GINGERBREAD – WRITTEN EVIDENCE (EUC0013)

The economics of Universal Credit

1. Gingerbread is the leading national charity working with single parent families. We campaign against poverty, disadvantage and stigma to promote fair and equal treatment and opportunity for single parents and their families. There are 1.8 million single parents in the UK; 9:10 single parents are women. Record numbers of single parents are in work (70%).

2. Single parents are a significant group of Universal Credit (UC) recipients.  There are currently 773,727 single parents on UC making up a third of all households (33%) on UC in January 2020.  It is estimated that under continued natural and managed migration, once introduced 90% of single parents will move onto UC by September 2024.

3. UC not only has an impact on single parents in terms of their finances but also in terms of their work conditionality. UC rules mean that single parents need to become job seekers when their youngest child is three years of age compared to aged five under legacy benefits.

4. Evidence from this submission is drawn from Gingerbread’s two recent research reports[i] on in-work progression and examples from our helpline.  The evidence illustrates the lived experience of UC for single parents.

How well has Universal Credit met its original objectives?

5. Universal Credit (UC) was meant to simplify the benefit system including smoothing the transition into work, making work pay, address poverty and making the social security system fairer to claimants and taxpayers. The government plan within UC is also to encourage people in work to increase their pay. In terms of single parents there are aspects of UC that mean it is falling short of its original objectives.

6. UC is less generous than legacy benefits for many single parents. In terms of single parents in work Policy and Practice have calculated that 600,000 working single parents currently receiving tax credits will be worse off under UC losing on average £16 a week. Whilst this may have saved money for the benefits system it is unclear how these cuts will address child poverty or make the system fairer for claimants.

Example from our research

7. “With universal credit anything that I earn over what I am earning now, because they take 63 pence out of every pound, for me to do more days I would have to pay petrol costs that I am not again having to pay at the moment…there is no point in me doing extra hours…I would happily work full-time or more hours if I was actually going to then be able to keep that money.” Single parent with a pre-school aged child

8. The current 5 week waiting time for UC has an impact on all families but has a particular effect on single parents who are already twice as likely to live in poverty as coupled families.

9. Childcare costs are a major barrier in preventing single parents moving into and sustaining work. Whilst UC was meant to deliver a more generous childcare allowance of up to 85% (compared to 70% under legacy benefits) childcare costs are capped at a level set in 2003. For single parents starting a job they can find that  these upfront fees can be prohibitive and prevent them from starting employment or working more hours. At present UC childcare costs are also paid a month in arrears which can be financially hard for single parents to pay both in terms of starting work but also maintaining a job including during the summer holidays.

Recent examples from our helpline

10. A single parent has a 3-month-old baby and is looking to return from maternity leave.  She was thinking of going back full-time but financially this would not be viable.  Under UC she would be £48 a month better off working 24 hours compared to 37 hours because of childcare costs alone. This parents overall childcare costs would be £975 a month if she works 37 hours a week but the maximum help via UC is £646.

11. A single parent lives in London and pays £740 for 2 days of nursery care for a one year old.  The current cap of £646 per month is unrealistic for her to work any more days.

12. A single parent has two children aged 10 months and a two year old.  The calculations showed that the parent would be £76 a week worse off working 30 hours compared to 24 hours.  This is due to high childcare costs for two children under 3. The actual costs are much higher than eligible childcare costs for the UC childcare element, even if she works 24 hours.  Childcare costs will be £1854 a month if she work 24 hours, or £2318 a month if she works 30 hours. Maximum eligible childcare costs for UC are £1303.58 a month for 2 or more children, and the maximum childcare element is 85% of this at £1108.04 a month.

13.The Work and Pensions Select Committee have identified the difficulty of claimants with children who start work and must pay child care early and wait for UC to repay them. Frank Field stated “it drives parents into debt and prevents the government achieving its own aim of getting more people into work.” 

Recent examples from our helpline

14. A single father with two children aged 4 and 8.  The holiday childcare costs will be substantially more than in term time. He has to pay childcare costs in arrears under UC so is not reimbursed till a long time after he uses the childcare. 

15. A single mother may have to stop work during the summer holiday because she cannot afford the upfront costs of holiday childcare. Her son is aged 8 and has a disability.

16. A single mother has a 2-year-old child and claims UC.  She has to pay her  childcare costs weekly to her childcare provider.  Her UC childcare costs are paid monthly and in arrears so this is causing financial difficulties.

Were the original objectives and assumptions the right ones? How should they change?

17.  It is a positive aspiration that the benefit system should be simplified and made more user friendly for claimants.  However, Universal Credit (UC) needs to make improvements in how it is delivered in order to achieve this important aim.  Claimants including single parents need support and tailored advice. Investment is needed to provide specialist support as UC numbers increase and managed migration is anticipated.

