The following note was submitted to the DWP committee alongside our oral evidence this morning. A link to view the session on parliamentlive.tv can be found at the end of the article. 

 

The evidence to the select committee on 26^th February set out a range of problems experienced by claimants ‘naturally’ migrating onto Universal Credit (UC). This note explores these problems further, showing why it is difficult to identify when claiming UC is in an individual’s best interests and why it is difficult to explain (to claimants or advisers) how natural migration works.

It concludes that, unfortunately, complexity is baked into the current way in which UC is being rolled-out. Aligning benefit rates between UC and legacy benefits will help a lot, but in the short term the main way to limit the damage is to reduce the number of people affected by natural migration. Various ways of doing this are explored at the end of this note.

It’s useful to divide the various problems presented to the committee into three groups:

- First, are problems with the way UC is administered which, it is argued, make it unsuitable for some claimants, particularly if they are vulnerable or have experienced an adverse life event.

- Second, are problems for people whose entitlement is lower under UC, who miss out on transitional protection and are treated unfairly relative to if they had been part of ‘managed’ migration.

- Third, are problems associated with using natural migration as the mechanism for rolling out UC, where poor understanding of who is affected reflects the fact that it is a very complex way of changing benefit regimes.

Administration of UC

The administrative problems associated with UC have been recorded extensively in various select committee reports. They include:

• Delays before the first UC payment is received which can tip people into debt, even if they are ‘only’ waiting 5 weeks. Evidence suggests that rent arrears and other forms of debt are higher (on average) among UC claimants.
• Monthly earnings for UC are measured over a fixed period that may not match pay dates, resulting in UC payments varying even when earnings don’t. Where a user’s benefit calculation is affected we provide a payment date facility that allows users to see how their UC varies from month-to-month, but it further emphasises the need for some households to be able to budget well under UC.
• The fact that by putting all payments into one award households are more vulnerable to poor administration, and the fact that housing costs are included in the award makes an income shock more likely to lead to homelessness. It has also been argued that maintaining income if a household splits because of domestic violence is more of an issue in UC than legacy benefits.
• The need to make a separate claim for Council Tax Support increases complexity and reduces take-up for this benefit. Under the legacy system Local Authorities are able to complete applications for people at the same time as they are applying for Housing Benefit, but under UC there is no contact with the local authority.
• The extra conditionality that applies to UC claims, particularly where both members of a couple have conditions, increases the ‘cost’ of claiming in terms of the time and psychological-stress of maintaining a claim (filling in job-search journals, etc).

These problems are fundamentally about whether UC represents an improvement on the current ‘legacy’ benefits system. They need to be set against an equivalent list of advantages in UC, where it improves on the current way benefits and tax credits are administered. For instance, the fact that support is provided in-work and out-of-work without the need to change benefits is generally agreed to be an improvement. Other advantages claimed for UC, such as preparing claimants for work by making payments monthly and encouraging them to seek extra work if they have low earnings, are subject to greater debate.

On an aggregate level the balance between the pros and cons depends on the weight given to each of the issues above. At an individual level the balance of pros and cons depends on their personal circumstances and attitudes – some people may be well suited to the way UC works while, for whatever reason, others are not. However, this does not help in terms of giving advice about whether moving to UC is in a claimant’s best interests, as it means that working out whether they are better or worse off under UC is only part of the puzzle. Even when a claimant’s income is unaffected by UC there are still very strong views among advisers about whether moving on to UC is best advice or not.

Winners and losers under UC

The second group of issues with UC relates to people who lose out relative to the income they would get under legacy benefits. It should though be noted that from April 2019 (when the level of the work allowance increases) there will be around the same number of winners as losers from UC.

Most people who have lower entitlements under UC do so because rates of benefit are different under UC (though changes in benefit rules are also significant for some). These reduced benefit rates affect three main groups:

• low earning homeowners (where the work allowance is still lower)
• severely disabled adults
• disabled children

The reduction in the work allowance is where pressure to reduce losses under UC has had most effect. The original reduction in the work allowance came from George Osborne’s July 2015 Budget, though it has been scaled back considerably by the 2018 Budget. The result is that the cut in the work allowance has been reversed for tenants with children or disabilities, but for homeowners who only receive tax credits entitlements under UC are often still much lower.

