Benefit reform: all you need to know about the Universal Credit

by Rosalind Kent on 04 October 2012  |  28 comments
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Major changes to the benefits system are afoot, with the launch of the Universal Credit. What will actually happen, who will be affected, and is it a good idea?

With any great reform there are detractors and supporters, and the proposed shake-up to the welfare system is no exception. Described as “the most radical redesign of the benefits system this country has ever seen” by Government ministers, the Universal Credit is due to come into effect next year.

Iain Duncan Smith claims that the new system will pay people to work rather than claim benefits, and most would agree that this is a fantastic idea. But, many groups are already expressing concern about the implementation of this benefit change.

What will change?

The current system is incredibly complicated, as anyone who has had anything to do with benefits will testify. I trained as a Citizens Advice Bureau adviser and now give advice at a local independent advice agency (the Paddock Wood Community Advice Centre – if you are in the area please feel free to drop in for advice!) on a wide range of topics such as debt, employment, housing, consumer rights and, of course, benefits.

The new Universal Credit will replace five current benefits, so if you claim any of the following you will be affected by the changes:

• Income Support

• Job Seeker's Allowance (Income based)

• Employment & Support Allowance (Income related)

• Housing Benefit

• Child Tax and Working Tax Credit.

Also, under the new system Council Tax benefit is also to be abolished. It will instead be dealt with by your local authority, though it is not yet clear how each authority is planning to deal with the change.

The new system will go live nationally in October 2013, although a ‘pilot’ scheme will start earlier in April 2013 in certain areas in the north west. Only new claims will be affected from October 2013 - those already claiming will be moved over to Universal Credit from 2014 and the process may not be completed until 2017.

How will it work?

The ideology behind the change is that it will improve a claimant’s incentive to work. It aims to ensure that people are always better off working than claiming benefits.

At the moment, one of the main things we are asked to do as advisers is to work out whether a claimant will be ‘better off’ if they start work, and more often than not they won’t be! This clearly should not be the case.

The new system should make it easier for claimants to move in and out of work. Claimants can increase their hours of work without worrying, as their benefits will not automatically stop if they do. The benefit will instead be reduced at an incremental rate, taking actual earnings into account.

What is expected of claimants?

One of the key aims of the Universal Credit is to reduce fraudulent claims, cracking down on the benefit cheats who threaten the entire welfare system. The Government wants the public to adopt the idea that the new credit represents a partnership between the state and the claimant.

This boils down to the idea that, in return for financial support, the claimant must accept a ‘Claimant Commitment’ that they will take steps towards finding work. Of course, with benefits such as Job Seeker's Allowance, this is already supposed to be the case, with claimants having to apply for jobs and be willing and available for work. If they are not they are in danger of losing their Job Seeker's Allowance.

If they don’t stick to their side of the bargain under the new system they will lose not just their Job Seeker's Allowance but their entire Universal Credit.

What are the main concerns?

Various charities and community groups have expressed concerns about practical aspects of this change.

Online applications

The entire Universal Credit application process will be online. With an estimated 8.5 million people who have never use the internet and a further 14.5 million who have little or nothing in the way of ICT skills, this will present a very real problem to a lot of people. It is not clear what measures the Government is going to put in place to deal with this problem.

I suspect the Government is hoping that charitable advice centres will simply be there to pick up the slack!

Monthly payments

This will present a problem to those families on very low incomes, many of whom are used to having their wages, benefits or tax credit paid either fortnightly or weekly. Debt advice agencies are concerned that this will lead to an influx of payday loan applications to bridge the gaps.

One claimant per household

This could upset the family dynamic, giving power to the member of the household the money is paid to. Domestic violence charities have expressed concern about the discord this could cause.

Businesses and the self-employed

For those who run their own business or work for themselves the new system will force them to report their pay each month. The Institute of Taxation describes this as an extra ‘significant and difficult burden.’

Will it work?

As someone who sees the direct implications of the current benefit system in practice every day I would have to say that, teething trouble aside, the reasons and aims behind this reform are all sound. We all hope that when the changes have been properly implemented they will help the Government achieve an almost impossible ideal: to have a fair and fraud-free welfare state that really works!

More on benefits:

How to keep your Child Benefit

Shame and embarrassment stopping people claiming benefits