Motions relating to Universal Credit, Children and Young Persons, and Social Security

The House will debate motions seeking to annul four regulations:

• The Universal Credit (Miscellaneous Amendments, Saving and Transitional Provision) Regulations 2018 (SI 2018/65)
• The Free School Lunches and Milk, and School and Early Years Finance (Amendments Relating to Universal Credit) (England) Regulations 2018 (SI 2018/148)
• The Local Authority (Duty to Secure Early Years Provision Free of Charge) (Amendment) Regulations 2018 (SI 2018/146)
• The Social Security (Contributions) (Amendment) Regulations 2018 (SI 2018/120)

The Universal Credit (Miscellaneous Amendments, Saving and Transitional Provision) Regulations 2018 (SI 2018/65)

These regulations were made on 22 January. Some provisions came into force on 14 February; others are due to come into force in April 2018.

The regulations amend various pieces of legislation governing the operation of Universal Credit and how it interacts with other benefits. They implement some of the changes announced in the Autumn Budget aimed at helping people moving onto Universal Credit, namely:

• From February 2018, abolishing the 7 “waiting days” at the beginning of a new claim, so that the minimum wait before first payment of UC should now be 5 weeks rather than 6 weeks, after the claim is registered. It also means there is no longer a period at the beginning of a claim for which no benefit was paid.
• From April 2018, introducing a 2 week Housing Benefit “run-on” for people moving to UC. New UC claimants previously in receipt of Housing Benefit will continue to be paid for two weeks after benefit would normally have ceased.
• A short-term measure to continue support for temporary accommodation through Housing Benefit.

The regulations also uprate the Work Allowances – the amounts people can earn each month before their maximum Universal Credit award starts to reduce – by 3% from April 2018.

Other, more controversial measures include:

• Changes to the rules on “surplus earnings” and self-employment losses, which are themselves due to come into force in April 2018.
• Removing the automatic temporary exemption from work search and availability requirements for illness, for claimants who have been found “fit for work”.
• Reducing the number of days within which a claimant is required to supply information and evidence in relation to a change of circumstances that would result in an increase in their benefit, from one month to 14 days.

Various other amendments to the Universal Credit legislation are made. Further information can be found in the DWP’s Explanatory Memorandum for the regulations.

The independent Social Security Advisory Committee scrutinised a draft of the regulations. A document summarising their scrutiny of the proposals and two further reports on the draft regulations are available on GOV.UK.

Transition to Universal Credit Housing payment

The regulations provide for a 2 week “run-on” of Housing Benefit for claimants moving onto Universal Credit, to be known as the “Transition to Universal Credit Housing Payment.” Claimants already receiving support for their housing costs will receive an additional 2 weeks Housing Benefit as they transition to Universal Credit. The intention is to “help support those most vulnerable to avoid accruing rent arrears whilst awaiting their first Universal Credit payment” (Explanatory Memorandum, para 7.3). The Department for Work and Pensions expects that around 2.3 million claimants will benefit from this measure up to 2022-23, with an average household gain of £233 (SSAC report, p1).

While welcoming the Government’s wider package of measures announced in the Autumn Budget to ease some of the financial pressure faced by many Universal Credit claimants waiting for their first payment of UC, the Social Security Advisory Committee was “not persuaded that [the Transition to UC Housing Payment] necessarily provides the most effective mechanism for defining and delivering the underlying aims and objectives of the policy.” The Committee’s key concern was that in the case of claimants not in rent arrears whose Housing Benefit is paid direct to their landlords, the landlords might receive an “unintended bonus.” It recommended that DWP put in place mechanisms to ensure claimants rather than landlords benefit from the additional payment and ensure the additional support is well targeted at those who need it most.

In response to the Committee, the DWP said that the Transition to UC Housing Payment was the most effective way of giving immediate help to people moving onto Universal Credit and that alternative approaches to targeting assistance would inevitably mean delayed payments. It also believes SSAC’s concerns about landlords benefiting are unfounded, pointing out that where a tenant does not have rent arrears, the additional payment would be credited to their account. DWP is nevertheless “committed to look at communications related to these payments so that those without rent arrears understand that they have the right to approach their landlords to discuss refund of any credit on their rent accounts.”