18. It is also a good aspiration that the transition into work should be smooth and that work pays for claimants.  However, the cuts to UC mean that for too many single parents the transition into work is challenging (see earlier points about childcare costs) and work does not pay. A system to help work pay needs much more investment of funds.

19. Gingerbread would also call for additional objectives for UC. That UC provides a safety net for those who cannot work and protects children from poverty.  We would highlight the work being done by CPAG who are looking at the development of social security through their project ‘Secure futures for children and families’. 

20. We would also call for two additional objectives for UC to include ‘a childcare system that accords the world of work’ and that ‘UC encourages training and skills acquisition and supports claimants to move into better work’.

21. The examples in the previous section show the difficulty of meeting childcare costs.  The Coram Family and Childcare Trust annual survey also shows that many parents will struggle to find the childcare they need. In England, just over half of local areas have enough childcare for parents working full time. Some families will face even bigger gaps – less than a quarter of local areas have enough for disabled children and parents working outside the usual 9 to 5. 

22.  In terms of making work pay improving the mechanics of UC is only part of the picture.  At Gingerbread we want UC to provide better support for single parents to train and improve their skills and also be given better specialist support to have  longer-term job goals.  Our recent research reports on in-work progression shows that the promised tailored support of work coaches is not materialising under UC and the work first agenda is pushing too many single parents into low pay that they cannot escape.  Our research found that even where single parents have the skills they are not getting the jobs that match (even where this is compared with coupled mothers).  Many single parents are over-qualified for the work they are currently undertaking. Single parents also talked about being put under pressure to find any job as quickly as possible under UC.

Examples from our recent research

23. Barbara has a degree in business management and works as a receptionist in a school.

24. Jade who is qualified in early years care and was previously a nursery manager before unemployment.  Her UC work coach told her to apply for a certain number of jobs each week and to hand in her CV to employers.  The pressure to get any job was paramount for Jade who described, “So if I handed my CV into a coffee shop, I had to take a picture of the coffee shop…that is the pressure I had.”

25.  In terms of the positive examples in our research of how things can be done differently single parents talked about the value of specialist support to work towards job goals and aspirations.  Such specialist support or referral to support would be valuable for helping single parents get better work and routes to progression.

26. Ruby was unemployed and signed up to Women Like Us (Timewise) “It was fantastic…it really taught me and helped me through my career and how to understand the recruitment process…I have been able to use it to when applying for other jobs”.  Ruby has progressed from a receptionist to an NHS manager in two years.

27. Millie said how the GrOW programme had helped her to get a job but also focused on her future job progression, stating “I remember the person who runs the programme said ‘Where would you like to be in five years time?’, which helped her to think about her future work and she might earn more money.

What have been the positive and negative economic effects of Universal Credit?

28. The Resolution Foundation (2018) has calculated that when fully rolled out single parents in employment are more likely to be worse than better off under Universal Credit.  They calculate that 60% will be worse off and 40% will be better off under UC.   Those who are more likely to be worse off under UC who are in or out of employment includes single parents who claim maternity allowance, who are aged under 25, who have a disabled child or are disabled, who are self-employed, who are in higher education, or have capital over £6,000.

29. In terms of single parents in work or looking to move into a job it can be difficult to assess who will lose out financially under UC rules because it will depend on broader circumstances such as housing or childcare costs. So many single parents will not know whether they will be better or worse off taking a job under UC unless they get a better off calculation. This calculation is rarely available at Jobcentre Plus and often falls to specialist advice providers in the voluntary sector.

How has the world of work changed since the introduction of Universal Credit? Does Universal Credit’s design adequately reflect the reality of low-paid work?

30. The world of work is changing and Universal Credit (UC) is not keeping pace with these changes.  There are three key areas where this is a particular issue for single parents in low paid work in terms of UC, first the rise of temporary and zero hours contracts, second the rise in self-employment and finally the rise in the number of single parents who want to access part-time work.

31. The analysis of employment data[ii] shows that the nature of work – particularly insecure work – has markedly changed in recent years. For instance the number of single parents on zero-hours contracts has increased tenfold over the past ten years, with over 40,000 single parents employed this way. However, this figure does not take into account of those single parents on low hours contracts or those in temporary work. UC does not adequately recognise the nature in the growth of temporary or insecure work. This is a particular problem for single parents moving into short-term work where this subsequently moves them over to UC.

Recent example from our helpline

32. A single parent is on a zero hours contract, which is causing her financial insecurity and hardship.   She had hardly any hours of work this month (December) and has no money left until her next UC payment on 3rd Jan and will need to use a food bank or local welfare assistance. This is because of the default monthly payments of UC with more frequent payments only being made in certain circumstances. In contrast, claimants can choose to receive Tax Credits weekly instead of 4-weekly.  

