In-work benefits and Universal Credit: is there a crystal ball – and would people want one?
Gareth Morgan, of Ferret Information Systems, examines the effects of the changes to the UK benefits system following the emergency budget, the Spending Review and the White Paper, Universal Credit: welfare that works.
Amy Tarr wrote a perceptive article in the December 2010 edition of Working Brief, Universal Credit: wanted, a clearer idea of its impact. In it she made the point that "if the Universal Credit is to represent a genuine improvement in work incentives compared to the existing system we need assurances that existing benefit levels are being used as the comparator".
Amy’s absolutely right. Unless we know what the real value of the support is going to be, there’s no way of assessing the effectiveness of the incentives for going into work.
That’s going to be even more important in the environment that Universal Credit (UC) is being positioned for. UC is designed for a flexible pattern of working where, in many ways, the whole concept of unemployment is being abolished. With hours of work mattering little in deciding the amount of benefit to be paid, it will be pay and disregards that count in deciding the gains from work. The earnings disregards will, somewhat strangely, be inversely related to housing costs – higher rent will mean keeping less earnings – so in-work support is getting mixed with housing policy.
The amount of support itself, from our modelling, is also going to make things more difficult. The cuts in benefits announced in the Budget and the Comprehensive Spending Review will be carried forward into UC and that means that the real value of in-work support is going to fall. Of course the value of benefits to people who aren’t working is also going to fall, meaning that, perhaps, the disincentive of not earning may be expected to be more effective than the pure incentive of earning.
The biggest cut is also going to be the longest lasting; the move from RPI indexation to CPI indexation will continue to annually reduce the real value of almost all benefits up to, and beyond, the introduction of UC.
Those cuts, of course, have started already and we know what’s coming next and when; or at least some of it. That means that we can confidently predict the real gains, or losses, that people will make, year on year even before UC comes into operation.
But…. is that what people in this industry want to do? From my perspective, as someone focussed on affordability, sustainability and income maximisation, I’m genuinely not sure. We all know that someone going into work today may see an immediate income which is substantially higher than the income they’ll have in the next tax year and quite probably that will be higher than the following tax year’s figure. That’s with the same earnings and is caused, largely, by the way in which tax credits disregard in-year increases in income so that immediate tax credits are often based on nil assessable incomes and the second year awards are based on part year incomes.
I’ve talked to people about the issues of in-work benefits and have been surprised by the attitude of some who still seem to prefer that job seekers don’t know what the real, steady state, income from a job will be, long term. I, as you’ll expect, think that getting someone into a sustainable job is what should matter. A job where the client will understand that they’ll be able to afford the rent, afford the childcare, afford the fare to work and be better off than not working. How many of you feel the same? How many of you give them the information about future income to understand the sustainability of the job?
We’ve produced a paper which looks at the future of benefits, including UC, and models in today’s values, for example cases, what’s going to happen to them over the next few years, which you can download below. You may be surprised by the amount and type of cuts which are coming and by the poverty traps that will exist in the system. You shouldn’t continue to be surprised though. You, and your clients, are able to look ahead to see what’s coming.
It doesn’t take a crystal ball.
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Comments
All of this is very interesting and I sincerely hope that IDS' reforms work. The benefits system has for too long been a barrier to progress on worklessness. I do though get the feeling that there is not enough harsh tonic and, in some ways, the debate is the wrong way around. The debate seems to be: work doesn't pay enough for people to be invenctivsed to take it. So people start from the view that now, "I earn X much on benefits and if I go into work I will only earn X + 5 and will have to deal with the uncertainty of going into work and maybe losing that job and going back into the system again."
Or - even worse - "if I do take it, I will only earn a fraction more".
The problem with that is that the sense that benefits money is earn't, or if not earn't an entitlement or desert. It is none of these things. I agree with Professor Lawrence Kay on this, benefits are part of a social contract. It is the state saying we will cover you until you find work. It cannot be a substitute for work and therefore, it cannot be a trade off. If you can work for more, the same or even less money than you get on benefits, then you should do it. There is lots of other things that need to happen too to make sure there are jobs, people can progress and learn, upskill and reskill but I get the feeling there is still a bit of pussyfooting around....
