Universal Credit Briefing Notes (UCPBN)

This is a quick access summary of the Universal Credit Policy Briefing Notes published in early 2012.

Note that the detail within these briefing notes may be superseded by the regulations, which are currently being finalised and will be summarised in a separate post once the are published by the DWP.

Universal Credit Policy Briefing Notes UCPBN

  1. Introduction
  2. Disability and Universal Credit (UCPBN-1: Additions for longer durations on Universal Credit)
  3. Universal Credit payments (UCPBN-2: The Payment Proposal)
  4. Savings and Universal Credit (UCPBN-3: Savings and Universal Credit)
  5. Contributory benefits and Universal Credit (UCPBN-4: Contributory Benefits)
  6. Second Earners and Universal Credit (UCPBN-5: Second Earners)
  7. Transitional Protection and Universal Credit: (UCPBN-6: Transitional Protection)
  8. Carers and Universal Credit (UCPBN-7: Carers)
  9. Foster Carers and Universal Credit (UCPBN-8: Foster Carers)
  10. Income and Universal CreditThe treatment of income (other than earnings) (UCPBN-9: Income)
  11. Childcare support under Universal Credit (UCPBN-10: Childcare)
  12. Conditionality and in-work conditionality under Universal Credit (UCPBN-11, UCPBN-12, UCPBN-13)
  13. Earnings Disregards and the income taper under Universal Credit (UCPBN-14: Disregards and Tapers)
  14. Managing claims and the transition to Universal Credit (UCPBN-15)

Universal Credit Policy – A Summary of Universal Credit Policy Briefing Notes

UCPBN: Introduction

  • Universal Credit must be a simpler system than the one it replaces.
  • Lobby groups will be resisted in order to keep to the principle of simplicity.
  • It will be down to future governments to adjust disregards and taper rates
  • Universal Credit is being implemented at a time of austerity and will not incur additional costs other than those agreed in the spending review early in the parliament.

UCPBN-1: Additions for longer durations on Universal Credit

Disability and how it will be managed under Universal Credit.

The DWP will simplify the rules on disability support under Universal Credit into two awards, a basic award and a higher award.  Awards will be based on the Work Capability Assessment.

There will be two awards:

  • ~£25.95 – for people in the ‘work related activity group’ (WRAG)
  • ~£74.50 – for people in the ‘support group’, higher than the current maximum award

Other premiums and additions will be removed.  This is in order to simplify the system so that claimants undertake a single assessment (the Work Capability Assessment) and people with higher support needs will get more support.

In addition, the earnings disregards for disabled people under Universal Credit are expected to be a minimum of £2,080, rising to £7,000 for those without any housing costs.

UCPBN-2: The Payment Proposal

How Universal Credit will be paid

Universal Credit will be paid as a single monthly payment in arrears to a single, nominated household account.

A key aspect of the Universal Credit is that it should mimic work and receipt of a salary.  The government believe that where possible, households should take responsibility for budgeting and this will in many cases lead to money being spent more effectively.

The government cite evidence that 51% of households earning below £10,000 are paid monthly in arrears today and only 7% of cohabiting couples keep their finances completely separate.

This means that households will have to take greater responsibility for budgeting.  The government recognise that this will be a problem for some and have started direct payment pilots to find out how many people will have difficulty budgeting under the new arrangements and how to mitigate this problem.  There will be safeguards in place to pay some households separately or to initiate direct payments to landlords.  There will also be greater emphasis on debt and financial management advice within Universal Credit.

The government argue that it is better to tackle the root cause of problems (i.e. budgeting capability) rather than to complicate the benefit system to protect certain parties (i.e. landlords) at the expense of others (i.e. utility companies).

UCPBN-3: Savings

Households savings and capital under Universal Credit

The government aims to focus Universal Credit on people with insufficient resources to meet their needs.  Households with savings above £16,000 will not be entitled to Universal Credit, and households will see their universal credit reduced by £1 each week for every £250 in savings above £6,000.  So, households with savings below £6,000 will not be affected.

Savings includes bank accounts, property excluding the main home, stocks, shares and trusts.  Unearned income may be treated in the same way as earnings, affecting statutory sick pay and maternity pay.

The government argues that high savings imply that working-age households have sufficient resources to meet their needs.  The typical working age household has £300 in savings, and only 13% have more than £16,000.  Transitional protection will be in place for households claiming tax credits, where savings allowances are much more generous.  Households that receive a windfall payment such as an inheritance will be have a six month grace period and households entitled to contributory benefits will not be affected.

