Next year, the UK's benefits system will start undergoing its biggest overhaul in recent history with the gradual introduction of the Universal Credit.
What is the Universal Credit?
This new single credit is set to replace Child Tax Credits, Working Tax Credits, Housing Benefit, Income Support, income-based Jobseeker's Allowance and income-related Employment and Support Allowance.
Child Benefit, will not be affected by the introduction of the Universal Credit (although there are also changes to that too, explained here). Council Tax Benefit will also be changing in 2013, to a localised system.
The single monthly payment can be claimed by working age people (aged between 16 and 64) and couples will be assessed as a unit.
The Universal Credit will be made up of a basic personal amount (similar to the current Jobseeker's Allowance) and additional elements for:
child care costs,
limited capability for work
There will be qualifying criteria for all these elements.
Who will be affected?
Anyone who claims any of the above benefits will be affected in some way, although not necessarily straight away because the system will be being rolled out over four years (more below).
Why is it changing?
Championed by Iain Duncan Smith, the Secretary of State for Work and Pensions, one of the main objectives of the Universal Credit is to incentivise people to work and to combat what is known as in work poverty.
With the system as it currently is, some people who can only work part time, and/or in low paying jobs, find that they are actually better off not working at all, because if they were to start working, their benefits would be cut.
The idea is the new system will mean people are always better off working than claiming benefits.
One way this will happen is by making it easier for people to move in and out of work – if someone starts a job (even a temporary one), or they manage to secure more hours per week, their benefits will not be stopped, but will be decreased according to how much they earn, on a sliding scale.
Two other major objectives of the Universal Credit are:
1. To simplify the current somewhat complicated system, by replacing six different types of benefits with one, which will be paid on a monthly basis directly to the household
2. To cut back on fraudulent claims, or claims from people who simply don't want to work. Under the new system, if a person does not stick to their side of the agreement to actively seek employment, it looks possible they may risk losing not only their Jobseeker's Allowance (as is the case now), but their entire Universal Credit.
When will the changes happen?
From April 2013, a pilot will run in North West England, and from October 2013, the Universal Credit will start to be introduced to all new claimants.
People currently claiming any of the affected benefits will be transferred to the Universal Credit over the course of four years from October 2013.
What is the benefit cap?
From April 2013, benefits will be capped at £350 a week for individuals (single adults) and £500 a week for couples (with or without children) and lone parent households. This is being introduced to try to ensure that no one can receive more on benefits than an average weekly wage, once tax and national insurance have been deducted.
Universal Credit will not be introduced nationwide until October 2013 so, in the crossover period, current benefits, including Housing Benefit and Child Tax Credit are subject to capping.
You can read the full list of benefits which will be capped here and use the Gov.uk calculator to see how you might be affected.
Not everyone will be affected by the benefit cap. Households where anyone qualifies for Working Tax Credits will be exempt, as will those claiming Disability Living Allowance or Attendance Allowance. The child care element of the Universal Credit, once in force, will also be exempt.
Will the Universal Credit be good for everyone?
The Government has said that no one will lose out during the transfer over to the Universal Credit – as long as your circumstances have not changed, you will not lose money when you are switched.
But as with all major changes in policy, there are various worries over the new rules and concerned voices are being heard from all corners – housing associations, charities for children, disabled people and more.
While undoubtedly it seems an excellent idea to incentivise more people to work, there will be, as ever, losers as well as winners:
• A major concern is that, in the current economic climate, the changes just might not be pragmatic. The Resolution Foundation said in October it fears that 1.2 million low wage earners could end up with less if the Government imposes (quite tough) sanctions on those working limited hours or unable to get a job.
What if the work simply isn't out there? Will reasons for not working more be properly acknowledged? Children's charities are concerned even more children in the UK could be pushed into poverty and the Chartered Institute of Housing believe that the poorest 400,000 households could be worse off by 2015.
• There are also major concerns over disabled people losing out. BBC news reported that severely disabled people who do not work could eventually lose benefits of up to £58 per week, and people with disabilities who do work could end up losing £40 per week – because once the Universal Credit is implemented, they simply will not be offered the same level of support (their money is protected during the transfer but not beyond).
There might also be problems with the way in which 'fitness for work' will be assessed, so people with certain 'hidden' health issues, such as mental health problems, could slip through the net.
• Benefit caps also might be unfair – for example a larger family living in a relatively expensive area of the country could be particularly penalised. It's thought that 54 of claims will be paid to men.
This is a something domestic violence charities have raised concerns over – money is power, and they say it could trap women in abusive relationships.
• Concerns have been raised about how those on a low income might manage their cash with a single monthly payment, when many might be used to being paid wages weekly, or fortnightly.
Also, the housing element of the Universal Credit will be paid directly to the claimant rather than their landlord, which is leading to fears over rents arrears.
There are many more issues being discussed and no doubt you will read about them between now and when the Universal Credit arrives.
What do I need to do?
If you are currently getting tax credits, just wait for now. You will not need to do anything until you are informed do to so by the Tax Credits office. This will not necessarily happen any time soon – the changes are being rolled out over four years.
For more information, read the Department of Work and Pensions full Universal Credit document here.