Concerns about Universal Credit

It's hardly surprising that the biggest changes in welfare policy for a generation is under intense scrutiny, and this week has been no exception, with a number of reports being published that raise concern about the implementation and impact of Universal Credit.

On Tuesday, the Federation of Small Businesses revealed that a survey had found that only two fifths of its members who employ staff are aware of the Real Time Information programme - the new way of reporting PAYE to HMRC that employers must introduce from April 2013. The new system is essential so that the DWP can calculate Universal Credit payments for claimants without needing everyone to enter those details themselves.

The importance of these arrangements running smoothly was underlined the following day in a Joseph Rowntree Foundation report that identified risks that need addressing if Universal Credit is to bring about real improvements for all claimants. It found that IT experts are concerned that the timetable for developing the necessary IT systems is unrealistic.

The report also highlighted the anxiety of claimants over the shift towards monthly payments and questioned the planning and resourcing of local face-to-face support for who are unable to manage their benefit claim electronically. It suggested that the simplicity of Universal Credit was being undermined by localised arrangements to replace Council Tax Benefit, community care grants and emergency crisis loans, which may need to be reconsidered.

Most worryingly, the authors suggest that Universal Credit ('the welfare that works') may provide insufficient incentive for people to move into work, especially second earners in households. It could also disincentivise people from starting their own businesses, because of the administrative burdens that would be placed on them.

A further report, Gaining from Growth from the Resolution Foundation, also highlights the fact that Universal Credit threatens to undermine second earners’ incentives. It explains:

"This is because couples will be allowed to earn between £1,920 and £3,000 between them (depending on circumstances) before support begins to be withdrawn... As most households receiving Universal Credit that have one person in work will already earn above this threshold, they will start to have their support withdrawn from the moment a second earner enters work.

"The second earner (overwhelmingly women) will, in effect, face a tax rate of 76 per cent from the first pound they earn, assuming they pay tax. This discourages work and we believe it is a move in the wrong direction."