Work won't neccessarily pay under the new system
As of today, Universal Credit (UC) is available at 50 per cent of Scottish Jobcentres. Meanwhile, the Resolution Foundation has published what is probably the most coherent and illuminating report on the scheme so far, recommending major reforms before it is rolled out any further.
The main concern raised by the authors of the report is that in its current form, UC does not provide enough of an incentive to start work.
The way UC works means that all benefits are taken away at a single rate once a claimant starts working. UC will introduce a work allowance – the amount someone can earn before they begin to have their benefits removed – and the flat 65 per cent withdrawal rate means that, for every additional pound a person earns above their work allowance, they keep only 35 per cent, until UC is entirely withdrawn.
While this is better than the current withdrawal rates of those receiving Housing Benefit and tax credits at the same time (this leaves people with less than 10p for every extra pound earned), the report rightly points out that this is is an incentive for people to work less hours.
The current system is designed to penalise low-hours work through working tax credits, which can only be claimed after working a certain number of hours. UC risks encouraging people to work below the allowance threshold, using the benefit as a safety cushion.
Therefore, the Resolution Foundation recommends adjusting and rebalancing the work allowance for different groups, including increasing the work allowance for single parents with housing costs from £3,100 a year to £5,100 a year, at a cost of £600 million; and removing the work allowance for non-disabled families without children, creating savings of £600 million.
It also urges the Department for Work and Pensions (DWP) to maintain a gap between the allowances for renters and home owners, in recognition of the different financial challenges they face. Because housing support is withdrawn more slowly under UC, the new regime is more generous to renters than to homeowners. The DWP has attempted to offset this by lowering the work allowance for families who rent.
This means that, particularly, single parents who rent their homes will find that their work allowances are used up after they have worked very few hours.
The Times has reported this story today with the headline ‘New benefits to get mums working’, but it is important to note that the Resolution Foundation, which researches the lives of low to middle-income families, believes that without its suggested reforms the people who would be discouraged from working are ‘overwhelmingly mothers’.
Many of the problems with UC’s current design come back to the endemic low-pay that has beset the UK labour market since the recession. According to the Resolution Foundation, ‘close to two-thirds of poor families with children’ already have someone in work, and the government’s own Low Pay Commission says that 1.4 million UK jobs are paid at or below the NMW.
Today’s report warns that the combination of removing the hour rules of tax credit and the new incentives for low hours work may trap people in low-paid, short-hour jobs, relying on the state to ‘top up their income’. Again, it is important to note that people who choose this work/benefits balance are not ‘scroungers’ but may find this to be the only way they can support themselves and their families.
It is, therefore, crucial that childcare entitlements also keep up with the changing system. The report says that ‘problems with affordability, availability and quality go well beyond the scope of this review’, but that in the short term, the government priority must prevent their policies dissuading parents, ‘particularly mothers’, from working.
Sticking to the wider strategy of only providing extra help to those who need it most, the Resolution Foundation recommends that support for parents with children under three should be increased, by raising the proportion of total childcare costs that can be claimed for in UC from 85 per cent to 95 per cent, as these parents currently receive no free entitlement even though childcare is more expensive.
Admitting that it is a complex and risky overhaul, the report nevertheless says that the motives of Universal Credit are ‘entirely honourable’. It concludes that:
“Through analysing the evidence, it became apparent to us that the policy focus in UC must shift from reducing worklessness to encouraging and supporting all members of a household into decent, sustainable work. Simply being in work is not enough; the objective must be to tackle endemic low pay.”
Ruby Stockham is a staff writer at Left Foot Forward. Follow her on Twitter
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5 Responses to “Study warns Universal Credit could put mothers off working”
Julia Morgan
Where are the jobs?
Paul 保羅 باول Billanie
The link to the report doesn’t work sadly. But there is an error here featured in the report but not here in this article.
You say “UC risks encouraging people to work below the allowance threshold, using the benefit as a safety cushion.” but as the report does mention (I was going to mention this to them if it did not) it says:
“Worse still, the proposed remedy against this risk of low-hours working is to dramatically expand the scope of benefit conditionality, including the sanctions regime, to those earning less than a full-time minimum wage salary. The message: get a pay-rise, or more shifts, or face the consequences. Let’s just say that there is little about the use of the sanctions regime in the last parliament that should make us feel sanguine about this prospect.” You heard right and it is something deeply sinister to my mind to be honest. The legislation was introduced in January this year.
This means that people working as an example 35 hours a week (so hardly lazy, feckless scroungers) on minimum wage, who may still receive some top up of housing benefit could find themselves expected to go to work focus interviews or undertaking other mandated activities to prove they are either seeking 1) more hours 2) better pay 3) an additional job and/or a better paying longer hours job could find themselves on the end of a sanction.
Rather than tackle low wages with a significant increase in the rate or introduction of a living wage, penalise the workers instead. At the end are a couple of sources for this, I did have the legislation itself a few weeks ago but cannot currently find it, you may have better luck and I will carry on searching for a bit.
So rather than working below the threshold to use the benefit as a ‘safety cushion’, this seems to have been anticipated and blocked as they would then face sanctions.
A few other links to these sanctions which have already started as a trial run in April:
http://touchstoneblog.org.uk/2015/03/benefit-sanctions-for-low-paid-workers/ http://www.poverty.ac.uk/report-work-poverty-un/12-million-low-paid-workers-face-new-sanctions and http://www.insidehousing.co.uk/trial-to-sanction-working-benefit-claimants-introduced/7008216.article
JoeDM
“Study warns Universal Credit could put mothers off working”
What !!! You mean they would have to stay at home and bring up their children themselves. Whatever next?
AlanGiles
Duncan-Smith was a disaster as a party leader and is a disaster in everything he tries to do – he even got caught fiddling his expenses, and beefing up his CV, but instead of this idiot having the decency to leave public life, and his leader doesn’t have the guts to sack him, he hangs on like dirty glue. But it seems that is what politicians do – recently Hazel Blears became a director of the Co-Operative Society (and I resigned from it in protest) and none other than Mandy Mandelson seeks to become of Manchester University:-
http://www.theguardian.com/uk-news/the-northerner/2015/mar/30/peter-mandelson-for-chancellor-of-manchester-university
The point is, until mediocrity and dishonesty is discouraged, and not rewarded politicians will always be held in contempt
swat
Heaven forbid! Staying at home and looking after their own little rugrats instead of palming them off to some nursery while indulging in their own chosen lifestyle, indeed, whatever next!!!