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Effect of the roll-out of Universal Credit in the North West

Published Tuesday, January 12, 2016

There will be a debate entitled, Effect of the roll-out of Universal Credit in the North West, in Westminster Hall on Wednesday 13 January 2016 at 9.30am. Marie Rimmer MP will lead the debate. This page provides a background briefing.

Effect of the roll-out of Universal Credit in the North West

Universal Credit (UC) is a new benefit which is to replace means-tested social security benefits and tax credits for working-age individuals and families.  The aim is to simplify and streamline the benefits system, improve work incentives, tackle poverty among low income families, and reduce the scope for error and fraud.  UC was first introduced for a small subset of new claimants in certain areas in 2013, and is gradually being rolled out to new claimant groups, but the benefit is not expected to be fully introduced until 2021.

Following the “reset” of the Universal Credit programme in early 2013, DWP has been following a “twin-track” approach which involves rolling out UC using IT systems developed up until then (now referred to as the “Live Service”), while simultaneously developing digital systems to underpin the eventual model (the “Full Service”). The Live Service is expected to be available across Great Britain for new claims from certain types of claimant from spring 2016.  Thereafter, existing claimants will be transferred from the Live Service to the Full Service, and new claims for “legacy benefits” (the benefits and tax credits UC is replacing) progressively closed down.  The final stage – between 2018 and 2021 – involves the transfer of the remaining legacy benefit claimants to UC (the “managed migration”).

Universal Credit in the North West

Universal Credit was first introduced as a “Pathfinder” in Ashton-Under-Lyne in April 2013. New claims were taken from single unemployed people (or people with very low earnings) satisfying the “gateway” conditions.  Claimants had to be British citizens, with a bank account and National Insurance number, and with savings not exceeding £6,000.  Among those excluded from the Pathfinder were claimants with children, recipients of certain benefits, homeless people or people in temporary accommodation, homeowners, the self-employed, and people in education or training. 

The Pathfinder was extended to three other areas in the North West – Wigan, Warrington, and Oldham – in July 2013. In summer 2014 UC was expanded to a further 29 areas in North West, for both single people and couples satisfying the gateway conditions, and with some relaxation of the constraints on single people claiming.  Between September and December 2014, UC was expanded to cover all parts of North West England, with new claims from families with children being accepted in some sites.  Since January 2015, new claims from families with children have been accepted throughout the North West.

The North West was the first area where UC was rolled out to all Jobcentres. Of the 155,568 UC claimants at mid-November 2015, 77,378 were in the North West.  26,521 were in employment, and 50,855 were not in employment.  DWP’s Universal Credit statistics give more detailed information.

Impact of Universal Credit: DWP reports

Despite significant changes to the parameters for Universal Credit since the original plans (see below), the Government still expects significant economic benefits from UC.

In December 2015 DWP published reports giving the findings from research on the impact of UC so far:

 

Other recent reports and material

 

Changes to the Universal Credit work allowances

Summer Budget 2015 announced a series of changes to Universal Credit including

  • Reductions in the “work allowances” for most UC claimants, from April 2016
  • Limiting the child element of UC to two children for new claims and births after April 2017
  • Removing the first child premium in UC for new claims from April 2017

To date, the changes to the work allowances have gained most attention.

The work allowance is the amount an individual or family can earn before their maximum Universal Credit award starts to be reduced. The level varies according to household circumstances, and whether the maximum UC award includes an amount to cover housing costs. From the start, the 2010 Government made it clear that, along with the unified, responsive benefit structure and single taper, work allowances set a more generous level than the existing earnings disregards in “legacy” benefits and tax credits were integral to the offer under UC that “work pays, and more work pays.” However, even before the Summer Budget announcement, changes to the work allowances meant that they were less generous than originally envisaged.

The reductions to the UC work allowances announced in the Summer Budget will ultimately have a similar impact to the changes to tax credits which are not now going ahead, the main difference being that while families would have been affected by the tax credits immediately from April 2016, the full impact of the UC changes will not be felt until UC is fully introduced. Although the impact varies according to household circumstances, overall the changes mean a significant reduction in the generosity of UC, and for some groups a reduced incentive to enter or progress in work.

The Department for Work and Pensions has not produced an Impact Assessment for the work allowance changes. The Social Security Advisory Committee expressed concern about whether there was an adequate evidence base to assess and evaluate the changes. Analysis by the Resolution Foundation suggests that, taking into account the broader package of tax and benefit changes in the Summer Budget and Autumn Statement, and the proposed National Living Wage, working households on UC are set to lose an average of £1,000 in 2020, rising to £1,300 for those with children. The Social Mobility and Child Poverty Commission warns that the impact of fiscal pressures on work incentives and the extent of in-work support risks undermining the original aspirations for Universal Credit. It recommends reversing the cuts to the work allowances before they are implemented in April 2016.

The Government states that most analyses of the impact of the UC changes fail to take into account the full package of policy measures affecting families, including elements such as increases in the personal tax allowance, the National Living Wage, and better childcare provision.  Furthermore, it points out that analyses fail to account for the dynamic impact of UC, including changes in behaviour in response to improved opportunities to move into and progress in work.  The Government also envisages providing help and support to seek more or better paid work, to “recoup the loss” from the work allowance changes.  The Social Mobility and Child Poverty Commission believes however that it will be “very difficult” for many families to increase their hours and pay to avoid big cuts to their incomes compared to the current system.

For individuals and families already receiving UC, there will be no “transitional protection” to protect them from the reductions in the work allowances from April 2016.  Families moving from “legacy” benefits and tax credits to UC as part of the “managed migration” will however, if they would receive less under UC, have their UC ward topped up so that they do not lose out in cash terms.  This transitional protection will last until the family’s UC award catches up, or there is a “significant” change in circumstances triggering the loss of protection.  Transitional protection will not however be available for those moving onto UC as a result of a new claim, or for those on existing benefits transferred to UC as a result of a change in circumstances.

Further information can be found in:

 

Long term impact of Universal Credit

The Institute for Fiscal Studies estimates that, taking into account all the announced changes to Universal Credit including the limits to the child element, the long-term impact not taking into account transitional protection will be reduction in entitlements totalling £3.7 billion compared with the existing legacy benefits and tax credits system.  The IFS estimates that working families would face a total cut of £1.5 billion a year, with more working families losing than gaining (2.6 million lose an average of £1,600 a year, and 1.9 million gain an average of £1,400 a year).  There is concern that families transferring to Universal Credit as part of the managed migration whose entitlement to UC is substantially lower than their existing benefits and tax credits might be reluctant to move into work or increase their hours if this would trigger a loss of transitional protection, thereby undermining the UC incentives structure.

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