Written evidence from the Trades Union Congress (TUC) BPI0086

 

Introduction

 

The Trades Union Congress (TUC) exists to make the working world a better place for

everyone. We bring together more than 5.5 million working people who make up our

48 member unions. We support unions to grow and thrive, and we stand up for

everyone who works for a living.

 

We welcome the opportunity to make a submission to the Work and Pensions Select Committee inquiry into the adequacy of benefit levels in the UK. The TUC has continually highlighted the inadequacy of social security benefits in the UK.

 

Our submission outlines our policy priorities, before turning to the specific questions from the committee.

 

Benefits in the UK are comparatively low by international standards with one of the lowest benefit rates relative to earnings. The basic rate of Universal Credit is worth around a sixth of average weekly pay.

 

The UK’s benefits system has been dramatically weakened after harsh cuts since 2010. Over a decade of austerity, including benefit caps and freezes, a punitive sanctions regime and the introduction of the five-week wait for Universal Credit, has pushed working families into debt and poverty.

 

The standard out of work benefit payment for over 25s without housing costs is £85 a week. The real value of this standard benefit payment is £40 per month lower than it was in 2010.

 

The benefit system was inadequate before the current cost of living, and rising prices has made surviving on benefits even more difficult. 

 

The Government emergency support provided to cope with the current crisis has failed to cover rising costs. The support has been flat rate, so eligible households receive the

same cash payment regardless of household size. Temporary support packages are not the answer. Fundamental change to our social security system is needed. Now more urgently than ever, a political commitment to protect the vulnerable is vital as part of this.

 

A good social security system does not only benefit the wellbeing of individuals, but it also has wider social and economic benefits to society. The nature and design of a social security and tax system can ensure a more redistributive outcome, limiting the growth of inequality and improving outcomes across society. 

 

The costs of adequately funding the social security budget are small when compared to the costs of not dealing with deep inequality.

 

Making our social security system fit for purpose also requires structural changes, including replacing Universal Credit. Last year the TUC set up an informal working group of union representatives and experts in social security to look at what ‘A replacement for Universal Credit could look like. The report we published outlines a plan for a new and fairer system.[1]

 

The immediate priority, however, is for the government to come up with an urgent plan to provide financial support and security for those who need it most.

 

Universal credit and other benefits must be substantially reformed, by:

 

Sick pay must cover the basic costs of living:

Improved parental benefits and rights:

 

 

 

 

 

A Wider package of financial support for households

 

 

Section 1 - Adequacy of benefits 

What ‘essentials’ should working-age benefits in the UK cover? Are current working-age benefit levels sufficient to cover those needs? 

 

During our lives, there will be times when many of us need to rely on the social security system: social security is a social good, providing economic security for all.

Working age benefits should include covering the essentials e.g food, accommodation, and clothing, but it is not just about being able to survive but it is about living in dignity and being able to participate in society

 

The consequences for individuals and families of living in poverty and not having the resources to participate in everyday life, are far reaching. Poverty is associated with shame and stigma. Poverty is socially harmful, as individuals and families feel socially excluded as low income limits their ability to integrate into the community. The experience of living in poverty has a negative effect on physical and mental health. Children’s experiences of growing up in poverty can harm their wellbeing and development and limit their future opportunities.[2]

 

Social security benefits in the UK are not based on the actual costs of living, and therefore there is a real disconnect between what is received and what is needed. Benefit caps and freezes since 2010 has made this gap worse. This has meant not being able to afford the basic essentials let alone the costs to participate fully in society. And it is no surprise then that we have seen rising use of foodbanks and housing issues.