33. In terms of natural migration it should be highlighted that single parents can be left worse off taking temporary work than they would have been under legacy benefits.  This is a disincentive for single parents to take on temporary work. There is not transitional protection for such claimants.  So single parents who are on legacy benefits and who take a temporary job can find that when the job ends they need to move onto UC under natural migration.  Such parents have no financial protection and this can leave them worse off. From calls to our helpline we know that many single parents are not aware that they may move over to UC after taking a temporary job.

Illustrative examples

34. A single parent who is aged twenty-four and who has a three-year-old child takes a temporary job and when that job finishes she is moved onto UC through natural migration.  On transfer onto UC she would be left £14.69 per week (763.88 per year) worse off and her work requirements are different so she now must become a job seeker (under legacy benefits she would not need to look for work until her child turned five). 

35. A single parent whose child is aged five and has additional needs and receives middle rate Disability Living Allowance, she takes a temporary job and then is transferred to UC once the job ends.  Her UC level will be lower than when she was on legacy benefits by £34.53 a week (£1,795.56 a year).

36. Single parents are more likely than previously to be self-employed. There are 141827 self-employed single parents[iii]. In terms of single parents in employment 11% are self-employed. Self-employment can be a positive choice for single parents who find it difficult to access good quality flexible work.  However, UC has stricter requirements about income earned through self-employment. Many low-paid self-employed single parents are concerned about their ability to sustain work, as they will not meet the assumed earnings threshold (the ‘Minimum Income Floor’) – particularly after the short 12-month grace period, when they must balance childcare responsibilities alongside starting up a business.

Recent examples from our helpline

37. A single father is self-employed currently earning just £280 a month and will be affected by the UC minimum income floor (MIF) after a Jobcentre interview. He will be treated as though he has net earnings of £1143 a month (the current amount for single parents with a child aged 13 or over). As a result he will be better off giving up self-employment and being unemployed, although he’ll be required to look for other work.

38. A single mother is affected by the MIF following natural migration due to moving to a new area. The caller may have to give up her self-employment unless she is successful in challenging the decision that she is 'gainfully self-employed'.

39. For advertised vacancies the demand for quality part-time jobs outstrips supply. Research shows that nationally just 11% of FTE jobs earning £20,000 or more are advertised with flexibility. Part-time roles are much more likely to be low paid.

40. UC rules mean that more single parents will need to become job seekers. Single parents on UC need to look for work when their youngest child turns 3.  The UC hours rule means that such parents can look for work of sixteen hours a week, whereas they don’t have to be available for work until their child is 5 under legacy benefits.  Single parents of 5-12 year olds are expected to look for work of twenty-five hours a week (up from 16 hours under legacy benefits).  Yet there is no analysis from the government as to whether there is sufficient supply of part-time vacancies to meet demand or the quality of part-time or flexible roles.

If Universal Credit does not adequately reflect the lived experiences of low-paid workers, how should it be reformed?

41. In view of the substantial delays to the roll out of UC greater protection is needed for those single parents who take on temporary roles. They should have the option of being able to return to legacy benefits when their job ends rather than having to claim UC under natural migration. Alternatively, there should be transitional protection payments for single parents who are worse off after migrating to UC in these circumstances. This would remove the financial risks of taking on temporary work. At the very least there should be protection for single parents who under legacy benefits are not required to work but chose to move into temporary work of their own volition. This could include parents with pre-school aged children and those receiving a disability element for themselves or their children that means they are not required to work.

42. Low income families are more likely to be paid weekly or fortnightly and this needs to be reflected in the design of UC. So a UC system that does not just pay monthly in arrears as is the case in Scotland. There are provisions for more frequent payments (Alternative Payment Arrangements) in England and Wales but these are the exception rather than the norm.

43. A review of the Minimum Income Floor rules under UC that are currently causing too many single parents to move away from self-employment. The UC minimum income floor has a detrimental impact on the low income self-employed, especially on single parents who need longer than one year to build up their business due to being the sole or primary carer for their children.

44. The government should support employers to increase the number of quality part-time vacancies including financially incentivising the introduction of job share vacancies.  The government should legislate to introduce a duty on employers to publish flexible working options in job adverts and give workers the right to take up the advertised vacancy from day one.

45. An urgent review of the current childcare caps set in 2003 that prevents the promised 85% of actual childcare costs being made under UC.

46. A more generous work allowance for single parents that takes greater account of their additional costs of working such as meeting childcare costs.

47. Incentivise single parents to increase their working hours or to take on better-paid work rather than a sanctions based system.

48. Increase the standard allowance for single parents under 25 to the same level as those aged 25 or over. This protection exists under legacy benefits - for example on Income Support single parents aged 18 or over receive the same personal allowance as 25 year olds. There isn’t a lower allowance for claimants under 25 for Working Tax Credit.

49. Align elements for disabled claimants to legacy benefits. Although legacy benefit claimants will be protected to an extent under managed migration transitional protection rules, new Universal Credit claimants are often significantly worse off than legacy benefit claimants.

27 February 2020