TAX AND WELFARE RIGHTS TEAM, EQUITY TRADE UNION – WRITTEN EVIDENCE (EUC0020)
The economics of Universal Credit
- Equity Trade Union is the UKs largest union for performers and creative practitioners, representing around 47,000 members currently. Much of the work in the industry is offered on a self-employment basis, and is unpredictable or fluctuating. Nonetheless, the entertainment industry as a whole makes a significant contribution to the UK economy. The most recent figures from the Department for Digital, Culture, Media and Sport show that the UK’s creative industries contribution to the economy has exceeded £100 billion (https://www.gov.uk/government/news/britains-creative-industries-break-the-100-billion-barrier)
- Equity provides a Tax and Social Security advice service for our members. We operate a helpline twice a week and undertake appeal casework. We have operated this service for several decades. We are of the view that the legacy benefit system provided an effective safety net for our membership and that the current design of Universal Credit does not.
- In this response we will provide a snapshot of UC issues experienced by working and non-working Equity members, we well as the difficulties faced by us as welfare benefit advisers. We would be happy to provide more evidence on the scale of problems experienced. In the main, our members are both capable and pro-active but many find it extremely difficult to understand how Universal Credit works or navigate it successfully without our advice and intervention.
How well has Universal Credit met its original objectives?
- We will focus on the objective make work pay and lift people out of poverty as well as the argument that one online benefit system would bring simplicity.
- Members report that the five week wait for UC with no access to advance payment apart from a loan is both incredibly unhelpful and stressful - offering no effective financial support at the point of need, creating further ‘real life’ difficulties which then impact on their abilities to get on with finding work.
- Working self-employed members are unable to access financial support and pursue their professional work without being financially penalised, often to the point where they cannot obtain payments, due to the operation of the gainful self-employment (GSE) test and minimum income floor (MIF).
- Those who experience fluctuations in work, as is common in the industry, or who experience a life event that may temporarily affect their ability to work (e.g. relationship breakdown, bereavement), find that they are unable to access help when they need it most. They are then required to either officially give up their self-employment or become unemployed, or find full time employment work outside of the industry in which they work, in order to get the support they need or else face not being able to pay the rent.
- The legality of the MIF was tested last year through judicial review in the High
Court and upheld despite serious concerns about whether UC actually makes work pay for the self-employed. Human Rights and Equality law arguments (especially in the case of single parents who are most likely to be women) were also advanced. The judge found that the self-employed claimant can mitigate their poverty by making employment their main activity and retaining self-employment as a side line. The judgement in our view showed little appreciation for the value of industries such as entertainment that operate on a self-employment basis.
- Since this test case, members have reported difficulty in obtaining UC even if they elect to make finding mainstream employment their main activity, with the DWP often insisting that stop their self-employment completely, including providing proof that they have deregistered from HMRC as self-employed.
- Leigh Day the law firm representing our member made the following comments:-
“It is disappointing that the High Court has decided to rule in favour of the Government. Universal Credit is failing to provide proper support for the self-employed, which is nearly a sixth of the UK’s workforce. The Minimum Income Floor continues to punish the self-employed who have fluctuating monthly income and runs completely contrary to the Government’s own stated aims of ‘making work pay’ under UC.
"The Court's suggestion that self-employed individuals can simply make employment their main activity whilst continuing their self-employment on the side is not realistic. Many individuals may struggle to find employment and even if they do would struggle to continue their self-employment on the side, particularly if they also have caring responsibilities.
"The sad reality is that the MIF is likely to force many and in particular single parents to give up their self-employment. We hope that the Government will listen to all the concerns that continue to be raised by independent organisations and unions about the MIF and change its approach.”
For further information see https://www.leighday.co.uk/News/2019/July-2019/High-Court-to-hear-universal-credit-minimum-income
- In addition, following the case the DWP also amended legislation to prevent self-employed claimants from averaging their earnings in order to help with income fluctuations thereby ensuring that employed claimants receiving the same earnings as a self-employed claimant on an annual basis will nonetheless be better off simply because of the way they are paid. For more - see SI.No.1249/2019. We would note also that the Surplus earnings rules, introduced from April 2018, do nothing to mitigate the impact of the MIF for those with variable self-employment income.
