In yesterday’s Budget 2021 the Chancellor set out how the government will tackle the economic crisis brought about by the pandemic in the year ahead. In this blog post, our policy analysts Sam Tims, Alex Clegg and Zoe Charlesworth look at the announcements and what they mean for welfare.
Many announcements were welcome, including the extensions of the CJRS, the SEISS, and the £20 uplift to the Universal Credit standard allowance. However, questions remain for low-income households, both in terms of how they financially navigate the next phase of the pandemic and how the benefits system in the UK will provide support into the future.
The Chancellor declared that “for businesses, certainty matters” yet he fell short of granting certainty for people on low incomes. Clarity is vital for making important decisions about whether to switch to Universal Credit, move house, or take on more work, for example. People need more advanced warning of changes to allow them to undertake the planning and budgeting that is essential to survive on a low income. The delay in announcing key changes to support, coupled with the mixed messaging, conflicting leaks and rumours leading up to Budget 2021, are not helpful.
The 6-month extension to the £20 uplift is not enough to ensure adequate benefit support
Much of the narrative prior to Budget 2021 focused on whether or not the £20 uplift to Universal Credit would remain in place. This is a crucial question for millions receiving Universal Credit as the removal of the uplift would return benefit support to inadequate levels. Evidence given by Policy in Practice to the Poverty APPG in January found that if the uplift is removed, 683,000 households, including 824,000 children, would no longer be able to afford their essential needs.
The decision announced yesterday to keep the uplift for a further six months is welcome, yet it is not the permanent rise that many have called for. Whilst the government stressed the generosity of the uplift, its introduction last year just reversed historical cuts to benefits that saw support fall to unsustainable levels. We once again call for the uplift to be made permanent and to be extended to households in receipt of legacy benefits.
The extensions to the CJRS and SEISS are necessary and welcome
There were numerous reports that the Coronavirus Job Retention Scheme (CJRS) and Self-Employed Income Support Scheme (SEISS) would both be extended in the build-up to Budget 2021 but the details available remained sparse. The announcement that both will be extended until the end of September is welcome.
In October 2020 the Government announced that the CJRS would continue to support the incomes of furloughed employees until the end of April 2021. The Chancellor once again extended this support until the end of September 2021. From July, employers will be asked to begin contributing to the wages of furloughed staff, starting at 10% and rising to 20% in August and September.
The Chancellor also provided details on the fourth and fifth SEISS grants. The fourth grant will again be worth 80% of trading profits up to £7,500 covering the period from February to April 2021. While the previous grants required self-employed workers to have submitted a tax return in 2018-19 to be eligible, the fourth grant will instead be based on 2019-20 tax returns alone. This unexpected but welcome update is estimated to make over 600,000 more people eligible for the fourth grant, plugging up one of the biggest gaps in the original Coronavirus support packages. The fourth SEISS grant can be claimed from the end of April.
A turnover test will apply to the fifth SEISS grant. Those whose turnover has fallen by more than 30% will continue to receive a grant worth 80% of tradable profits, again up to a limit of £7,500. If a person’s profits have reduced by less than 30%, however, the maximum grant available will be 30%, capped at £2,850.
Extending these schemes until after the planned reopening of the economy is a sensible approach and should go a long way to minimise further job losses.
The Minimum Income Floor remains suspended – for now
One area of Budget 2021 that has received little attention, and did not feature in the Chancellor’s speech, is the extended suspension of the Minimum Income Floor (MIF) for self-employed workers.
The MIF is calculated using the National Minimum Wage, multiplied by the number of hours a person is expected to look for and be available for work, which for most people is set at 35 hours per week. If a person’s earnings from self-employment fall below this threshold, the DWP uses the Minimum Income Floor to calculate their entitlement to Universal Credit. It was suspended in April 2020 for one year to allow self-employed people who were not eligible for the SEISS to receive Universal Credit based on actual earnings.
This suspension is now remaining in place until July when the MIF will be gradually phased back in. Importantly, work coaches will be given discretion regarding the reapplication of the MIF on a case-by-case basis. This should avoid cliff edge stops in benefit support.
However, as we have previously argued, the MIF remains problematic as a concept. It often leads to self-employed people receiving much less support than employed people who earn the same amount. Self-employed people deserve more clarity on how the MIF will be reinstated and how it is likely to affect their future benefit support.
Further policy changes: the Shared Accommodation Rate and advance Universal Credit payment
Two further policy changes, previously announced by not addressed by the Chancellor in his speech, will now be implemented sooner. Care leavers aged 25 and under who have spent at least three months in a homeless hostel will be exempt from the Shared Accommodation Rate (SAR) of Universal Credit and Housing Benefit. The policy was first announced in last year’s budget and was set to come into force from October 2023.
