Delivering social security during the coronavirus outbreak

March 19, 2020 – Phil Agulnik
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The government’s response to the economic fallout from coronavirus is growing rapidly. Following the money made available in the recent Budget, the Chancellor has already announced extra measures to help rescue businesses through a £330 billion package that rivals the response to the 2008 financial crisis. However, the government’s additional plans for helping individuals affected by the virus are yet to be released.

One response that has been widely advocated is to extend Statutory Sick Pay (SSP) to include all workers, including low hours workers, and to increase the rate of the allowance from its current level of £94.25. For instance, Citizen’s Advice has advocated extending eligibility to employees earning less than £118 a week, who are currently excluded because they earn less than the National Insurance ‘Lower Earnings Limit’. But whatever level of benefit is set for SSP, and however its rules are tweaked, how to deliver help to self-employed people is a major challenge.

The issue is that there is no existing benefit for self-employed people that matches SSP for employees, in the way that Maternity Allowance provides a minimum income for self-employed women during and after pregnancy. The government’s current answer is to rely on the means-tested benefits system, which for new working-age claimants means claiming Universal Credit (UC). But even without the administration issues that have beset the benefit, it is difficult to make UC as generous as SSP, whatever rate of assistance is set. The reason is that UC is based on a household income test while SSP is given to the individual ‘as a right’, without a means test.

Instead of using UC to provide relief it makes more sense to help self-employed people through the contributory benefits system. Because eligibility is not means-tested, and is for the individual rather than the household, it is inherently a more generous benefit. For instance, a couple would receive £148.70 a week if they both claimed a contribution-based benefit, compared to an entitlement of £115 a week for a couple on UC.

If the government wanted to go further they could increase the rate of ‘new-style ESA’ to the higher ‘support’ rate, which would provide a couple with £223 a week. While there is certainly a case for increasing benefit rates for all claimants, focussing increases on contribution-based benefits could better target people who are no longer able to earn an income because of coronavirus and are making a new (and hopefully temporary) claim for benefit.

The current conditions that claimants need to fulfil to qualify for contribution-based benefits are cumbersome (they are set out in full in our contribution based ESA and contribution based JSA guides). Instead they should be replaced by a looser and simpler condition that allows more self-employed people to qualify, relaxing the complex rules around needing to have paid National Insurance Contributions for particular lengths of time.

Extending the reach of contribution-based benefits in this way of course runs counter to Beveridge’s original aim, which deliberately restricted entitlement to people who had contributed (via National Insurance) in the right way, at the right time and at a high enough level. But in current circumstances a more generous interpretation of contributions seems appropriate. Moreover, contribution-based benefits could allow benefit money to be delivered to individuals within 2 weeks of their claim – far quicker than the 5 week wait under UC – without a means-test and, for couples at least, at a higher rate.

The current level of help provided by contributory benefits might provide sufficient support for homeowners, who will also benefit from the mortgage payment relief already announced by the government. But for self-employed people with extra needs or costs, because they have children or pay rent, this help will not be enough. That’s why means-tested benefits exist – so that a household’s needs are recognised as well as their income. It is also why many self-employed people with children or paying rent already claim benefits, some through UC but many more through the ‘legacy’ benefit systems of tax credits and Housing Benefit.

The way the system works at the moment would mean that self-employed people with extra needs would have to claim UC on top of a contributory benefit, even if they are already claiming tax credits or Housing Benefit. That’s because existing claimants are gradually being migrated onto UC, with a change of circumstance being the trigger for moving from the ‘legacy’ benefit. The current change of circumstance rules are therefore bound to put massive pressure on administration of UC, as they mean both new and existing claimants have to claim it from scratch. It is an unnecessary hurdle for existing claimants and a recipe for poor administration, as the UC helpline will inevitably grind to a halt under the weight of new claims.

Instead of heaping extra work on UC the government should suspend the rules around changes of circumstance for existing claimants. For people already claiming Housing Benefit or tax credits their claims should continue, so that help with rent and children can continue to be supplied (with the amount of support provided automatically adjusting to reflect the household’s reduced income). The tax credits helpline and online support still exist for the millions of people that remain on the benefit, and the elimination of appointments with members of the public may assist local authorities in their efforts to help claimants. So as well as keeping Housing Benefit for existing claimants and abandoning the change of circumstance rules, the government should re-open the scheme to new claimants.

In terms of delivering assistance, reopening Housing Benefit is likely to be the most effective method to get help rapidly and effectively to private sector tenants. It also has two other advantages. First, it will make it easier for people to get help with Council Tax, as local support schemes are administered together and there is a single claim form for help with both rent and Council Tax. Second, Housing Benefit already has a built-in mechanism to provide extra help to private renters via the ‘13 week rule’. This allows new claimants who had previously been able to meet their rent without claiming benefit to have their rent met in full for three months, regardless of the restrictions set through the Local Housing Allowance rules. There is no such provision under UC, so the vast majority of new claimants would not get full help with their rent but instead would find assistance capped at the level of the cheapest 30% of private sector rental properties.

In summary, reopening legacy benefits would help share administrative burdens between central and local government, reduce new claims from people already on tax credits and Housing Benefit, and facilitate expanding contribution-based benefits. But what about the government’s long term plans to abolish legacy benefits in favour of UC? 

The truth is that the attempt to move everyone onto UC via ‘managed migration’ is already at least 5 years late and is only being trialled in one local authority. The effort required to move over existing claimants is simply not worth it, and a future where benefit rates are equalised between UC and legacy benefits, getting rid of the need for ‘transitional protection’, is a more likely outcome. If the challenge of coronavirus helps us get there more quickly it would at least be one good thing to come out of the current crisis.

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