 

In 2022/23, food banks in the Trussell Trust UK network distributed more emergency food parcels than ever before, almost 3 million. The Trussell Trust, report inadequate social security is the main driver of food bank need and there is a known link between issues with the social security system and food bank use. The levels of need for food parcels are part of a longer-term trend which pre-dates the cost-of-living crisis, and even the COVID-19 pandemic.[3]

 

Since 2020, rents have risen rapidly in many parts of the country, yet housing benefit has remained frozen. Which means more and more people now have to pay the shortfall in rent. This means that for a family renting a modest two or three-bedroom home at the 30th percent of local rents, the amount of housing benefit they receive is inadequate in 91% of areas in England.[4]  And thousands more renters are faced with evictions. Data from the Ministry of Justice show from the last quarter of 2022 compared to the year before, landlord possession claims increased from 14,436 to 20,460 (42%), orders from 6,865 to 16,158 (135%), warrants from 4,285 to 8,717 (103%) and repossessions from 2,729 to 5,409 (98%).[5]

 

The latest Households below average income data has just been released (2021/22) and also confirms the day-to-day struggle households are experiencing. Relative poverty increased by one million to reach 14.4 million or 22% of the population. Child poverty increased by over 300,000 to 4.2m, this figure is 29% of all children. [6]

It also absurd that our social security system has a benefit cap and a two-child limit, which limits the amount of benefit that can be received and breaks the fundamental link between need and what a family receives. These caps should be removed immediately.

The basic level of support can also be reduced further by deductions of up to 25 percent of the standard allowance of Universal Credit. This can be for the loan to cover the 5 week wait in universal credit, tax credit overpayments, council tax arrears and utility payments. Deductions reduce UC awards on average by £61 a month on average, and almost two in five of all Universal Credit claimants have a deduction. These deductions are most commonly for repaying the loan to get through the five-week wait for the first Universal Credit payment. [7]  There is no assessment done to see if you can afford the repayment. This cannot be right – any benefit deductions should never take you below a minimum standard of living.

On quantifying the level of benefits needed, the Joseph Rowntree foundation use the measurement of a Minimum Income Standard (MIS). This is based on what groups of members of the public identify as the items and services households need to reach a minimum acceptable standard of living, covering essential requirements and allowing participation in society. This measurement finds even with the cost-of-living support payments, a couple with two children, on out-of-work benefits, only have just over half (52%) of what they need for a minimum standard of living.[8]

While we are not advocating this particular measurement here – we do believe any social security support has to take in the cost of a minimum standard of living and rising costs to enable sustainable support. Various models should be explored.

 

The TUC believes that benefits should provide better protection against the shock of losing a job. The TUC calls for raising the basic level of Universal Credit and legacy benefits, including jobs seekers allowance and employment and support allowance, to at least 80 per cent of the national living wage. Here there is a link to earnings.

 

Are working-age benefit levels appropriately set to encourage people who are able to work into work? 

 

Benefits in the UK are incredibly low when they are compared internationally. The level they are set at most certainly do not act as a disincentive to work. 

This OECD chart below shows the proportion received as a share of previous income; the UK has the lowest immediate replacement rate. Though the United States and Hungry have a lower rate after 6 months the initial rate is higher.     

Chart - OECD replacement rates – benefits in unemployment, share of previous income – 2022.

 

 

Chart, scatter chart

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Source OECD [9]

 

In any discussion about raising the value of benefits, the notion that a more generous welfare state will undermine people’s commitment to paid work is commonly raised.

David R. Howell and Miriam Rehm sum up possible reasons why the orthodox view that generous unemployment benefits explain higher unemployment levels does not hold true.

 

What lessons can be learned in respect of benefits provision more generally from the £20 uplift to Universal Credit, introduced during the pandemic? 

 

The implementation of the £20 uplift during the pandemic shows that when there is the political will that this can be done at speed. Though, this should not have been selective as the uplift did not apply to legacy benefits.

During 2020/21 at the time of the uplift both poverty and child poverty fell, and it is likely that this measure contributed to this. The expiry of the uplift also saw the falls in poverty reversed.

Chart – Overall relative poverty and child poverty in UK

      

Source HBAI data – poverty is defined as below 60% of median income after housing costs.   [11]

 

The Family Resources survey also shows that food insecurity among Universal Credit claimants fell from 43% to 27% after the £20 a week uplift was introduced. While food insecurity is much higher for those on Universal Credit than average households - the £20 uplift did play a part in protecting families from food insecurity. The latest Family Resources survey which partially covers the year when the uplift was removed shows it has started rising again. [12]   

 

What principles should inform the design and delivery of the working-age benefits system (e.g. fairness, transparency, inclusivity)? 