Further information can be found in SSAC’s report on the Transition to UC Housing Payment, which also includes the Government’s response.

Surplus earnings rules

Universal Credit is paid monthly in arrears and the general rule is that the award is calculated by looking at the claimant’s actual earnings in that month (for employees, as notified by their employer to HMRC automatically via the “Real Time Information” system). There is no averaging out of earnings over the year.

To address the potential problem of claimants (whether self-employed or employees) manipulating their pattern of earnings over the year in order to maximise their UC entitlement, the Government proposed however to introduce new rules on “surplus earnings.” The Revenuebenefits website gives the following summary of the rules:

The basic principle 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 surplus earnings rules, together with provisions allowing self-employed UC claimants to carry forward losses from one month for up to 11 subsequent monthly assessment periods, were originally due to be introduced in April 2016 but are now due to come into force from April 2018.

In a report published in October 2017 the Low Incomes Tax Reform Group commented:

These are some of the most complex rules we have ever seen and we doubt that DWP staff or claimants will be able to fully understand and implement them. They erode the concept of monthly assessment periods. We believe that the concerns set out by DWP in order to justify the Regulations are neither valid nor backed up by any evidence or data. The new rules are also cumbersome and unfair for employed claimants. They are worse for many self-employed claimants due to their interaction with the MIF [Minimum Income Floor] and lead to further unfairness between employed and self-employed claimants who are earning the same annual amounts.

[Self-employed claimants of universal credit – lifting the burdens, October 2017, p13]

The current regulations further amend the rules to increase the “de minimis” limit from £300 a month to £2,500; apportion a straightforward 50/50 split on surplus earnings when a couple spit up; and remove the 11 month limit on carrying forward self-employed losses.

The increase in the de minimis limit to £2,500 is a temporary measure for 2018-19 only. The intention is to limit the impact of the surplus earnings rule in the first year. The DWP had intended to use Real Time Information (RTI) data on earnings in the six month period prior a UC claim to calculate surplus earnings, but “RTI data had not proved capable of providing the information on a claimant’s earnings in a way which would meet the original policy intention” (SSAC report on the UC (Miscellaneous Amendments etc) Regulations, Annex A, para 2.8) The increase in the limit to £2,500 will, the Department says, introduce the surplus earnings provisions in a “safe and secure” way with a minimal impact on the majority of claimants, while it develops an automated process.

In a letter to the Secretary of State on 19 January, the SSAC Chair, Paul Gray, noted that the proposals on surplus earnings and self-employed losses had “already gone through a number of iterations”, adding that in light of developments since the Committee had looked at the initial proposals in 2014 it was “unclear to us whether, in light of these factors, the original assumptions made in support of the policy remain true.” The letter continues:

The new proposal is based on a number of assumptions, each of which appear open to question. Taken together there would be significant operational challenges in ensuring that the policy is implemented effectively. This may only be a small issue from April 2018 until March 2019 when the de minimis figure is to be set at a deliberately high figure in order to limit the number of cases affected and to facilitate test and learn arrangements. The real impact would therefore not be felt until the following year when it is intended that the de minimis level would revert to £300 a month.

One of our main concerns about these proposals is the assumption that claimants will have a detailed understanding of this complex policy, when in reality it seems likely most will not. Many may be disadvantaged simply due to that lack of detailed understanding of the complex rules underpinning this policy.

For example, the only way that claimants can successfully erode surplus earnings that have taken them off Universal Credit is to make repeated monthly claims. But these are destined to fail until the surplus is erased and entitlement resumes. Requiring claims to be made where it is known that they will be unsuccessful is, at best, counterintuitive and risks damaging the credibility of both this policy and Universal Credit more widely.

The SSAC letter also states:

We are also concerned about the implications of introducing a high de minimis which will subsequently reduce sharply after 12 months. This has the potential to cause confusion and, as a consequence, to have a financial impact on claimants who may have unwittingly become accustomed to – and made longer term financial decisions based on – the initial higher de minimis figure.

SSAC had “serious doubts about the potential for this detailed policy to operate effectively”:

The fact that the Department’s original intention to use Real Time Information data supplied by HMRC to assess earnings during short periods of non-entitlement to Universal Credit has not yet proved possible also presents a further challenge in developing a satisfactory framework. Effectively the proposals, described to us by officials as an operational simplification, simply transfer to claimants the burden of overcoming operational challenges faced by the Department.

