Universal credit: Policy changes

Although Universal Credit full (digital) service is not expected to be fully rolled-out for some time, a series of policy changes have been announced. In this section we highlight the principles of those changes, although the legislation (and therefore the fine detail) may not yet have been finalised.

April 2017

First child premium

The higher rate of child element payable for the first child, sometimes referred to as the first child premium, will be withdrawn for claims where the first child is born on or after 6 April 2017. Originally (July Budget 2015) it was intended that this policy would apply to all new claims to UC from April 2017, however this was changed in a Parliamentary statement made on 20 July 2016.

Limiting the child element to 2 children

In the July Budget 2015 it was announced that for new claims from April 2017, the child element will only be included for up to 2 children and will not be included for 3rd or subsequent children born on or after 6 April 2017. In a statement on 20 July 2016, DWP confirmed their intention to introduce this policy to its planned April 2017 timetable, however it was confirmed that new claims from families with more than two children would be directed to tax credits until November 2018. Thereafter they will be directed to claim UC. Families already on UC who have a third child after April 2017 will remain on UC and receive only two child elements.

The Government also announced that there would be some exceptions to this policy. A consultation was held in late 2016, with the Government response published in January 2017. The response confirmed that there will be exceptions for:

The Social Security Advisory Committee (SSAC) wrote to the Minister for Employment in February 2017 outlining some concerns about the draft secondary legislation in relation to the exceptions to the two child policy.

We are currently preparing more detailed information on the exceptions and this will be published shortly.

Change to taper rate

In the Chancellor’s 2016 Autumn Statement, it was announced that from April 2017 the taper rate in UC will be reduced from 65% to 63%. This means that for every £1 that a claimant earns over their work allowance (if they qualify for one) their UC will be reduced by 63 pence instead of 65 pence. See our guidance on calculating UC to see how the taper rate is applied.

April 2018

Digital service areas – losses and surplus earnings

In order to address some of the problems caused by fluctuating earnings and the potential for self-employed (and employed) people to ‘manipulate’ their income to maximise UC entitlement, DWP introduced new legislation in 2014 (The Universal Credit (Surpluses and Self-employed Losses) (Digital Service) Amendment Regulations 2015). These surplus earnings rules were due to come into force in 2016 for those in digital UC areas only, and were subsequently postponed until April 2017, however on 20 July it was announced that these rules would not come into force before April 2018.  We consider these some of the most complicated regulations we have seen and we are concerned how DWP will implement them and most importantly how claimants will understand what is happening.

The basic premise of the legislation is that if someone has a UC award terminated (for example because their income goes up due to a new job) a calculation will be done to work out their ‘surplus earnings’ for that month and the following five months. Surplus earnings are essentially the amount of income they have above the point at which their UC would reduce to nil plus a £300 de minimis. If the person then needs to reclaim UC within that period, say because they lose their job after four months, the surplus earnings for those four months will be applied to their new claim as income. This means they will receive either a reduced UC award or a Nil award and that will continue until the surplus earnings are used up. These surplus earnings will apply to both employed and self-employed claimants.

The Social Security Advisory Committee published a consultation on the regulations before they were laid. In that consultation, DWP provided examples that showed how the policy would work for both employed and self-employed. However, none of the examples compared an employed person and a self-employed person. That would have shown that in some situations, a self-employed person earning exactly the same amount as their employed counterpart over a year could end up with far less UC over that period. This is due to how the surplus earnings policy interacts with the MIF.

For both the employed and self-employed, the policy is likely to be difficult to understand and people will need adequate warning that they will need to ‘save’ any excess wages for the first 6 months they are off UC following either a rise in income or a change in circumstances that results in less UC entitlement.

For the self-employed, DWP have also introduced recognition for losses. This means a loss from the previous 11 months can be carried forward and used in an assessment period. However, the loss can only reduce income down to the level of the minimum income floor and it cannot take account of any pension contributions. This is a small improvement on the existing rules but it does not compensate for the harsh effects of the MIF nor the lack of proper recognition of pension contributions for the self-employed.

Scotland

UC remains reserved to the UK Government, however under the Scotland Act 2016 the Scottish Government have some powers to amend payment arrangements under UC.

In January 2017, a consultation was launched by the Scottish Government to seek views on draft Regulations which cover two payment flexibilities:

All other existing rules in UC will remain the same for Scottish claimants.

For the purposes of the draft regulations a ‘Scottish Claimant’ is defined as ‘a person (and any one of joint claimants) applying for, or in receipt of, universal credit who lives in Scotland.

In Feb 2017, the Scottish Parliament published a research briefing on the introduction of UC and its impact in Scotland.

The briefing looks at who can claim UC and some of the difficulties with its introduction. It also includes a useful glossary of common UC terminology. It also contains links to useful research on the impacts of UC on claimants so far.

There is a section of the report which looks at the challenges that UC poses for the Scottish Government and three areas are identified:

The report also looks at two related areas where UC will have an impact – Council Tax Reduction and passported benefits.

Northern Ireland

UC will start to roll-out in Northern Ireland from September 2017. During discussions on the implementation of UC in Northern Ireland, the then Minister for Social Development secured payment flexibilities under UC for NI claimants. It was agreed that:

In January 2017 a Department for Communities screening document was published setting out the arrangements for flexible payments.

Updated 20 February 2017