 

The TUC believes a set of principles that any reform of the benefits system should be trying to achieve include: 

 

 

Section 2 - Designing benefits policy.

What should be the purpose of working-age benefits? 

During the life cycle, there will be times when many people need to rely on the social security system for example when they lose their job or become ill.

The social security system has always attempted to meet additional costs of living where society has a collective interest in doing so, these include the costs of children and of disability.

In-work benefits also play an essential role in improving the living standards of people who need to work shorter hours, including single parents, disabled workers and those with caring responsibilities. However, financial in-work support should be concentrated in areas where the government want to subsidise low working hours and should not be used to top up poverty pay, as an excuse not to deal with poor employer practices.

To tackle in-work poverty, we need an agenda that takes in decent pay, secure work, progression opportunities for those on low incomes, affordable childcare and housing costs, and adequate social security.

 

 

 

What is the impact of No Recourse to Public Funds conditionality on benefit provision for affected households? 

Covid 19 highlighted the unfortunate situation of those living in the UK under the No Recourse to Public Funds policy (NRPF), introduced in 2012. It is not right that those with the legal right to live and work in the UK and pay taxes are not entitled to access the vast proportion of social security needed in times of crisis.   

 

Citizens advice show in their survey of those with NRPF, 3 in 5 (60%) respondents said they were in paid work before the pandemic. And 3 in 5 (60%) of parents with NRPF have been here for 5 or more years and many of the children they are raising will have British citizenship. [13] NRPF locks children out of the basic support that millions of other children in the UK receive.

 

Previous analysis carried out by the Oxford Migration Observatory on behalf of Citizens Advice estimated that 13% of the 1.376 million people in the UK who have NRPF are under 18, or around 176,000 children.[14]


The restrictions have pushed working families into unsustainable debt and into homelessness or unsafe, overcrowded, insecure housing. Since the Covid-19 outbreak, their situation worsened considerably; they have had to choose between their own health, public health, and the financial wellbeing of their household.[15]

 

The NPRF restrictions need to be removed permanently. Everyone living in the UK must have access to public funds.

 

What role could, or should, an independent body undertake in advising Government on benefit policy? 

There could be the case for an independent body like the Low Pay commission which has worker representation, advising the Government on the uprating of benefits.

 

This should also involve intensive evidence gathering – both quantitative and qualitative, however those who have experience of the system must be central to this.    

 

 

 

 

Are there any international comparators the Committee should look at for this inquiry? 

As we have said the UK benefits system is strikingly ungenerous and the OECD chart above shows this clearly. The UK also replaces income with flat-rate entitlements rather than payments related to previous earnings.

In many European countries, unemployment benefits are related (at least in the initial period of unemployment) to previous wages to cushion income shocks. Ranging from 60 per cent of previous wages in Germany to 90 per cent in Denmark.

The furlough scheme in the UK which was based on previous earnings was seen as a lifeline for millions of working people during the pandemic.

Looking at European income replacement schemes would be very useful to the committee.

 

Unemployment benefit rates in selected European countries as of July 2022

 

Country

Basic amount of unemployment benefit  

Austria

55 percent of daily net income prior to unemployment   

Belgium

65 percent of previous salary for first 3 months and 60% during subsequent 9 months  

Denmark

90 percent of previous gross earnings up to a maximum of € 2,601 

Germany

60 percent of previous net earnings for those without children  

Italy

75 percent of monthly earnings up to € 1,358 

Spain

70 percent of monthly earnings for first 180 days, then 50 percent  

Sweden

80 percent of reference income for the first 200 days up to a maximum of € 85 a day, then €75 percent for 100 days with maximum of 71

Netherlands

75 percent of last daily wage for two months with a maximum then 70 percent  

 

Source - MISSOC database[16] 

 

Section three – Work Incentives

What is the impact of policy interventions designed to incentivise work, such as sanctions, on the adequacy of support received by individuals—both monetarily, and in how they help individuals to find work? 

