The Benefit System, Welfare to Work

Universal Credit, an overview of the challenges


Universal Credit will be rolled out from next year. The plan was that all new applications for benefit would be for Universal Credit from October 2013. This commitment has however been revised, and Universal Credit will be rolled out gradually.

There are also other challenges with the Universal Credit: the decision to exclude Council Tax Benefit from Universal Credit is a significant misjudgment, whilst the Secretary of State (Iain Duncan Smith) wanted it included, the Communities Secretary Eric Pickles and the Prime Minister overruled him. As a result the Universal Credit will not strengthen work incentive because more people will suffer a taper rate of over 80%.

Paul Lewis, of the Radio 4 Moneybox programme, has calculated that:

In areas which raise the Council Tax Support taper to 25% householders on Universal Credit who pay tax will find that 82p of each pound earned disappears in deductions. In areas with a 30% taper they will lose 83p and keep just 17p for each pound earned… Losing more than 80% of each extra pound you earn is hardly an incentive to work or to work harder

Keeping Council Tax Benefit separate also impacts negatively on the simplification advantages of Universal Credit included that it was supposed to make it easier to understand the income gains from entering work. Instead, this will depend on your local authority’s Council Tax Benefit system.

Also the Chartered Institute of Taxation has been warning that

The proposed treatment of the self-employed under UC will represent a massively retrograde step from current practice”, they say in evidence to the Work and Pensions Select Committee.

The combination of the proposed system of accounting for profit and the minimum income floor will give a wholly distorted view of how the business is actually doing; the monthly reporting will add greatly to burdens on small business.”

The critical question of which recipients of Universal Credit will qualify for free school meals remains unresolved. In March last year, Mr Duncan Smith told MPs he expected to be able to clarify that by June 2011, apparently he is still discussing it with the education secretary and it appears that an income test is being planned for free school meals – people whose household income is less than a threshold will qualify. This potentially means that there is another challenge to getting into work or increasing the pay of people with an income just below the threshold. Someone with three children who lost free school meals because of a small pay rise would have to earn another £3000 per year before they were as well off as before the rise.

Other problems include the IT system: The Social Market Foundation published research highlighting problems caused by the rigidity of the proposed new system.

The new system will be introduced as the government’s cuts to welfare advice funding are coming in.

yesMinister comment>
However, in defence of Iain Duncan Smith, he is the first Secretary of State to really begin to grapple with the thorny issue if benefits,from who to whom, how much when and where: such a huge undertaking inevitably means some mistakes will be made… I suppose, the man that does nothing never achieves anything because he gets nothing wrong.

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