Universal Credit: work in progress?

Progress to date

The idea behind Universal Credit – a single means-tested benefit for people of working age, payable in or out of work, and withdrawn at a constant rate as earnings increase to ensure work always pays – has widespread support.

Implementation of UC has not been without problems, however, following serious concerns voiced by the Major Projects Authority, the UC programme was "reset" in early 2013.

The Department for Work and Pensions is now pursuing a twin-track approach: continuing the roll-out of UC to simpler claimant types using the IT systems already developed, while developing a new, more capable digital service to deliver UC in the long term. Limited testing of the digital service is underway, but it is already behind schedule.

A detailed timetable for the full introduction of UC is yet to be announced, but even under the most optimistic scenario, some people will still be in receipt of "legacy benefits" that UC is to replace as late as 2020.

It is not the only source of uncertainty. In September 2014 the Treasury agreed a "strategic outline business case" for Universal Credit, but this was only the first step towards securing final approval for the programme.

The new Government, should it decide to proceed with UC, will have to submit an outline business case, setting out a detailed final blueprint for UC, and more precise estimates of costs and benefits.

Only when this is agreed can a full business case for UC be presented for Treasury approval. Final sign-off for the programme could still be some way off.

Decisions for the incoming Government

As expansion of Universal Credit to more areas and new groups continues, detailed plans for certain key elements of the system still remain to be finalised.

Around 1 million claimants in work but with low earnings could be expected to increase their hours or look for better paid work as a condition of receiving UC. "In-work conditionality" is a new feature in the benefits system, but piloting of different interventions to encourage people to increase their earnings from work is only just starting.

Trials are also underway looking at different ways of providing support to people needing help with certain aspects of UC, such as monthly budgeting or accessing the internet; but there are concerns that this too has been left to a relatively late stage in the programme.

The incoming Government might also come under pressure to revisit some of the more controversial aspects of Universal Credit, including whether the rules treat self-employed people fairly and do not impose an undue burden on them; whether Council Tax support should remain outside UC; and the vexed question – never fully answered – of how to determine entitlement to "passported benefits" such as free school meals under UC without undermining work incentives.

Concerns about the impact of single, monthly payments and the payment of the UC housing element direct to tenants (rather than their landlords) may also bring pressure for change, especially if Scotland and Northern Ireland are given powers to vary the rules.

The more stringent work-related requirements under UC could also be controversial, as could the rules on access to "hardship payments" for those who, as a result of a sanction reducing their UC payments, are unable to meet their basic needs.

Work incentives

Financial incentives to work are key to Universal Credit. UC is expected to encourage more people into work, but for those already in work, the incentive to work and earn more may be little different from how it is under the current system, or even weaker.

There is concern that under UC, people without children, single parents with housing costs, and second earners in households in particular, could be incentivised to work for only a few hours a week, reduce their hours, or even stop working completely.

In-work conditionality is intended to counter this, but it is not yet clear how this will work.

The new Government is likely to face calls to reform UC to improve work incentives – for instance, by introducing new work allowances and/or reducing the rate at which rate at which UC is withdrawn for certain groups – but such changes would add complexity to a reform intended to bring greater simplicity to the benefits system. They may also be deemed unaffordable, particularly if further cuts to the welfare bill are planned.

Universal Credit at a glance

• Replaces means-tested benefits and tax credits for working age people and families, in or out of work
• Awards reduced at a rate of 65p for each pound of net earnings in excess of a monthly "work allowance"
• Amount payable adjusted automatically in response to changes in earnings
• New "conditionality" regime setting out claimants' responsibilities, and sanctions for not meeting them
• Claims made and managed via an online account
• Single household payments, paid monthly in arrears

Party Lines

• Conservatives: will continue rolling out UC
• Labour: support principle behind UC but will pause and review the programme
• Liberal Democrats: complete introduction of UC
• SNP: (…) would halt the roll out of UC