The threat of sanctions places additional stress and anxiety on job seekers when what they really need is support in getting a job.

 

Changes introduced in the 2012 Welfare Reform Act tightened the sanctions regime and resulted in a dramatic increase in the use of sanctions.

 

The current benefit sanctions regime is callous. There are structural and personal barriers to gaining employment. The mind-set that unemployed people are to blame for their situation has led to the imbalance between conditionality and effective support.

 

There are many reasons why the TUC is troubled by the current system.

 

 

 

 

 

The Welfare Conditionality Project, a major study on sanctions found:

Despite the lack of evidence, the Government’s recent spring budget focussed on the increasing use of sanctions rather than employment support to return and progress in work.

After the budget the DWP was forced to publish a report on its study on the effects of benefit sanctions which had been completed in 2020[21]. The summary of the report says itself; a sanction leads the average claimant to exit less quickly into PAYE earnings and to earn less upon exiting.

The report was accompanied with a note saying the deterrent effect on claimants not sanctioned may have a positive effect on gaining employment, yet there is no evidence for this. And even if there was a deterrent effect this would need to outweigh the negative impacts of sanctions.

What role should contributory-based benefits play in the welfare system? 

Social security needs to be based on a combination of contributory, universal and means tested benefits, it is not possible to have a functioning social security system based on just one of these principles. What we have seen in the UK is a move away from contributory and universal benefits to means testing. Around 60 per cent of all working-age benefits are now means tested.[22]

The UK’s system of income replacement is inadequate and falls far below our European counterparts. The UK replaces income with flat-rate entitlements rather than payments related to previous earnings.

It would be worth looking at how a stronger contributory benefits system can work in the UK.

 

Section 4 - Accessibility and Administration 

What aspects associated with the administration of benefits impact the adequacy of experience for claimants?  What changes should be made to the administration of working-age benefits? Are there any particular groups who have been ‘left-behind’ in the design of working-age benefits policy? 

Not only was the UK’s benefit system inadequate before the current cost of living crisis—there were administrative and design issues.

Universal Credit is one of the most significant social security reforms in recent decades. The TUC along with others have been critical of the design and administration of Universal Credit.

Our report – ‘A replacement for TUC’ has wide ranging reform options which include the administration of Universal Credit. This includes -

 

Digital exclusion - Universal Credit is defaulted to be online; this can make the application process difficult for many claimants.

 

While the Department for Work and Pensions (DWP) claims that the digital and automated nature of the system ensured a speedier response to the surge in claims during Coronavirus, it has to be recognised that this model does not work for everyone. This process can lead to increased anxieties for those not comfortable with technology, and it assumes that a claimant has access to the internet and Wi-Fi. While support is available for the initial claim (though not face to face from April 2022), claimants need ongoing support.

 

The digital exclusion is creating a two-tier system for people claiming benefits, those without digital means or skills should not be disadvantaged in seeking vital support.

More options are needed, including widely available access to Jobcentres for those not comfortable with IT or those who do not have access to IT facilities.

Staffing levels - despite the increase in staff at the beginning of the pandemic, the DWP announced in March 2022 they planned to close 41 sites, putting thousands of jobs at risk.

A large-scale employment drive in jobcentres and service centres is needed to reduce workloads for work coaches in order to achieve better outcomes for claimants. And reduced reliance on digital only services and expansion of jobcentre network: Flexibility in delivery that empowers the claimant.

Five week wait for Universal Credit - under Universal Credit claimants must wait at least five weeks for their first payment. This means that at the point when people may be at their most vulnerable, the system fails to support them.  There is no justification for the five week wait for a first payment of Universal Credit.

The Government argues that an advance payment can be requested and this is the solution to the five-week wait. However, this is actually a loan and has to be paid back as a deduction from future Universal Credit payments. This essentially means that someone is starting their Universal Credit claim in debt.

