Today’s new legacy benefits run on will ease the transition onto Universal Credit for some. This welcome introduction of two-week run-ons for some benefits is one of the things campaigners have been calling for since Universal Credit was launched, and it’s good to see this finally being introduced. Yet, what’s good news for some households is not so straightforward for others. Zoe Charlesworth discusses hidden complexities and looks at types of households that need personal advice.
The new legacy benefits run-on reduce the five-week wait for Universal Credit
From today, Wednesday 22 July, households in receipt of Income Support, means-tested Employment and Support Allowance (ESA) or means-tested Job Seeker’s Allowance (JSA) will receive a two-week run-on of these benefits if they move to Universal Credit. This is in addition to the run-on of Housing Benefit introduced in April 2018.
As these legacy benefits are paid two weeks in arrears the run-ons mean that the claimant is effectively paid twice for the first two weeks of their Universal Credit claim, reducing the five week wait down to one week. Because the payments do not need to be paid back they essentially act as a grant to help people with the transition to Universal Credit.
For most people in receipt of out-of-work benefits, Universal Credit awards are now higher than the legacy system awards they are replacing. This is due to the increase in the Universal Credit personal allowance of £20/week introduced as part of the Government’s response to COVID-19.
The introduction of these run-ons means that it may now be feasible, and beneficial, for many householders to choose to move to Universal Credit. Policy in Practice’s recent report for the Joseph Rowntree Trust identified the lack of resources during the wait for Universal Credit as one of the key factors affecting ongoing and future financial resilience. With this hurdle now reduced to a three-week wait and a one-week resource gap, the impact on household finances is significantly reduced.
However, it isn’t so straightforward. The increase in support through Universal Credit in response to COVID-19 is temporary, and for families with children, no run-on of child tax credits is planned. This means that support for children will still be five weeks delayed under Universal Credit.
Should people claiming legacy benefits move to Universal Credit?
People who are in receipt of out-of-work legacy benefits, and organisations advising them, will need to consider the personal circumstances of claimants to see if moving to Univeral Credit makes sense. The decision needs to take account of the long-term financial impact as a household cannot move back to legacy benefits once they have moved to Universal Credit.
The additional £20 a week of personal allowance in Universal Credit and the suspension of the Minimum Income Floor are temporary measures and there is no indication that these will be maintained after April 2021. This means that some households may gain in the short-term but lose out in the long term.
Everyone is unique. Personal advice is needed to see if a household is better off on Universal Credit
As with any benefit change, there will be winners and losers, and those who are worse off on Universal Credit may be better off waiting for the introduction of Transitional Protection. Many frontline organisations help claimants to make sense of these changes through benefit calculators, such as Policy in Practice’s Benefit and Budgeting Calculator.
Seven groups who should get personal advice
1. Households where someone is in receipt of Working Tax Credit
Working Tax Credit (WTC) and Child Tax Credits (CTC) do not benefit from a run-on during the period of transition, the new measure available from July 2020 applies to legacy out-of-work benefits only.
As households in receipt of WTC saw an increase in their personal allowance to match that of Universal Credit, the move to Universal Credit may be less attractive, particularly as it brings with it the introduction of in-work conditionality. Nevertheless, for many WTC claimants, the move to Universal Credit may be worth considering if their income has fallen substantially and they cannot see that it is likely to return to previous levels in the near future. People in this situation will need to consider the probable long term trajectory of employment, together with the financial resilience needed whilst they wait for their first Universal Credit payment.
2. Households where someone is self-employed
Self-employed claimants are particularly affected by the move to Universal Credit due to the imposition of a Minimum Income Floor. This means that for many self-employed claimants, a notional income, based on their expected hours of work paid at minimum wage for their age group, is used in the assessment of Universal Credit. For many self-employed claimants this leads to substantially lower levels of support.
The Minimum Income Floor has been suspended as part of the Government’s COVID-19 response but is likely to be reinstated at some point in the next year. For these claimants, personal advice is crucial. They need to be aware of not just the immediate impact, but also the longer term impact once the Minimum Income Floor is reintroduced. Advisors need to compare the impact of both scenarios to provide full advice.
The example below shows a self-employed claimant who would be slightly better off under Universal Credit at the moment but who would be substantially worse off once the Minimum Income Floor is reinstated.
3. Households where someone is in receipt of Employment and Support Allowance (ESA)
Claimants in receipt of Employment and Support Allowance (ESA) who currently receive the Work-Related Activity Group (WRAG) addition will lose this if they move to Universal Credit. In addition, if a claimant is currently appealing against a Work Capability Assessment they will not be able to move back to ESA even if they win the appeal, meaning that they could be substantially worse off in the long-term. Advisors are likely to want to discuss the individual circumstances of those in receipt of means-tested ESA before any move to Universal Credit is advised.
4. People who would lose if the £20 Covid-19 weekly support is removed
Some claimants will be better off if they move to Universal Credit due to the additional £20 a week support introduced as part of the COVID-19 measures. This is currently a temporary measure and claimants will need to consider if they are likely to be better off in the long term once this measure is removed.
5. Households where someone is in receipt of disability benefits
Claimants in receipt of the Severe Disability Premium cannot currently move to Universal Credit. This is to protect them from a substantial drop in income and ensure that they receive ongoing support through Transitional Protection once managed migration is rolled out. Those in receipt of other disability premiums may also see support fall as they move to Universal Credit, particularly if the £20 a week uplift is eventually removed.
6. Households with children
The run-on of legacy benefits does not include Child Tax Credit so households in receipt of out-of-work legacy benefits will need to ensure that they have the financial resilience to cope with the wait for the first payment. The extension of run-ons to JSA, ESA and Income Support will mean that this may now be worth considering. For these households, personal advice and budgeting information may help them to make the decision that is right, and feasible, for them.
7. Non-UK nationals
The Habitual Residency Test is stricter under Universal Credit than under legacy benefits. People who have previously passed the test in order to receive legacy benefits will need to undertake the process again in order to claim Universal Credit. This involves producing a huge volume of documentation, can take months, and risks ending all benefit support. Non-UK nationals from the Republic of Ireland and those from the EEA with settled status face a simplified process and may wish to consider transfer to Universal Credit. For any other claimant who is a non-UK national, expert advice is essential.
Target advice to people who would benefit from moving to Universal Credit
Councils can identify people who may be better off under Universal Credit by analysing their existing administrative datasets, and then target information and support to them to encourage benefits take-up. This type of benefit take up campaign can be very effective and the gains can be considerable.
The decision about whether to move to Universal Credit or not should be made on an individual basis once someone is fully armed with the facts, and this is where councils can make a real difference. For some households, the additional monthly income available under Universal Credit will mean the difference between coping financially or not.
Find out more
Find out more about how a LIFT dashboard helps councils to identify vulnerability, target support and track change in their local area here.
Alternatively, contact us to discuss how you can pinpoint which of your residents will be better off under Universal Credit and how you can offer proactive, tailored guidance to each of the six different groups above, who each face different risks.