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March 8, 2013 / politicsbitesize

Universal Credit and how it will affect you

DWPIn April 2013 Universal Credit will be rolled out in its ‘pathfinder’ stage to claimants in the North-East of England.  The Department for Work and Pensions (DWP), HMRC and local authorities will work together to deliver this initial stage of the project.  In a phased approach from October 2013-2017 this new way of paying in-work benefits will go live across the rest of the country.

But what exactly is Universal Credit and how will it affect those in receipt of certain benefits?  As previously outlined by Politics:bitesize, Universal Credit will be a new way of paying several benefits in one single payment to people who are looking for work or are already on a low income.  The benefits that will be affected by this are: income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Income Support, Child Tax Credits, Working Tax Credits and Housing Benefit.

According to the DWP website and the Employment Minister, Mark Hoban, the new proposal will help people in low paid jobs to increase their hours in work without losing a significant amount of their monthly income.  Mark Hoban highlights the fact that, ‘At the moment too many people are trapped working 16 hours a week by a system which means there’s no point extending their hours because they’d be worse off’.  This is confirmed by the government’s Impact Assessment report that was delivered in December 2012, which states that:

Under the current system, if one person in a workless household moves into work then a very high proportion of their earnings is offset by reduced benefits and tax credits. For example around 1.1 million households face losing between 70 per cent and all of their earnings if they move into work of ten hours a week at the National Minimum Wage’.

It is a sorry state of affairs when staying on benefits is the best option for some families.  For example, if a family of four is in receipt of Council Tax and Housing benefit because they are on Income Support and one of the adults gets a job, the wages from that job must be enough to cover the loss of the benefits incurred by getting that job!  In some instances that will not be the case, so they decide to remain on benefits in order to feed, house and clothe their children.

In order to combat this situation the DWP claims that Universal Credit will substantially improve the incentives to work and the reform is designed to ensure that work always pays.   The DWP state that, ‘The Universal Credit system will improve work incentives in three ways: ensuring that support is reduced at a consistent and predictable rate, and that people generally keep a higher proportion of their earnings; ensuring that any work pays and, in particular, low-hours work; and reducing the complexity of the system, and removing the distinction between in-work and out-of-work support’.

But how will this actually affect those in receipt of the six benefits listed above?  According to the Impact Assessment report, ‘it is estimated that around 3.1 million households will have higher entitlement as a result of Universal Credit.  The average gain … is estimated to be £168 per month. Around 1.9 million households will see an increase in entitlement of more than £100 per month’.  Furthermore, it is proposed that a ‘package of transitional protection’ will ensure that everyone who is moved to the new system will not lose anything where their circumstances remain the same.

As wonderful as all this sounds, Unite the Union expressed its concern that the government’s reforms of the benefits system doesn’t take into account the reality of many people working part-time.  A spokesperson for the union stated that, ‘there’s huge numbers of our members who are already in part time work, who are desperate to find full time work or more hours but are actually being turned down, wherever they turn’.

It makes a lot of sense to ensure that going out to work pays a lot better than sitting at home on benefits and on the face of it the new Universal Credit system seems to promise to deliver just that.  So, as long as the government faces up to the problem of job stagnation in a recession ridden economy and creates growth in the jobs market then the reform might just stand a chance of making life better for those on a low income.

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