Unlike the reduction in the work allowance, the cut to the severe disability premium has always been built into the structure of UC, as part of its ‘benefits simplification’ objective. In the legacy system there are a number of additions that disabled people can get – a lower and higher premium in Employment and Support Allowance and three disability rates in Housing Benefit. In UC, however, there is just one addition to reflect disability. For many disabled people this means a reduction in their benefit entitlement, losing the enhanced disability and severe disability premiums (worth around £80 a week).

The other part of the change to disability premiums is the reduction in the child disability premium. While the higher rate for disabled children under Child Tax Credit and UC is almost identical, the lower premium is £35 a week less under UC. Unlike the issue with the severe disability premium, there is no ‘gateway’ that prevents these cases from going on to UC.

There are also large numbers of households whose entitlements are higher under UC. In particular, people working very low hours are often better-off under UC, because rather than a big jump in income at 16, 24 or 30 hours when tax credits kicks-in (and £ for £ benefit withdrawal below 16 hours), under UC the ‘earnings taper’ is gradual. Low earning tenants with children or disabilities are also often better off under UC, particularly from April when the work allowance increases. For a wide variety of reasons (taper rates, non-dependent rules, etc), many other households are also better off under UC.

However, the fact that the net effect of UC is now approximately neutral, with winners and losers roughly balancing, is neither here nor there. Averages that look at the aggregate effect of UC do not help in terms of how it is experienced by particular households.

In terms of giving advice to claimants, we highlight calculations where there is a significant difference between entitlements under UC and legacy benefits. For losers we also highlight the fact that they could qualify for transitional protection under managed migration. However, it’s not possible to tell the extent to which claimants understand why their income is lower under UC or how managed migration could make a difference. For advisers the issue is simply that it is unfair to cut benefit entitlements for these households.

For ‘winners’ we similarly highlight benefit calculations where the user’s entitlements are higher under UC. As the national rollout is now complete, it would in fact be possible for all (2 million plus) households who stand to gain to make a claim for UC. If they all did so they would collectively be over £4 billion a year better off. The fact that, as best we can tell, few households are voluntarily leaving legacy benefits to go on to UC, even when they are better off, again points to the difficulty of using the difference in benefit entitlements as a guide to what their best interests are.

The trouble with transitional protection

One objection to the fact that many households are worse off under UC is that it is unfair to reduce benefit rates for these groups, particularly as the cuts predominantly affect disabled people. A slightly different kind of objection is that, while it is reasonable to make cuts, it is not fair for some households to get transitional protection while others don’t. It is the distinction between ‘natural’ and ‘managed’ migration that creates this second problem.

The fact that transitional protection is afforded to some claimants but not others has been the basis for legal challenges to the policy. In particular, while the courts have rejected the argument that UC discriminates against disabled claimants (judgment on 01/03/2019 by Justice May, which may be subject to appeal), there has been a successful challenge to the postcode effect in natural migration (judgement on 14/06/2018 by Justice Lewis). It appears the legal position is currently that the idea of there being ‘triggers’ that initiate natural migration on to UC is reasonable in so far as they relate to changes in circumstances around work, partnership, etc., but that simply moving house to a new borough is not a sufficient trigger or, at least, does not justify failing to provide transitional protection.

Justice Lewis summed up the position in his judgement that DWP had erred when a severely disabled claimant suffered a large fall in income when they ‘naturally’ migrated on to UC due to moving into another borough:  “A change in housing circumstances may provide an explanation as to why it was appropriate to require them at that point to switch to universal credit. It does not explain why they should do so without any apparent consideration of whether any element of transitional protection should be provided in those circumstances in relation to the income related element of universal credit.”

It is highly likely the legality of natural migration will continue to be questioned. The committee heard how CPAG have developed an “early warning system” to help provide test cases on which to mount legal challenges (among other objectives), and there will probably be more legal challenges to the circumstances when transitional protection should be awarded.