Click here to read about one of the problems with the savings threshold

UCPBN-4: Contributory Benefits

Contributory benefits and Universal Credit

Contributory benefits are available to people of working age who have paid national insurance contributions but are unable to find work because of unemployment or illness.  They are currently claimed on an individual basis, and are less stringent than income-based benefits when counting income or savings.

Contributory benefits will continue to operate separately, but many of the rules will be aligned with Universal Credit to improve work incentives.

Contributory benefits will still be payable on an individual basis.

UCPBN-5: Second Earners

Second Earners and Universal Credit

Universal Credit Payments will be made on a household basis to control cost and concentrate work incentives.  This mimics the receipt of a salary in a single earner household.

This briefing note has tables on changes in participation tax rates (the incentive to move into work) and marginal deduction rates (the incentive to work a little more).

Universal-Credit-EMTRs
Marginal Deduction Rates under Universal Credit compared to the current system

Though there are trade-offs between incentives for the first earner and the second earner, two earner households are not really any worse off compared to the first earner.  Click here to read why.  Here is another post making the same point.

The simplest way to ensure incentives for first and second earners were the same would be to pay Universal Credit on an individual rather than a household basis.  However, this would incur substantial additional costs or otherwise significantly weaken work incentives as I argued in my evidence to the select committee.

UCPBN-6: Transitional Protection

Transitional protection under Universal Credit

Transitional protection will ensure that there are no cash losers as a direct result of the move to Universal Credit.  The true level of protection will be eroded over time by inflation.

Household that are out of work will broadly receive the same under UC as under the current system, while some 2.7 million households stand to receive a higher amount as Universal Credit is introduced.

People whose circumstances change, because they find work, or they lose their job for example, will not get transitional protection.  Only those that move onto Universal Credit as part of a migration managed by the DWP will be cash protected.

UCPBN-7: Carers

Carers and Universal Credit

Carer’s Allowance will continue to exist as a separate benefit outside of Universal Credit.

Universal Credit award will include a carer’s element where the carer provides at least 35 hours of care per week for a severely disabled person.

Within Universal Credit claimants will only qualify for a limited capability for work element or a carer element, not both. Households will still be able to get a limited capability for work element for one member and the carer element for the other member.

Carers who are in receipt of the carer’s element (providing care for over 35 hours per week) will fall into the no conditionality group in Universal Credit. Carers providing less than 35 hours of care may face some conditionality to look for work. Carers will have the same income disregards as the disabled person they care for and Universal Credit will taper away as earning rise above this level.

“Universal Credit will ensure that those carers on low incomes receive the support they need, while allowing them to retain a foothold in the labour market, not just for their financial well-being, but also to enhance their own lives and the lives of those for whom they care.”

UCPBN-8: Foster Carers

Foster Carers and Universal Credit

The treatment of foster carers in the benefit system is complex, and Universal Credit aims to simplify this while encouraging foster carers to take work where their circumstances allow.

Fees for foster carers will continue to be fully disregarded for the purposes of calculating Universal Credit entitlement.

The lead carer in a foster couple will face no conditionality while the child they care for is under 16, the other partner will face full conditionality.  Foster carers will have eight weeks between placements before they are approached to change their conditionality regime.

UCPBN-9: Income

The treatment of income (other than earnings) under Universal Credit

Under the current benefit system, the treatment of income differs according to the type of benefit being claimed. The aim is to rationalise the treatment of income under Universal Credit.

– Income for additional costs / expenses will not have any impact on the Universal Credit award. (i.e. DLA, child benefit).  Charitable payments, child maintenance payments and payments in kind will be treated similarly.

– Payments equivalent to earnings, such as statutory sick pay or maternity pay will be treated as earnings under Universal Credit.  Income payments such as rental income will have the earnings taper applied immediately, ignoring disregards so that the household will retain the incentive to take work.

– Universal Credit equivalents will lead to a pound for pound reduction in Universal Credit support.  Examples include pension income from early retirement and spousal maintenance payments.

Note that details in this briefing note has been superseded by the payment regulations for Universal Credit

UCPBN-10: Childcare

Childcare support under Universal Credit

  • Childcare will be available for households working any number of hours per week.
  • It will cover 70% of childcare costs, capped at £760/m (One child), or £1300/m (Two or more).
  • Childcare support will be claimed on a monthly basis, parents will submit childcare receipts online.
  • Childcare costs will be subject to the earnings taper

UCPBN-11, UCPBN-12, UCPBN-13: Conditionality and Universal Credit

Conditionality and in-work conditionality under Universal Credit

Out of work claimants will fall into four broad conditionality categories under Universal Credit.