Thank you so much Lord Northcliffe - I am firmly in your camp on all accounts and find it refreshing to see your words in print. I feel we may be in a rather lonely and politically incorrect place though.
I feel that part of the issues is that our definition of poverty is actually a measure of inequality and not absolute poverty. If a job doesn't pay a sufficient wage to keep a roof over your head, food on your plate and clothes on your back then you can reasonably expect some financial support. That doesn't mean you shouldn't take the job just because you can't buy those luxury goods your neighbour has.
Whether the Universal Credit will actually do this is debatable. And let's face it, the Universal Credit is being introduced TO SAVE MONEY. For "making work pay" read "pay less benefits". If anyone is actually surprised by the amount and type of cuts coming (as per Gareth's article) they ought to stop listening to the rhetoric, stop taking notice of the headlines and start thinking for themselves.
We also need to start the tide turning about the use of the word poverty. It is over-used and misleading. Let's use the absolute version rather than the 60% of average income. Let everyone stop thinking that the world owes them something. Lets stop telling people they're in poverty because they don't have a laptop, Nintendo Wii and a plasma TV (I don't have the latter two either).
Ask not what your country can do for you .... ask what you can do for your country. (I can't believe I just wrote that, but wise words from JFK!)
Where do I begin?
The fundamental reality of welfare benefit is that, by and large, the money received from the state is sufficient to sustain life. Very few, if any of those who claim benefit could be described as receiving a decent standard of living. Indeed, most would be described as living on, or below the poverty level. Now, if we are suggesting that it is not unreasonable to expect someoen to work in order to earn more than this amount, then there would be little disagreement. However, the assumption there is something essentially just about expecting claimants to take jobs offering "... even less money than you get on benefits, then you should do it" seems fundamentally flawed.
How can we justifiably expect clients to take jobs that will leave them even worse than they are at the moment, when their income already falls below the poverty line?
The basis of Welfare to Work stems from an underlying linkage between the rights and responsibilities of citizenship. If we cannot get the rights sorteout, how can we possibly hope to get clients to accept their responsibilities?
Read my blog at http://bit.ly/eLwJ9p
Tacitus - answer to your first question. Don't! LOL!!!!
Your argument would stack up if the benefits that people received were only set at a level which sustained life, but that isn't the case. Some people receive more in benefits (total benefit, not just their JSA "cash") than some of the working population receive in wages. By your argument anyone who is in work but who would be better off on benefits should give up working.
There are very few people in this country living in absolute poverty eg not having shelter, food, sanitation, health care etc. If you are talking about income inequality then there will always be some people who have less than others. That's life. I've got a lot less than some people. I've also got a lot more than some people. But surely financial support from the state should not be about balancing income inequality.
Take a man with a wife and two kids with the education, skills, and social position that only enables him to secure a minimum wage job. The scenario is that he receives the benefit level (all things included eg rent, fuel allowances, free school meals, council tax, health care and prescriptions etc) that equates to £20k pa. He is NEVER going to be better off in work. That doesn't mean he shouldn't take the minimum wage job. It also doesn't mean that he shouldn't continue to receive some state support (potentially Universal Credit territory), but to suggest that he should not take the minimum wage job is just irresponsible. He and his family may be "worse off" financially, but why should the state continue to keep this family in a style to which they have become accustomed but who have no potential to maintain this standard of living independently.
The jobs have to be there for this man to take, and the Universal Credit isn't going to create jobs, but it may encourage this man take the job he should be taking. At the same time he shouldn't be expecting the state to make up the balance to £20k.
All citizens should reasonably expect the state to support them if they need food, shelter, clean water, sanitation, health care, education eg basic needs; but to suggest the state should fund a lifestyle to balance income inequality is not moral or sustainable. Living within your means is a notion we seem to have lost in this country.
