Universal Credit gets more people into work: but by how much, and is it the carrot or the stick?

We welcome the report released by the Department for Work and Pensions (DWP) that Universal Credit (UC) is getting more people into work. The report, titled Universal Credit at Work (December 2015) uses data from a separate DWP source, was released last week, and found that Universal Credit is getting more people into work.

The founding principles of UC, a simple welfare system that supports those in need and ensures that work always pays, have had cross-party support.

However, before proclaiming UC a success, we need empirical evidence to scrutinise the impact that it’s had in practice to date, and consider the changes to the UC model that are coming in the next few years.

This blog looks at the evidence to understand the impact of Universal Credit on employment, and whether it is the carrot or the stick that increases the likelihood of a claimant moving into work.

The numbers are good, but not that good

The DWP announced that, under UC, individuals are ‘significantly more likely to move into work’.

8% are more are likely to have been in work under UC than if they had claimed for JSA. This figure has been revised up from 5% since the DWP’s February edition, based on a new methodology, better and more data. As a rough approximation, the report also suggests those in UC have, on average, worked 12 more days than JSA claimants during the first 270 days from their initial claim.

What is less widely reported is the snapshot analysis of those in work.

Under UC, 3% of people are more likely to be employed than if they had claimed JSA. While less emphatic, the 3% figure is still encouraging and it is this measure that we should focus on because it is a better indicator of sustained employment. The 8% figure is the probability of having been employed at any time during the period, but it does not reflect how much time.

UC’s drive towards claimants taking a ‘work first’ approach, where recipients are required to take any work that is available, is the same as under the JSA regime and has some benefits. For example, it increases employment and generates income for the claimant. Over the longer term, Universal Credit should seek to secure progression in work.

How do earnings improve under UC?

In the DWP announcement, the Secretary of State, Iain Duncan Smith, reaffirms that UC claimants are earning ‘more compared to the old system’.

The report reminds us that the variability in earnings makes estimating this figure uncertain but states that, on average under UC, claimants earn £80 more in the 6 months since their initial claim than under JSA.

Again, welcome news, but let’s break this down. This works out as £3.07 per week more (£80 / 26 weeks) that a UC claimant will earn on average, or £8.89 per additional day worked (£80 / 9 days worked in the first six months).

How does Universal Credit support more people into work?

The DWP identified three main drivers it says are helping more people into work:

1. UC is simpler, more flexible and more transparent
2. UC has greater financial incentives (the carrot)
3. UC has a more tailored claimant commitment and conditionality regime (the stick)

Simple and flexible

The digital rollout of UC is a marked improvement from the initial IT implementation and UC is now available at 75% of Jobcentres.

Combining six means-tested benefits into one monthly payment, paid directly to the claimant whilst they move in and out of work, has helped individuals make sense of a complex system.

Response to the rollout of the new digital service has been largely positive and integration with real time earnings data appears to be working broadly as expected.

Having seen a demonstration of the new digital service, I can say that the look and feel of it is excellent – it is clear, crisp and simple to use

– Benefits manager writing in Benefits Magazine

The carrot is getting smaller

Under UC there are greater incentives to work, through work allowances and a more generous withdrawal (taper) rate. More pertinent however, is that UC has removed the fear that some claimants had of losing benefits if they went into work.

This was something that Policy in Practice saw firsthand when we went to visit a Universal Credit roll out site in Hammersmith.

Work Allowances mean that individuals can earn more before their Universal Credit begins to be withdrawn. However, since the Autumn Statement and Spending Review 2015 these have been cut within Universal Credit, thereby weakening the ‘carrot’ effect. Another ‘carrot’ that UC has is a 65% taper rate which means that a UC recipient can keep 35p of every £1 earned, below the income tax and national insurance threshold. While this may seem low, it is significantly more generous for people moving into work when compared with the current benefit system.

The short clip below of Policy in Practice’s Universal Benefit Calculator shows how one person’s benefit changes under each of the two systems, and what the impact of working additional hours has on their income.

http://www.youtube.com/watch?v=aJZcfsRyDRU

How sharp is the stick?

The DWP claims that UC ’empowers jobseekers to take more responsibility for their job search’ and cites the tailored support provided by work coaches to help job seekers. The work coaches also set goals and mandatory requirements.

The DWP gives evidence that their initial evaluation showed that ‘claimants felt encouraged and incentivised to take more responsibility’ and recent research has found that individual experiences of UC are mostly positive. Claimants spend 50% more time on Jobsearch websites and 86% of those under UC are actively looking for more hours, compared to 38% under JSA.

However, the research sits uneasily with some practices that have been reported under the current system. One of these is the more rigorous schedule a claimant needs to maintain in order to avoid sanctions, which have been described by some as unfair and punitive.

Balancing the carrot and the stick

Universal Credit uses a combination of the stick and the carrot to ensure that 3% more people are in work under UC than under the current JSA regime, but is this report a fair reflection of UC?

The DWP is right to point to this behaviour shift as a positive sign for Universal Credit.

However, it needs to be careful not to over reach with its claims, and to set realistic expectations for the future.

• Universal Credit will be less generous from April 2016, because of cuts to work allowances announced in the Summer Budget
• It is currently centred on those considered easiest to support, and at low volumes
• Households with children and disabilities will decrease the time available to advisors to support people, and these groups are typically less able to respond to improved incentives and changing conditionality

In this sense, both the carrot and the stick are being removed.

Investment in Universal Credit is needed

Policy in Practice recommends that the Government rethinks its proposed changes to work allowances and continues to invest in UC claimant support so that UC continues to incentivise people into work, as it was introduced to do.

Nonetheless, these latest findings are encouraging, and suggest that the rollout of Universal Credit is now on track. For UC to be claimed a success we need to see how other groups respond to the changing incentives in the new system.

Individuals who want to understand how Universal Credit will affect them can use our free Universal Credit Calculator.

Organisations who want to help explain the changes to people in a fast, engaging and easy to use way read more about our Universal Better Off Calculator or contact us for a tailored demo and pricing details.