Tax Benefit and Credit Claimants Will Resume Shift to Universal Credit Starting Today – Institute For Fiscal Studies

An extremely difficult part of the Universal Credit rollout begins again today.

When fully rolled out, Universal Credit is expected to be received by approximately 7.2 million working-age families. Most of this rollout has already happened due to the natural ‘rollover’ of the benefit system: for some time now, new claims across the UK have been routed to Universal Credit rather than the six “inherited” benefits that it replaces. The peak of new claims during the pandemic has therefore considerably accelerated the deployment.

In April 2022, there were still 2.6 million claimants for legacy benefits. Very reasonably, the government will not wait indefinitely for all these claims to end naturally or voluntarily, which would take many, many more years. Instead, it is, from Monday, May 9, to restart the process of “managed migration” – proactively moving those who still have legacy benefits to Universal Credit – the initial pilot of this program in Harrogate having been suspended when the pandemic hit. The government now aims to complete the process of transferring all inherited claims to Universal Credit by the end of 2024. If achieved, this would finally end the rollout of Universal Credit, approximately a decade after it began and approximately seven years later. than foreseen by the coalition government’s white paper of November 2010 (this set out a provisional timetable which would have seen the deployment completed in October 2017).

Who are still receiving legacy benefits and would they qualify for more or less under Universal Credit?

The remaining 2.6 million claimants for inherited benefits – the group set to switch to Universal Credit over the next two years, unless their existing claim ends for other reasons or they voluntarily switch themselves universal credit – are those who have continuously claimed inherited benefits for a relatively long period of time without significant change in their situation. The Department for Work and Pensions has helpfully published a useful analysis of this group. About half (46 per cent, or 1.2 million) are claimants of Employment and Support Benefit (ESA) – an unemployment benefit for those whose condition is deemed to limit their ability to do work paid. Most of the rest (38% or 1.0 million) are recipients of in-work tax credits. This makes sense, as ESA and tax credits are benefits that are often received for long periods of time.

These groups are also those most likely to see their level of benefit entitlements affected, in the long term, by the move to Universal Credit.

For example, when Universal Credit is fully rolled out to the 2.2 million claimants who would have been on ESA under the legacy system (some of whom have already moved and others who are now due to transfer), approximately 1 .0 million will have a higher rate. right and about 1.0 million a lower right under Universal Credit. In effect, disability premiums are being restructured under Universal Credit, creating a roughly equal number of winners and losers. Those who will benefit will generally be those on ESA who are not currently receiving Severe Disability Premium (SDP), while those with lower Universal Credit entitlement are those on ESA who are currently receiving SDP. , which is paid to those who typically live alone and struggle with basic life activities such as food preparation.

And because Universal Credit changes the way in-work assistance is withdrawn as incomes rise, virtually all recipients of in-work tax credits – or simply housing benefit – will see their rights changed: of the 3.1 million who would have been in – in-work tax credits or just housing benefits under the legacy system, 2.1 million will have a higher entitlement and 0.9 million a smaller right, within the framework of universal credit. Many who would have received both tax credits and housing allowances – or just housing allowances – earn since Universal Credit is withdrawn less quickly as incomes rise than their old benefits. Those who can lose include those working the specific number of hours per week which have been particularly encouraged in the tax credit system (such as 16 for single parents) and those with savings of over £6,000, because the Universal Credit means test treats those more harshly than tax credits.

On the other hand, among the other groups, more than half will not see their rights affected by the transition to universal credit. These are overwhelmingly people receiving non-health-related inactivity benefits (jobseeker’s allowance or income support), for whom, in terms of financial generosity, universal credit essentially mirrors the previous system . Largely because there is a relatively quick turnover in and out of these benefits, most members of this group are already on Universal Credit.

How many will be eligible for transitional protection and how will it work?

Of the 2.6 million people who are still claiming benefits inherited from the past, just over half (1.4 million) have everything to gain financially from the switch to universal credit. DWP is naturally keen to start by putting in place the information that allows these people to realize this and to move, to accelerate the increase in their income and to limit the administrative burden and the risks associated with their movement ” manual”. About 300,000 people would not be financially affected by the move.

This leaves 900,000 claimants remaining who are all individuals whose entitlement to Universal Credit would, on a steady-state basis, be less than their entitlement to inherited benefits. DWP does not expect 600,000 of them to “naturally” detach from legacy benefits before they are transferred. Rather than see their benefit income drop at this point, government policy is to grant them “transitional protection”. This means that their cash entitlement will be maintained upon transition to Universal Credit, then frozen in monetary terms until their “underlying” Universal Credit entitlement catches up (due to inflation, rise in Universal Credit rates or changes in circumstances that increase their entitlement). At that point, their situation will be worse than it would have been without the Universal Credit reforms, but the reduction in their entitlements in real terms would have been considerably smoother, without abrupt loss of income “overnight.” “.

What risks does managed migration pose to applicants?

Perhaps the greatest risk is that these people will not receive their transitional protection because the process goes wrong. Once notified that they are being moved, applicants must successfully apply in order to receive Universal Credit. If they don’t, their inherited benefits will cease, and even if they then successfully apply for Universal Credit, there could be a gap in their payments and they could lose the transitional protection they would have been entitled to. With this in mind, DWP is committed to starting “slow, slow, slow” to ensure the system is running smoothly before ramping up. But there must be a risk that, for example, some ESA applicants (such as those with mental health conditions) and some tax credit applicants (who might be reluctant to come to a Jobcentre and s Engaging with a Work Coach before signing an applicant’s undertaking, a new requirement for them) will still slip through the net.

It should also be pointed out that the transitional protection is only in nominal terms: the “top-up” to Universal Credit that these people will actually obtain, which will maintain their old level of benefit receipt, will not be increased according to the inflation. Indeed, that is precisely why the protection is transitory and not permanent – ​​it will eventually be eroded by inflation (and any other factors that increase an individual’s cash entitlement to Universal Credit). Due to the lagged measure of inflation used to increase benefits, benefits are expected to increase significantly in nominal terms in April 2023 as they finally catch up with the current surge in inflation. This means that someone who migrated to Universal Credit at the end of March 2023 and who applied transitional protection will, all other things being equal, have considerably less luck than someone who migrated at the beginning of April 2023. This last person ( or his family) is now planning to have more than 9% of additional benefit income locked in as part of transitional protection when they transition to Universal Credit. The former individual, whose inherited benefits barely kept pace with inflation in 2021 and 2022, will then have their benefits frozen just before they finally caught up in April 2023.

Bottom line: The government is right to transition legacy benefit claimants to universal credit. And many will gain from it, while those whose right derives from being displaced must benefit from transitional protection. But there are risks for applicants both in terms of whether they succeed in getting Universal Credit and how quickly any transitional protection is eroded.

Note: Carl Emmerson is a member of the Social Security Advisory Committee (SSAC) but writes here entirely in his capacity as Deputy Director of IFS. Previous SSAC Report on Managed Migration to Universal Credit Available here.

Julio V. Miller