I was watching "Ration Book Britain" the other day and commented to my husband about the reaction of people today if they were asked to cut back on the food they ate so our troops serving abroad could have a better diet to sustain them. Be honest, what do you think the reaction would be? This debate isn't about state support and poverty, it's about attitudes in society today.
We live in a world of catchphrases and soundbites eg rights and responsibilities. I don't need to know what my rights are, to know how I should behave. It's this whole notion of people needing to know their rights (self, self, self, what's in it for me) before they are able to act responsibly. Absolute poppycock!
Is it though? Notwithstanding how unlikely this is in most cases i.e. that someone would earn less if they secured employment than if they are living on benefits - at least over the medium term - the principal must surely be if you can work you should, irrespective of the relative payoff. Where I grew up all around me I saw whole communities that lived off the state and there was genuinely a mentality that they were getting what they deserved.
I know these attitudes have developed over time. I saw a documentary recently about workers in Middlesborough around the time industrial jobs where declining in the area. While the reactions of men in the community varied, for the most part they felt a great deal of shame that they were unable to work and provide for their families - they felt it their duty to work. Over time, it seems that this eroded. And you can see how it happens, generation after generation.
There are various responses a country could have. Leave them to it, concentrate on the next generation and invest to make sure they don't end up in the same situ (although we do know how these attitudes pass on); or tackle it head on with the right mixture of harsh tonic and genuine support for people to go into work. But I think a large part of succeeding is an forcing an attitudal change and saying, sorry, you can't choose anymore.
Whilst I am definitely "to the left" politically the simple fact is that the Welfare State was not created to provide an alternative to work; it was designed to support those incapable of work of course but otherwise it's purpose was (and should be)to provide for those capable of work that are temporarily disadvantaged. The fact that benefits can be more lucrative than work and therefore a viable long-term alternative is perverse. Of course, self-determination is important but so is taking personal responsibility to provide for yourself and your own.
Strewth ... the site is incrasingly sounding like a caucus meeting at a Conservative Party conference, with only a few notable exceptions.
Let me be clear, I am not advocating people should not work. What I am saying is that in situations where state supplements (through tax credits etc), together with wages from a potential job are less than JSA, then it simply does not make sense to ask a client to take that job. We live in a culture which requires us to survive and whilst those with money might be able to afford the altruism and luxury of thinking beyond 'self', when you are on a substistence income, you have to look at the realities of where is the money coming from for the next gas bill. needless to say, not many will have the advantage of receiving an income of £20K
This isn't about being asked to cut back on food, or draw horns in, Lazarus - this is about survival. The vast majority of people on state benefits are on very limited incomes. Indeed, we know from the reseacrh many will suffer from health problems because they eat poorly, experience poor health and most are caught in the fuel poverty trap.
Lazarus, you say there are few people in this country living in absolute poverty. Some simple facts from the government's own research:
•In 2008/09, 13½ million people in the UK were living in households below this low-income threshold. This is around a fifth (22%) of the population.
•The number of people on low incomes is still lower (just) than it was during the early 1990s but is much greater than in the early 1980s.
•Over the last decade, the poorest tenth of the population have, on average, seen a fall in their real incomes after deducting housing costs. This is in sharp contrast with the rest of the income distribution, which, on average, has seen substantial rises in their real incomes. The richest tenth of the population have seen much bigger proportional rises in their incomes than any other group.
•The UK has a higher proportion of its population in relative low income than most other EU countries: of the 27 EU countries, only 4 have a higher rate than the UK. The proportion of people living in relative low income in the UK is twice that of the Netherlands and one-and-a-half times that of France.
Is Britain a nation divided? Yes - and in most cases, it is not one of choice. With 2.5m unemployed and few jobs to go round many of those who claim benefits feel hopeless and helpless. As unemployment moves from days to weeoks to months, the hoplessness increases. These days, our job is to teach a man to fish in a pond that is rapidly drying up whilst using a hook that will only allow him to catch a fish smaller than the one he has already been given. It's a poor way to treat human beings.