In 2020 we set up a survey on our website to hear more about the experiences of those on Universal Credit and also to gain views on the five week wait from those who were not claiming the benefit. The survey claimant responses were harrowing, with many being forced into debt, relying on food banks, or going without food. Many said that it had affected their mental health through stress and anxiety and that they felt degraded by the process. [23]

Waiting for Universal Credit is one of the main drivers of food bank use. Analysis by the Trussell Trust during the pandemic showed that 73 per cent of those who needed to use a food bank and were receiving Universal Credit were repaying an advance payment.[24]

In the short term this can be replaced immediately with non-repayable grants. The amount can be estimated on the first monthly payment like the advance.

Monthly payments of Universal Credit - those moving on to Universal Credit can find the change to payments being made monthly more challenging than the fortnightly or weekly payments in legacy benefits. Many claimants find it difficult to budget on small incomes over a month and, when an unexpected cost arises, waiting for a whole month causes real financial difficulty.

Support for housing costs (renting) in Universal Credit is part of the single payment made to claimants, and in the vast bulk of cases tenants are now also responsible for paying their landlord rather than landlords receiving a direct payment. Claimants can find that on their tight budget they have to make tough choices, and this can lead to housing arrears and even eviction.

Claimants should have options to be paid Universal Credit twice or four times per month to allow them to budget to suit their circumstances, rather than these being exceptional temporary discretionary arrangements. And to have a similar option of the housing costs element of Universal Credit being paid directly to the landlord more automatically in the whole of the UK.

Managed Migration of Universal Credit – there are also serious concerns about the process of managed migration to Universal Credit. Claimants will be contacted to migrate; the process requires claimants to end an existing claim and make a completely new claim. It is not automatic, and the responsibility is transferred to the claimant, resulting in stress and anxiety for them. The process of “managed migration” to Universal Credit has also just begun, without a full trial and evaluation.

The responsibility for the process of managed migration should be on the Secretary of State (rather than claimants), who should ensure that the termination of existing benefits will not cause undue or unnecessary hardship. And the managed migration process needs to be trialled first and then evaluated.

Transitional protection payment - this is a top up to Universal Credit so that it matches previous benefit income to ensure that someone is not worse off immediately due to the move to Universal Credit. We are concerned how claimants will understand the calculation of this as it is complicated, and the protection is not available to all claimants. We are also concerned that over time the payment will lose its value, as transitional protection freezes entitlement at point of migration.

No one should lose out when moving over to a new benefits system. The process of migration needs more thought. Along with ensuring the uprating of transitional protection.

Monthly assessment periodsin Universal Credit the system of monthly assessment periods and the corresponding timing of benefit payments can be complex to understand and can be the cause of fluctuating incomes. The design of Universal Credit is better suited to those with stable hours and income; but even they can find their incomes fluctuating, due to pay cycles not coinciding with assessment periods.

The monthly assessment periods are central to Universal Credit, and they are set based on the date of someone’s claim, rather than being aligned with pay cycles, thus causing a mismatch between the two.

Reforming the assessment period in Universal Credit is one of the most complex of the suggested reforms we make. And this is discussed in detail in our report- ‘A replacement for Universal Credit.’ In summary we suggest a three- to-six-month assessment period to reduce fluctuations and provide stability for claimants. The payment would be made more frequently by choice by the claimant, it would just be the assessment made over this longer period. The payment would be fixed, however if circumstances change then claimants should be able to report this and request for their circumstances to be reassessed immediately.

Some of the issues which come out in this discussion are related to the IT system. Government departments are very defensive over the Universal Credit design and always say that the IT cannot adapt to change. There is a need to move towards more flexible assessment and payment cycles. The government should test these options and report back on the costs of implementing them. IT systems have to be designed to take into account the realities of people’s lives.