One response to this would be to extend transitional protection to ‘natural’ as well as ‘managed’ migration. But as the committee’s report on managed migration concluded, transitional protection is itself very unsatisfactory:

• Working out the amount of temporary protection due will either be very complex or won’t actually be the difference between the claimant’s entitlement under legacy benefits and under UC. So the idea that ‘no one will lose out’ won’t be true, or will only be true in a way that is far too complicated to explain.
• As hinted in the name, people who get transitional protection will in time lose it as their circumstances change. This means that households with severely disabled adults or disabled children moved under ‘managed’ migration will get a respite through transitional protection but in time will revert to being losers.

It is worth bearing in mind that DWP has a long and unhappy history in failing to migrate households between benefit regimes, even when there has not been an attempt to cut entitlements at the same time. Moreover, in previous migrations that have changed entitlements the majority of the leg work in ‘grandfathering out’ transitional protection has been done by inflation, with main benefit rates catching up with frozen protected rates. Low inflation, without frozen benefit rates, mean that changes of circumstance will continue to be a focus for attention as transitional protection starts to be lost.

The conclusion is that selecting people to have their benefits reduced via a change of circumstance, which is how natural migration works for losers, is a very bad way to cut benefits. Most people would see it as unfair, it’s very difficult to understand as it requires a knowledge of the legacy benefit systems as well as Universal Credit, and it has been subject to successful legal challenge. These problems are likely to continue as long as anyone receives transitional protection, which could be a very long time.

What DWP can do: align benefit rates

Instead of relying on natural migration to slowly distribute a new structure for benefits, it makes more sense to try to separate out the changes to benefit rates that are part of UC from the changes to administration that the policy is also trying to achieve. For the reasons set out above, creating losers while moving people onto a new benefit is a strategy that is not working. Instead of transitional protection DWP should aim to align benefit rates across UC and legacy benefits.

One outcome of aligning benefit rates across the two benefit regimes might be to confirm the reduced entitlements for some groups under UC. If so rates could be reduced through one of the tried and tested methods of cutting benefits:

- reductions that affect everyone from a given date, such as the bedroom tax,

- reductions that affect new claims (or new births) from a given date, such as the two child limit,

- ratchet reductions through benefit freezes.

At the other end of the spectrum aligning benefit rates might lead to a ‘best of both’ system, with rates in legacy benefits increasing to match those in UC and vice-versa. This would mean the government accepting that the savings built into UC are not in fact achievable and that, in effect, the savings offered up in 2012 were always offered in the expectation that the policy would be reversed before coming to pass. In any event, if savings are to be made they have to be done in one of the ways outlined above: cushioning income falls via transitional protection seems like a good idea, but it is less generous than it sounds and comes at the cost of complexity, unfairness and endless legal challenge.

What DWP can do: slow down natural migration

Reducing the number of people who are part of the natural migration process would not tackle all the problems above but would reduce the scale of the problem.  In order of their impact on the number of people migrating, options are:

• Extending the existing gateway in UC that stops people entitled to the severe disability premium from claiming UC to all households with any level of disability, including children with disabilities. As well as reducing the number of people naturally migrating onto UC this would also make the gateway condition far easier to understand and explain.
• Only migrating ‘winners’ to UC, or giving individuals the choice whether to claim UC or to remain on legacy benefits.
• Pausing the natural migration roll-out entirely and re-opening applications for ‘legacy’ benefits until people are moved to UC via managed migration.

The second two options would eradicate the need for transitional protection, but might also be seen as reducing the roll out to an unacceptable extent. In contrast, extending the gateway to all disabled households would still leave very large numbers migrating onto UC, with all the pros and cons outlined above but with a majority of households being winners (because a large group of the losers are disabled adults and children).

An issue would then remain about existing UC claims from households where someone is disabled. Given that we know that transitioning between benefits is by itself a stressful event for claimants, and the point where administrative problems occur, it probably makes more sense to leave them on UC and provide transitional protection for this group. If DWP are capable of devising and administering a transitional protection scheme for these households then it might be worth re-opening the gateway in the future, but there is no need to expand the experiment by migrating over more households with disabilities.

 

Watch Phil's response on parliamentlive.tv (from 10:28) via the image below.