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Next steps to fix Universal Credit

30 November 2017

The Work and Pensions Committee published a report on Universal Credit: the six week wait in October 2017.  Following the package of changes to UC announced in the November 2017 Budget, the Committee took evidence from a panel of experts on 29 November, asking "Did the Chancellor fix Universal Credit?" Now we are opening a new phase of the inquiry and calling for evidence on the areas they identified as the first priorities.

Self-employment and the Minimum Income Floor

Self-employed people can claim UC under different rules to employees, if they can demonstrate that they are "gainfully self-employed". Jobcentre Plus Work Coaches determine whether a claimant is gainfully self-employed. If they meet this gateway condition, they are exempted from UC work search requirements to allow them to focus on developing their business.

Self-employed UC claimants are subject to a Minimum Income Floor (MIF). This assumes they are making a certain, minimum amount of income each month. For most claimants, the MIF is the equivalent of a full-time worker (35 hours per week) on the National Living Wage.

Their UC award is calculated on this basis, regardless of whether they have actually earned that amount. Newly self-employed people are exempt from the MIF for one year after starting a business, known as the "Start-up Period".

The MIF is intended to encourage claimants to earn as much as possible, ensure the Department does not subsidise unprofitable self-employment, and discourage under-reporting of income. In some circumstances, however—such as where self-employed claimants have fluctuating incomes—this can result in them receiving much less in UC  payments than employees on the same annual income.

From April 2018, the Surplus Earnings Rules will apply to both employees and the self-employed on UC. These are intended to discourage claimants from manipulating their income to maximise their UC entitlement.

They are also intended to mitigate the risk of claimants with variable incomes being unfairly rewarded or penalised by receiving more or less UC than they would if they earned the same each month.

Free school meals and passported benefits

Under the legacy benefit system, a variety of "passported" benefits are available to families who receive out-of-work support. Because UC is paid whether claimants are in- or out-of-work, it has "earnings thresholds" for some passported benefits (eg. the Healthy Start Scheme and help with health costs).

There are plans to introduce thresholds for others (eg. Free School Meals). On surpassing these thresholds, claimants become ineligible for the passported benefits.

There is a risk that the thresholds create "cliff edges" in UC which disincentivise claimants from moving into work or working more hours, as they may struggle to compensate financially for the loss of their passported benefits.

Work incentives

The work allowance (the amount an individual can earn before UC is withdrawn) and the taper (the rate at which earnings above the Work Allowance are withdrawn) are the tools in UC that determine incentives to work.

DWP's original vision for UC emphasised the generosity of its work allowances compared to the equivalent income thresholds in legacy benefits. The 2015 Summer budget, however, reduced the generosity of UC work allowances. They are now set in the range of 5 to 10 hours per week at NLW, depending on claimant group. The current UC taper is 63%, reduced from 65% in the 2016 Autumn Statement.

Universal Support

Universal Support is intended to help claimants adjust to being on UC: for example, providing help with budgeting. Iain Duncan Smith, the former Secretary of State for Work and Pensions and an architect of UC, has emphasised that Universal Support is vital to UC functioning effectively and achieving its aims.

Universal Support is developed and delivered at a local level. Some funding is available from DWP to local authorities, with levels negotiated individually with each local authority through UC Delivery Partnership Agreements. Local authorities can deliver services in-house, or can commission services.

Support for childcare costs in Universal Credit

Eligible claimants can receive up to 85% of their childcare costs through UC. Like the rest of the UC award, this is paid in arrears. Claimants have to report their childcare costs within specific timeframes.

For the live service, claimants must notify DWP within a period up to and including the end of the assessment period that follows the assessment period in which the costs were paid. Full service claimants must notify the Department, via the online system, of the amount paid before the end of that assessment period: a shorter notification period than in the live service.

Further information

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