The Committee also questioned the Department’s claim that the proposed 50/50 split of surplus earnings when couples split up would have no adverse effects in anyone with a protected characteristic:

However it is clear that having, by default, a simple 50/50 apportionment of surplus earnings in the event that a couple separate would adversely affect any non-working partner, or the partner earning a lower amount relative to the current situation of allocating the surplus in proportion to the earnings of each individual of a couple. Some of the non-working partners, or partners on lower wages, are likely to have a protected characteristic (for example gender or those with a mental health condition), therefore we were surprised by the Department’s assertion. Although, as was made clear to us, the legislation would give discretion for a different apportionment to be applied, the default position would be 50/50 and it would fall to individual claimants to make a request for it to be changed. Some individuals adversely affected might lack the understanding to request a revision of that decision; others may be put under some pressure from their former partner to accept the Department’s decision.

In its response (published alongside SSAC’s report), the Department for Work and Pensions said:

• With regard to concerns about claimants having to make repeated monthly claims to successfully erode their surplus earnings, the reclaim process was designed to be “simple and swift” for claimants, and guidance and messaging for claimants and for DWP Work Coaches would be clear about claimants’ responsibilities.
• Guidance for claimants and Work Coaches would also be very clear to ensure that claimants were prepared for the reduction of the de minimis limit to £300 from April 2019.
• The Secretary of Stat could push back the date from which the de minimis limit dropped to £300, if necessary.
• Given that it was reasonable that a couple and their household would equally benefit from household income such as a one-off bonus, surplus earnings should be equally apportioned when couples split up unless there were grounds to believe it would be unreasonable. The regulations allow for a DWP decision maker acting on to consider the reasonableness of an individual’s circumstances when looking at a decision on apportionment.
• The Government was also committed to improving support for people affected by domestic abuse, and the regulations included an exemption from apportionment for victims of domestic violence.

Other changes

Further information on other potentially controversial changes made by the regulations can be found in the following sections of the DWP’s Explanatory Memorandum:

• Removing the automatic temporary exemption from work search and availability requirements for illness, for claimants who have been found “fit for work” – see paras 7.13-7.15.
• Reducing the number of days within which a claimant is required to supply information and evidence in relation to a change of circumstances that would result in an increase in their benefit, from one month to 14 days – see paras 7.17-7.19.

The Social Security Advisory Committee has also published the minutes of meetings.

The Free School Lunches and Milk, and School and Early Years Finance (Amendments Relating to Universal Credit) (England) Regulations 2018 (SI 2018/148)

These regulations were made on 6 February 2018 and are due to come into force on 1 April.

The regulations make provisions relating to entitlement to free school meals (FSM) and the Early Years Pupil Premium (EYPP) in the context of the roll-out of Universal Credit (UC). Currently, under interim arrangements, all families in receipt of UC, or qualifying legacy benefits, are entitled to FSM. Similarly, early years settings can currently attract EYPP in respect of all children whose families receive UC.

The regulations, made under section 512ZB of the Education Act 1996, amend the eligibility criteria for FSM and EYPP by introducing an income thresholds for UC claimants. The net houshold earned income threshold (not including benefits) will be £7,400. As set out in the explanatory memorandum to the regulations, the Government estimates that a typical family earning around this threshold, depending on their exact circumstances, would have a total annual household income of between £18,000 and £24,000 once benefits are taken into account. The Government has estimated that under this threshold, once UC is fully rolled out, an extra 50,000 children will become eligible for FSMs compared to the current number of claimants.

Transitional arrangements

The threshold will apply to new claimants from April 2018. There are transitional protections in respect of existing UC claimants (provided by The Welfare Reform Act 2012 (Commencement No. 30 and Transitory Provisions) Order 2018 with regards to eligibility for FSM). These were set out in a Department for Education consultation on the changes, which preceded the regulations:

• From April 2018, all existing claimants should continue to receive free school meals whilst Universal Credit is rolled out [the commencement order sets the date as 31 March 2022, the currently expected end date of UC rollout]. This will apply even if their earnings rise above the new threshold during that time.
• In addition, any child gaining free school meals eligibility after the threshold has been introduced should be protected against losing free school meals during the Universal Credit rollout period.
• No further eligibility checks would be required for protected families during this period; schools would simply leave these pupils flagged as protected pupils in their management information systems.
• Once Universal Credit is fully rolled out, any existing claimants that no longer meet the eligibility criteria at that point (because they are earning above the threshold) would continue to receive protection until the end of their current phase of education (e.g. primary, secondary).

