Welfare Reforms: What It Could Mean For You

The biggest shake-up in the Welfare state since 1945 is underway. This is being called Universal Credit. Here we explain the thinking behind it and what it could mean for you.

It has long been a goal of those on the political right to reduce spending on benefits, but in an economy spluttering and wheezing through a double-dip recession, the coalition government have began a radical overhaul of state assistance.

As well as the economic need to cut costs, many have argued for a long time that some benefits are unfair, or do not take into account people’s real needs. Occasional controversies in the media over non-working households receiving too much money, or elderly or disabled people not receiving enough, have brought many to accept that something needs to done – but exactly what has never been able to be agreed upon.

 Benefit Check-Up Service
We offer a Benefit Check-Up Service exclusively for existing Harrington Brooks Debt Management and IVA clients.

New Proposals

And despite concrete plans announced by Work and Pensions Secretary Iain Duncan Smith, that agreement is still to be achieved. For all the sound wisdom or honest intentions to help behind the new proposals, there are as many criticisms and concerns from charities, businesses and public bodies that the ambitious plans will not succeed.

The main change is that six current core benefits will be replaced by Universal Credit. The six are

  • JSA (income-based),
  • ESA (income-based),
  • Income Support,
  • Child Tax Credits,
  • Working Tax Credits and
  • Housing Benefit.

Perhaps as importantly, Universal Credit (UC) will be paid monthly only – not weekly, fortnightly or every four weeks.

All claims and payments will be managed by an online account. Also, one person (or bank account) per household will receive all UC payments, and housing benefit will be paid to the claimant, not directly to the landlord.

Overall, up to 8 million  households could be affected. Other changes will see Disability Living  Allowance replaced by Personal Independence Payments.

Benefit Culture

A lot of the changes will rely on activity by the person making the claim. Part of the government’s problem with ‘dependency culture’ was the belief that people receiving long-term benefits lost responsibility for managing their affairs. One controversial element of the reforms is that making payments for rent, for example, falls now upon the claimant.

There are fears many of the most vulnerable may find themselves not able to cope with these extra pressures. Equally, the insistence on an online account may exclude those who are not computer literate.

Going Online and Online and Online

The Government argue that 72% of all jobs involve some level of IT literacy, although this does not take into account the fact that much low-paid or manual employment – often the temporary or short-term jobs people returning to work initially find – will not require these skills.

But the new system has been designed to be ‘digital by default’. Former Conservative party leader IDS has said it is a “very good opportunity to get these people back into the 21st century”. An online system is less expensive to run, too.

UC claimants will be encouraged to maintain and monitor their online account, making their own changes as needed.  Job Centres will have ‘digital champions’ or support will also be by telephone, if anyone cannot submit the information themselves.

The system itself is a risk – a massive new program intended to streamline essential Government processes has been tried before, with the NHS at the turn of the century: and it failed to be implemented as intended at huge multi-million costs to the tax-payer. Many are fearful that this administration may suffer the same expensive embarrassment .

The End of the Week

Encouraging people to develop more abilities useful for employment is also the thinking behind changing payments from throughout the month to once a month – supposedly 75% of jobs pay per month; but again, research indicates that among lower-paid or temporary work, the amount of jobs that pay per week amount to over 40%.

The Social Market Foundation’s report on the effects of Welfare reform found that only half of those earning less than £10,000 a year were paid monthly. Of the lowest-paid 40% in the UK, four in ten received weekly pay.

Also, people were concerned that one lump sum will disrupt some the budgeting arrangements many households have developed. People allocate certain benefits to certain costs – child tax credits to children’s clothes or school requirements for example. The simplicity intended by changing to one monthly payment may actually make budgeting a lot more complicated for some families.

The House Always Wins

The responsibility of making payments for housing is also laced with risk. Although the intention is to give people greater responsibility, policy development consultancy Policies found that a huge 93% receiving housing benefit said they would prefer direct payments be made to their landlords.

Some of the thinking behind encouraging people to own the responsibility is ‘nudge’ theory: ways to encourage people to make better choices for themselves, like why schools might display healthy food at children’s eye-level in a canteen, or why cigarette packets show pictures of the effects of smoking.

Again, changing people’s behaviour is a less expensive solution that many other options, and giving the responsibility of managing people’s affairs back to them is part of the philosophy behind the Prime Minister’s Big Society initiative.

The Social Market Foundation’s report was not accidentally entitled Sink or Swim. State assistance, also, is not mistakenly titled – it is assistance for those who cannot entirely, or at all, support themselves. The flip side of this greater responsibility, and potential push in the right direction, is the greater risk that many of those most in need of help will find themselves cast more adrift from society than before.

Universal Credit Time Frame

The changes have started…..

August 2012

Income Support for new claimants being replaced for lone parents, now being required to claim JSA or ESA.

January 2013

This will see a change in child benefit. A cap will be introduced, so people earning over £50k, and up to £59999 will receive a reduced amount, with people over £60k no longer being eligible to receive the payment.

March 2013

The new Universal Credit, which replaces all other benefits types will be piloted for new claimants in certain parts of the country. Greater Manchester is one of those area’s. Full rollout to commence October 2013.

April 2013

A huge change for those claiming hosing benefit. Anyone under the age of 62 claiming, and has up to 2 spare bedrooms in their house can see their benefit payment reduced by up to 25%.

The national council tax benefit scheme is replaced by a localised council tax support scheme, run by your local council.

Working Tax Credits – people will be required to report any income change of over £5000

Housing benefit – for some non-working households, payments may be reduced.

Disability living allowance is replaced by Personal Independence Payment for new claimants aged 16-64. Independent medical assessments to be performed.

October 2013

Universal Credit launched for new working age claimants. This will complete by March 2014. This new means tested benefit replaces ALL current means tested benefits and tax credits.

Pension Credit – couples will only qualify when the youngest reaches the qualifying age, rather than the oldest.

Introduction of a £50 penalty for incorrectly completing an online claim, or for failing to provide the correct information on your claim. No right to appeal.

This month sees the gradual transfer of current working age benefits claimants (means tested) to Universal Credit. This will be a phased transition, taking up until March 2017 to complete.

Benefit Cap launched, which will reduce the housing cost element within Universal Credit. This will affect some non-working households. The impact is to reduce Universal Credit payments being made.