Read my blog at http://bit.ly/eLwJ9p
One would hope that people in the industry would know whether the people they deal with would be better off in work, and have a good idea whether the amount better off would pay the bus fare to work.
The last government piloted a better off in work credit (in the North East) for anyone who wasn't better off in work. This was mainly a marketing exercise as the combination of in-work benefits meant that very few people were eligible, at least in the first year. They had to change the in-work benefits claim in the second year because of the interaction of housing benefit and tax credit, however.
Report: http://research.dwp.gov.uk/asd/asd5/rports2009-2010/rrep637.pdf
There were a few takers for the credit - some young people and mortgage payers mostly.
The point about UC is that it is supposed to be more transparent and doesn't involve dealing with HMRC, DWP and local authority administrative issues.
I'm not a conservative, by no means. The Labour party was founded by workers and should have, at its core, a belief that working and contributing to society are fundementals of the good life. If you can work, you should - you should not consider living off state support as a choice that you can legitimately make.
I don't get that bit about choice. Everyone has a choice. For some people it might be more limited than for others. Limited by innate abilities or limited by life opportunities but, the it remains that everyone has the choice to apply themselves and use whatever assets they have to get by and get on. I've heard some great stories about people hard on luck and, by their own admission, hard on talent, ability or brains but had the where with all to find something they could do.
Paul makes a very good point on what has been tried before and its relative success. I still think the point is about a persons contract with the state. There are market forces at play and there are definately questions to asked about levels of pay and whether they are sufficient. AND there might be legitimate argument for the state to prop up/top up wages as a means of redistribution. In effect taking from the employers and making "pay" fairer across the board (the alternative would increasing wages through statuatory means).
Still concerned about disincentives to work and to do more work - there is some hope from the UC.
Tacitus - I am and always will be a labour voter, but just because you vote for a particular party doesn't mean you can't have a mind of your own. ;-)
I think you missed the point - my comment re cutting back on food was to make the point about people's attitudes nowadays both towards poverty, society and self; my comment re self, self, self was in response to the constant bleating (not from you) that we have to know what our rights are before we can decide how to act. It's an excuse.
I don't dispute your facts about low income - but you're still talking about income inequality not absolute poverty. A low income would be a dream for someone living in absolute poverty eg no shelter; insufficient food to sustain life; no clean drinking water; no access to health care; no access to education etc. We live in a rich country (although it doesn't feel like it at the moment) where a tiny minority fight for survival often as a victim of circumstance. Having to bike five miles to work for a minimum wage job because you can't afford the bus fare would be an absolute luxury for people who really ARE fighting to survive.
Inequality and low income does not automatically equate to poverty. Poverty and disadvantage are two extremely over-used terms.
Anyway, the argument re taking a low paid job is incidental, as (back to the initial point I made), the Universal Credit will ultimately result in lower levels of benefit (I may even bet on them eventually being lower than the minimum wage). Everyone will be "better off in work". Whether there is work for everyone is another debate.
has anyone been in the position where they cant afford a warm coat, warm dry shoes for arthritic feet, and coal to get hot water and heating into their damphomes, and cant afford to make a phone call, buy decent food, or catch the taxi into town because they live rural with out a bus to the job centre?, thats the position i lived in for years as a disabled carer on income support...with no family help nor close friends, it left me with mental illness in the end. for which i still get no support due to living in a rural location.
poverty is knowing you will be cold and hungry, alone and wet, poverty is fearing the bailiffs at the door and feeling under seige in your own home, poverty is fearing you will go to prison for debts or end up losing your home, poverty is not been listened to nor supported when you have a long term medical condition that traps you into poverty nd you are also a carer at the same time....
The day there is supported sheltered employment with on going access to councelling and debt management, subsidy for rural transport disadvantages for claimants who are not allowed to drive due to health, and access to on going one to one pain managment access, anxiety support, deaf support and allowanced for late arrival at work, time off and regular rests and lie down time for people in pain and with tirdness and fatigue, also help to work from home with incentives for support for conditions - then, just then, we may be able to move forward...but its just not there