The consultation added that the Government proposed to introduce similar protection for children eligible for the EYPP (provided by paragraph 6 of the regulations) to “ensure that no child in England stops attracting the early years pupil premium (to their early years setting) during the transition to Universal Credit”.

Further information can be found in the explanatory memorandum to the regulations. More detail on the consultation that preceded the regulations is provided in section 2.2 of the Library Briefing on the Pupil Premium.

The Local Authority (Duty to Secure Early Years Provision Free of Charge) (Amendment) Regulations 2018 (SI 2018/146)

These regulations were made on 6 February 2018 and are due to come into force on 1 April and apply to England.

In summary, the regulations concern eligibility for the 570 hours of free childcare (often referred to as 15 hours of free childcare, over 38 weeks) for some 2 year olds - for families in receipt of Universal Credit (UC), the regulations will limit eligibility by introducing a net earned income threshold of £15,400 per annum under UC; currently, all recipients of UC are eligible.

At present, the Government funds free childcare of 15 hours a week over 38 weeks of the year for all 3 and 4 years, and some 2 year olds. The original policy intention was that 2 year olds from “disadvantaged backgrounds” and low-income families should be eligible (in contrast to the extra 15 hours, i.e. 30 hours over 38 weeks, aimed at 3 and 4 years olds from working households).

As well as including current and some former looked after children, including children in care, and disabled children, eligibility included where a 2 year old’s family was in receipt of certain means-tested benefits, such as Income Support or income-based Jobseeker’s Allowance, or tax credits and an annual income of under £16,190 before tax.

Initially, when the roll-out of UC began, all recipients were eligible for the 15 hours over 38 weeks of free childcare for a 2 year old. However, as the roll-out of UC accelerates, the Government explained that the eligiblity criteria have to be amended to implement an earnings threshold under UC “to ensure that these benefits continue to be targeted at the families that need it most”.

Under UC, the net earned income threshold will be £15,400 per annum; the Government has noted that this will apply to net income, rather than the Child Tax Credit gross income threshold of £16,190 previously, meaning that under the new approach “depending on circumstances, families could earn a combined gross income of between approximately £24,000-32,000 once benefits are taken into account and be eligible for the two-year-old entitlement”.

The Government has estimated that “by 2023 around 7,000 more children will benefit from the two-year-old entitlement compared to the previous benefits system”.

The Government has also said that “no child who starts their entitlement will lose it because of the introduction of the new earnings threshold”, and also that “two-year-olds will not lose their entitlement once they have taken it up” even if their family no longer meets the UC earnings threshold.

The proposals were subject to a recent consultation.

The Social Security (Contributions) (Amendment) Regulations 2018 (SI 2018/120)

These regulations were laid on 1 February, and are to come into force from 6 April 2018. The regulations would make three changes to National Insurance contributions (NICs):

• to align the NICs treatment of salary sacrifice schemes with the way these schemes are subject to income tax, following changes made to their tax treatment by Finance Act 2017.
• to make consequential changes to the NICs treatment of childcare vouchers provided by an employer, in line with changes to the income tax treatment of employer supported childcare, to take effect from the 2018/19 tax year.
• to ensure that employers continue to be exempted from having to pay Class 1A NICs where a sportsperson in their employ receives payments from a sporting testimonial organised by an independent committee. Employers’ potential liability to this NICs charge was an unintended consequence of a reform to the taxation of sporting testimonial payments in 2017, but the current statutory provision to ensure employers are not liable for this charge applies for the tax year 2017/18 only.

There has been quite a lot of comment, not about the regulations themselves, but about the policy underpinning the second of these changes – the Government’s decision to introduce a new scheme to support parents’ childcare costs - Tax Free Childcare – and to close employer supported childcare to new applicants from April 2018.

Further information on this is available from the Commons Library Briefing CBP-8250, Social Security (Contributions) (Amendment) Regulations SI 2018/120.