- Universal Credit offers no effective support for home owners either as payments for help with mortgage interest costs have been replaced by loans that are usually only accessible after nine assessment periods (nine months).
- For those who are unable to work due to ill health, Universal Credit has incorporated the worst operational aspects of the legacy benefit system - the much criticized use of private provider assessments - and made things worse for the claimant by requiring them to commit to work related activity even though they are signed of as unable to work by an actual doctor. In practise we are consistently finding that the provide providers are not assessing claimants accurately or in accordance with the law, and nor to the DWP decisions that are produced as a result - time and again the DWP are following the private provider assessment and not taking into account any other evidence provided in the claimant’s case, including their own word, nor are they understanding the legal requirements either explaining why success rates for appellants at appeal stage are so high.
- Disabled workers are similarly presented with an administrative hurdle due to the design of Universal Credit, in contrast to the Tax Credit system. Instead of receiving additional premiums automatically in recognition of being a worker who is also in receipt of a disability benefit (see Working Tax credits), claimants now have to go through the heavily criticised limited capability for work assessment and be found to either have a limited capability for work or both a limited capability for work and a limited capability for work related activity, to the get extra premiums through UC. If the disabled worker does not go through the assessments (many may chose not to), he/she will be worse off in claiming UC as a disabled worker compared to Tax Credits. Their UC claim is more likely to stop as more of their income will be accessible.
- In relation to the online design of Universal Credit and ‘simplification’ - whilst we agree that modernising the administration and claiming of benefits is a good thing, we do not think it was been appropriate to create an entirely new system of rules which create confusion and uncertainly. It is unfortunate that the advice sector was not consulted during the development of Universal Credit as with its in-depth knowledge it could have suggested what improvements and/or reforms were actually required in reality. It has introduced further austerity to those who are in need; for example, the replacement of loans rather than financial help (advanced payments, mortgage interest loans), the two-child limit, the benefit cap, the treatment of the gainfully self-employed and the recoverability of all overpayments even if caused by DWP error and sanctions.
- We appreciate the fact that a default online system can be difficult for vulnerable claimants or those with limited access to the internet to use and so UC poses a difficulty in this respect. However, any claimant, regardless of their level of vulnerability, has the right to get advice on order to understand their legal entitlements and rights especially in the context of the introduction of an entirely new social security regime. The UC system does not recognise this reality as it has not incorporated a competent system of recognition of the representative. It is unclear why this was not built into its design. Following up matters on our client behalf in respect of UC has become incredibly difficult and unnecessarily time-consuming.
- For example, there is no telephone line provided for advisers or a system that quickly recognised an authority to act. There is no facility to upload important documents such as mandatory reconsideration requests via the UC journal. There is no trackable postal address made public. No telephone numbers, emails or postal addresses for responsible UC teams have been made public. In reality, for the quickest t response, the representative is forced to post messages on the claimant’s journal. Not only do we find that we are not provided with adequate responses from UC staff, but we are do not receive any direct notification that a message has been posted. The lack of basic communication in this respect is compounding delay in the resolution of matters.
- UC claims may be shut down without allowing for access to past documents and journal entries. It is then unclear to the claimant why their claim has shut down, on what legal basis and whether they have any right to appeal. We frequently have to contact UC to request such documents however, unlike the previous benefit system, welfare benefit advisers are no longer provided with the contact details for the responsible teams. The standard Freepost address given to write to cannot be traced/tracked by postal delivery. We frequently do not receive any response by letter and so have to chase the issue by making a complaint, creating further administration and delay. There is significant delay before responses are received. We also find that the quality of decision making is generally extremely poor, showing little understanding of the law. The upshot of this is considerable delay in the resolution of the issue. This prolongs financial hardship and stress for the claimant, and prevents them from getting on with their lives. At Equity, we support our members through such situations with recourse to charitable funding. However this is limited, and we have found that some members disengage with the UC process or avoid/put off claiming Universal Credit for as long as possible due to anticipating of problems with their claims, the self-employed in particular. This obviously compounds and prolongs their financial difficulties. It is of little surprise to us that people are ‘scared’ to claim Universal Credit (https://www.bbc.co.uk/news/uk-51318730).