  • No conditionality
    Claimants unable to work because of disability or caring responsibilities, and claimants earning above prescribed income thresholds.
  • Keep in touch
    Primarily for lone parents with a child over the age of one, but under the age of five.
  • Prepare for work (WRAG)
    Claimants with limited capability for work because of ill-health or disability, many will be former incapacity benefit claimants.
  • Full conditionality
    Jobseekers, claimants without restrictions on their ability to work.

Universal Credit will mean that some claimants already in work will face conditionality requirements, and expected to seek work to increase their income.  In-work claimants will fall into two broad groups.

  • In-work conditionality group
    Claimants will face a personalised conditionality threshold based on the hours they are expected to work and the national minimum wage.  In general, claimants will be expected to work full time (35 hours) at the £6.08 per hour, or £212.80.  However, some claimants will only be expected to work part time (i.e. those with young children) and the minimum wage may vary for claimants under the age of 21.  Couples will be expected to have a combined income greater than the sum of their conditionality thresholds.
  • No work related requirements
    Claimants with gross earnings above their conditionality threshold will not have any further work related requirements.  However, they will be able to increase their take home income by increasing their earnings through employment and should be encouraged to progress in work as this will lead to higher take home income and higher taxpayer savings.

Claimants facing in-work conditionality will be expected to seek additional work, however search requirements should be compatible with their current employment.

Examples of how claimants may increase their earnings include

  • Increasing their hours or their hourly wage with their current employer
  • Finding one or more additional jobs that they can do alongside their current job
  • Finding a new job with a higher income

It is expected that there will be a degree of advisor discretion applied, and claimants will be able to choose an approach that works best for them. It is unlikely that the government will require anyone to leave a job in order to take up a higher paying one elsewhere as the individual is best placed to judge which job on balance (transport, childcare) is best for them.

In-work conditionality should not jeopardise their current employment and it should take into account their household circumstances. There will be an appeals process in place, expected to be a first tier tribunal. For further details click here. To read more about progression in work under Universal Credit, click here.

UCPBN-14: Disregards and Tapers

Earnings Disregards and the income taper under Universal Credit

Universal Credit will introduce a single taper to withdraw support as earnings rise and new more generous earnings disregards in order to simplify the benefit system and make work pay.

earnings disregards under universal credit

An earnings disregard is the amount a household can earn before Universal Credit begins to be withdrawn.  This is means paying the household for working, rather than for not working and helps to cover some of the costs of going to work.

Above are the proposed earnings disregards under Universal Credit. The lower amount, the disregard ‘floor’ will be applied where housing support forms a part of the Universal Credit award.  The higher amount, the disregard ‘ceiling’ will be applied when the household has zero housing costs.  This is to encourage in-work households to reduce their housing costs.  Only one disregard, the highest eligible disregard, will be applied for each household.

The income taper

The income taper, otherwise known as the withdrawal rate, is the rate by which universal credit is withdrawn once net earnings rise above the applicable earning disregard level.

The proposed taper rate under Universal Credit will be 65% of net earnings.  In simple terms, for every £100 earned, the household will be £35 better off (where earnings remain below the personal tax threshold).  Final decisions on the actual taper rate in Universal Credit will be taken closer to its introduction in 2013

Out of work households will be significantly better off in work, and the vast majority of in-work claimants will see their take home pay and their incentive to increase their earnings rise under Universal Credit.

UCPBN-15: Managing claims and the transition to Universal Credit

Managing claims and the transition to Universal Credit

The transition to Universal Credit will take a little over four years, from October 2013 to the end of 2017.

  • The live ‘pathfinder’ pilot will launch in Manchester in April 2013. (12,000)
  • Universal Credit will open up to new claims from October 2013, UC will be available to new claims nationwide by March 2014. (500,000 by April 2014, 1.9m by October 2017)
  • Natural changes will trigger a move to Universal Credit.  These changes include moving into, or out of work, moving home or having children. (500,000 by April 2014, 1.8m by October 2017)
  • Managed changes will occur where there have been no changes of circumstance, the DWP will transfer ~4m managed claims over to Universal Credit from February 2014 to October 2017.

Each local authority will need to separately manage down their Housing Benefit load and each will have unique challenges around maintaining performance and efficiency as the load drops.

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