 

May 2023

 


[1] TUC 2021, A replacement for Universal Credit-   www.tuc.org.uk/research-analysis/reports/replacement-universal-credit

[2] JRF 2008, The costs of child poverty for individuals and society: a literature review - https://www.jrf.org.uk/report/costs-child-poverty-individuals-and-society-literature-review

[3]3 Trussell Trust 2023, Emergency food parcel distribution in the UK: April 2022 – March 2023- https://www.trusselltrust.org/wp-content/uploads/sites/2/2023/04/EYS-UK-Factsheet-2022-23.pdfhttps://www.trusselltrust.org/wp-content/uploads/sites/2/2023/04/EYS-UK-Factsheet-2022-23.pdf

[4] Shelter 2022, Soaring rents and frozen housing benefit leaves renters facing housing cost crisis - https://blog.shelter.org.uk/2022/02/soaring-rents-and-frozen-housing-benefit-leaves-renters-facing-housing-cost-crisis/

[5] MOJ 2023, Mortgage and landlord possession statistics: October to December 2022 -  https://www.gov.uk/government/statistics/mortgage-and-landlord-possession-statistics-october-to-december-2022/mortgage-and-landlord-possession-statistics-october-to-december-2022

[6] HBAI 2021/22 -Households below average income: for financial years ending 1995 to 2022 - GOV.UK (www.gov.uk)

[7] Parliamentary written question – answered on 3rd March 22 - https://www.theyworkforyou.com/wrans/?id=2022-02-23.128435.h

[8] JRF 2022, A minimum income standard for the UK IN 2022 - https://www.jrf.org.uk/report/costs-child-poverty-individuals-and-society-literature-review

[9] OECD 2022 - Benefits and wages - Benefits in unemployment, share of previous income - OECD Data- https://data.oecd.org/benwage/benefits-in-unemployment-share-of-previous-income.htm

[10] David R. Howell and Miriam Rehm in Oxford Review of Economic policy, Volume 25, Number 1- Unemployment Compensation and high European unemployment: a reassessment with new benefit indicators,

[11] HBAI 2021/22 -Households below average income: for financial years ending 1995 to 2022 - GOV.UK (www.gov.uk)

[12] Family Resources survey 2019-20, 2020-21 -2021-22  https://www.gov.uk/government/collections/family-resources-survey--2#latest-release

[13] Citizens Advice 2021, How do I survive now? The impact of living with no recourse to public funds, https://www.citizensadvice.org.uk/Global/CitizensAdvice/welfare%20publications/How%20do%20I%20survive%20now_%20November%202021.pdf  

[14] The Migration Observatory at the University of Oxford, June 2020 ‘Between a rock and a hard place: the COVID-19 crisis and migrants with No Recourse to Public Funds (NRPF)’ Between a rock and a hard place: the COVID-19 crisis and migrants with No Recourse to Public Funds (NRPF) - Migration Observatory - The Migration Observatory (ox.ac.uk)

[15] Our joint letter to the Prime Minister - it's time to scrap NRPF | Joint Council for the Welfare of Immigrants (jcwi.org.uk)

[16] MISSOC database 2022, https://missoc.org/missoc-database/comparative-tables/

[17] Trussell Trust 2016, Benefit Sanctions & Foodbank Use - https://www.trusselltrust.org/2016/10/27/benefit-sanctions-foodbank-use/

[18] Poverty and Social Excusion 2013, Hardship caused by benefits sanctions- https://www.poverty.ac.uk/editorial/hardship-caused-benefits-sanctions

[19] Work and Pensions Committee 2018 - Benefit Sanctions - https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/955/955.pdf

[20] Welfare conditionality project 2018 – Welfare conditionality report - http://www.welfareconditionality.ac.uk/wp-content/uploads/2018/06/40475_Welfare-Conditionality_Report_complete-v3.pdf

[21] DWP 2020 - The Impact of Benefit Sanctions on Employment Outcomes - The Impact of Benefit Sanctions on Employment Outcomes – Draft (publishing.service.gov.uk)

[22] Institute for Fiscal Studies 2019, The Future of Benefits - https://ifs.org.uk/sites/default/files/output_url_files/IFS%252520at%25252050%252520Future%252520of%252520benefits.pdf

[23] Trades Union Congress (2020), Universal Credit and the impact of the five week wait for payment - https://www.tuc.org.uk/research/analysis/reports/universal-credit-and-impact-five-week-wait-payment

[24] 24 Trussell Trust (2020) - The impact of Covid-19 on food banks in the Trussell Trust network - https://www.trusselltrust.org/wp-content/uploads/sites/2/2020/09/the-impact-of-covid-19-on-food-banks-report.pdf