Were the original objectives and assumptions the right ones? How should they change?
- We have major difficulties in accepting the assumption made at the outset with UC that there is widespread abuse of the benefits system by the self-employed. We don’t consider that the research done into fraudulent claims within tax credits supported that conclusion and we have noted for example the submissions made by LITRG in relation the need to consider official error as a reason for many tax credits overpayments – see https://publications.parliament.uk/pa/cm201012/cmselect/cmtreasy/1371/1371we02.htm
- The whole approach of the benefits system to self-employment needs to change and be based on an acceptance that this is a dynamic and growing section of the economy which merits separate and distinctive treatment. At the moment, the model adopted for all claimants is that of an employee in regular paid employment and the self-employment rules approximate to this as closely as possible. This is a mistake and in the early days of UC stakeholders contributed to a discussion about whether there should be a distinct Universal Credit for the self-employed. We believe that this should be revisited with proper incentives provided within the benefits system for the self-employed to grow their businesses and appropriate support from DWP staff who have knowledge of the different self-employed sectors. For example, many of the errors which have occurred in gainful self-employment decisions in our sector would be avoided if those making these decisions had better knowledge and training of how our sector operates.
What have been the positive and negative economic effects of Universal Credit?
- Data on Universal Credit and the self-employed is in short supply so it is very difficult to comment on any positive impacts. Our experience so far is that members found gainfully self-employed are made worse off pursing their self-employment under UC. Mothers in receipt of Maternity Allowance (many of whom are self-employed) also miss out as this income is taken into account entirely under UC (it was disregarded under Tax Credits).
What effect has fiscal retrenchment had on the ability of Universal Credit to successfully deliver its objectives?
- It is difficult to summarise the effect of austerity policies on UC but to take one example if the work allowance has been incorporated for all working claimants, there would have been more favourable financial assessments for working claimants leading to greater incentives to stay in work or grow businesses.
Which claimants have benefited most from the Universal Credit reforms and which have lost out?
- Those in steady low paid employment - employers can rely on UC to subsidise them, as can private landlords. This in our view exacerbates the problems of low pay and the dearth of quality affordable housing.
- Carers not in receipt of Carers Allowance - can get the carer premium in UC.
- The absence of the 16/24 and 30 hour thresholds of tax credits is potentially a good thing but this flexibility is undermined by the other problematic features of UC. Similarly, the greater flexibility with the UC equivalent of permitted work for those with disabilities is potentially a good thing.
- Those who have lost out are well-documented but our focus is on the impact on the self-employed with variable income who have lost out particularly through the imposition of the GSE test in its current form the and Minimum Income Floor.
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?
- See above - self-employment now makes up nearly a sixth of the UK’s workforce. UC treats those in gainful self-employment worse than those in employment work. Not all workers can chose employment - e.g. entertainers.
If Universal Credit does not adequately reflect the lived experiences of low-paid workers, how should it be reformed?
- The Minimum Income Floor should be removed so that claimants are assessed on their actual earnings each month and able to obtain financial support when required.
- There should be a radical reform of the sanctions system. The emphasis of conditionality should not be for the claimant to find any work and/or increase earnings, but to look at what is required in order to help people find quality work that can be sustained, and taking into account their real life circumstances, e.g. caring responsibilities, health issues.
- As a team we have noted in the last few months a marked increase in the number of members being caused hardship by the application of the UC self-employment rules. We think it is now essential to carry out a full-scale review of how these operate (done at a senior level within DWP) and for the DWP to supply data on how the MIF is helping to meet it stated policy objectives and the projected welfare savings figures from the implementation of the Minimum Income Floor set out in the Autumn Budget 2017 (‘The marginal cost of universal credit and its component parts’ Supplementary Tables 2.22 at https://obr.uk/?s=Supplementary+Tables).
26 February 2020
 R (Charmaine Parkin) v Secretary of State for Work and Pensions  EWCH 2356