking requirements, including a reasonable job offer or leaving employment voluntarily without good reason. The sanction is withdrawal of benefit for three months for a first failure, six months for a second failure within a year of the first, and three years for a third.

The sanction will be 100% of the standard allowance and not the other elements of the award. It has never been proved that sanctions work and overworked staff may see them as a way of getting unemployed people off their books. Sanctions will mean more applications for discretionary housing benefit and also more applications to the replacement of the Social Fund. Long term sanctions could result in claimants not re-engaging with Universal Credit and taking low paid work.

PASSPORTED BENEFITS No information as yet

SOCIAL FUND REPLACEMENT Under consultation

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GENERAL COMMENTARY When they launched the welfare reforms the Government promised that Universal Credit would mean “it always pays to work”. “Never again will work be the wrong financial choice”. “The more you work the better off you will be”. However several impact assessments have shown that this will not always be the case. There is a risk of decreased work incentives for second earners in couples. Although the number of workless households will reduce it is possible that in some families the second earner may choose to reduce or rebalance their hours or leave work. One of the key obstacles to work is childcare costs, which increases as parents return to employment after the birth of children. It is estimated that 1.8 million main earners in a family will be worse off if they take on extra hours under Universal Credit. Nearly 300,000 secondary workers will also be penalised for taking on extra work, which means that up to 2.1 million people would be better off refusing the offer of extra work. Couples with children could lose between 60p and 80p of every extra £1 they earn under the new reforms.

Our thanks to CAB Belfast for their assistance with the above information

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UNIVERSAL CREDIT BRIEFING PAPER