The accelerated timeline of the SAR exemption will bolster the financial resilience of those affected. For example, a 23 year old care leaver in a self-contained flat in Camden can expect to see their housing support almost double, with an increase from £154.19 per week to £295.49 per week.
The recovery of Universal Credit advances will also change from April. Originally set to be implemented in October 2021, the maximum rate at which the advance can be deducted from a Universal Credit award will reduce from 30% to 25% while the period over which the advance can be recouped will increase from 12 months to 24 months. Neil Couling, the Senior Responsible Owner for Universal Credit, DWP, confirmed that the change will not be retrospective. Only households that begin a claim for Universal Credit from April onwards will benefit from the lower deductions.
While the change to the Universal Credit advance recovery is welcome, the five-week wait for the first payment continues to put financial strain on low-income households. Last year Policy in Practice carried out analysis for the Welsh Government highlighting the detrimental impact of the five-week wait on rent and Council Tax arrears. Replacing the advance with a grant will reduce the long-term financial burden on Universal Credit claimants.
Covid-19 Hardship Fund will not be renewed
There were several announcements we had hoped would make it into Budget 2021. The Covid-19 Hardship Fund was introduced last year to enable councils to support low-income households by reducing annual Council Tax liability by up to £150. Surplus funds have been used to provide discretionary support to some of those most impacted by the pandemic.
There was no mention in Budget 2021 of a repeat of the Covid-19 Hardship Fund. Ending the scheme will reduce the ability of local authorities to support people who have slipped through the gaps in the welfare safety net.
Local authorities miss out on funding to support economic recovery
Further funding for apprenticeships and the Kickstart and Restart schemes was announced, as was a pilot of new technologies to support people into work. Yet the Chancellor failed to recognise the vital role local authorities play in supporting economic recovery.
Throughout the Chancellor’s speech there was a clear focus on supporting jobs as the economy is allowed to reopen. While the OBR has revised its estimate for unemployment to peak at 6.5%, this is still an increase of nearly 500,000 from current levels.
Councils are well placed to support people back into work as the impact of the pandemic reduces, but without further funding any efforts to do so will be limited. One way for local authorities to target their support is to use tools such as Policy in Practice’s LIFT platform to proactively identify households who have been out of work for over a year and therefore eligible for the Restart scheme.
Some other notable changes from Budget 2021
The Chancellor announced that Income Tax Thresholds would be frozen at their current rates until 2026 in order to claw back some of the spending on support measures. The lower rate will be set at £12,570, whilst the higher rate will be £50,270.
The Government has also taken the sensible decision to delay the introduction of a reduced surplus earnings threshold for a further year. The calculation and application of surplus earnings is one of the most difficult for both advisors and claimants to understand – delaying the threshold reduction from £2,500 to £300 will help make the benefit system easier to navigate. See our guide to the surplus earnings rule.
And some things that did not change
There has been no announced rise in Statutory Sick Pay, which remains at a level that may undermine Test and Trace as low-income households could lose hundreds of pounds if asked to self isolate. The benefit cap, which continues to arbitrarily cut the support received by over 140,000 households, also remains unchanged. This is inconsistent with the commitment to support low-income households through the pandemic.
There were some welcome announcements in Budget 2021 and they will go some way to support low-income households through the pandemic. The most significant of these were the extensions to the CJRS and the SEISS. However, the failure to make the £20 uplift to Universal Credit permanent, as well as the ongoing lack of clarity for low-income households, was disappointing.
Budget 2021, and the Chancellor’s approach throughout the pandemic, have attempted to reduce the economic impact of the Coronavirus. However, much of this support has been necessary due to long-term problems rooted in the benefit system, which the Chancellor has failed to address. The scarring effects of the pandemic will continue long after social distancing is a thing of the past and Social Security should provide a safety net at all times.
This means that levels of support need to provide households with a fair standard of living as they go through individual crises, not just when a collective crisis occurs. It also means that the benefits system has to work well for claimants.
Too often, people must rely on and understand discretionary support to plug gaps in the benefit system that should not be there. These are frequently complex and obscure, meaning that people miss out on the support they are eligible for. Despite the existence of the Universal Credit mechanism, the multitude of different support measures only makes the system more confusing.
People need a fair, simple and coherent benefits system. Budget 2021 has done little to ensure that Universal Credit better adheres to these principles.
A personalised benefit calculation is important
Many people are unaware of the full range of help and support available, or what they are potentially eligible for. As a result, people are missing out on around £10 billion of benefits they are entitled to claim each year.
Policy in Practice’s free Better Off Calculator is listed on GOV.UK and can be accessed here. This advice is particularly prudent now, given that the pandemic has impacted millions of people, including those who have no experience of the benefits system.