Universal Credit rolling out – what it means for employers
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Lord Freud discusses how Universal Credit will help employees to work more hours and calls on employers to champion the new benefit.
It’s a pleasure to be here today to tell you about Universal Credit.
Universal Credit is rolling out across the country now and building momentum as the number of claimants rises.
It’s a fundamental overhaul of our benefits system that puts work at its very centre. It aims to make work pay and most crucially – create a system that is flexible and responsive to the modern labour market.
This flexibility could be really important in increasing your productivity. It will give you the opportunity to meet business peaks and troughs using your existing staff and you should find more people willing to take on irregular work.
It is part of the government’s long-term economic plan to help more people into work and we’re incredibly pleased with last week’s figures showing a large drop in unemployment. But there’s much more to do. And Universal Credit is a big part of that.
Learning lessons – what claimants are saying
We’re learning lessons as we extend the new system and this is feeding into our plans for when larger numbers of people start to make claims.
Early indications tell us people are positive about Universal Credit. 65% of those who previously claimed Jobseeker’s Allowance think that Universal Credit is a better financial incentive to work and they spend twice as many hours per week looking for work compared to those on JSA. That’s real progress.
Employers I’ve spoken to are welcoming the benefits Universal Credit will bring to their businesses. They say it will be easier to recruit and develop staff as their employees will be better prepared for work and be more flexible with their hours.
I’d like to tell you more about our long term plans for Universal Credit: Over the next 2 years Universal Credit will expand in scope and scale. Current plans are that during 2016 all new benefit claims will be for Universal Credit instead of legacy benefits such as Jobseeker’s Allowance or Housing Benefit. The vast majority of remaining claimants will then move onto Universal Credit during 2016 and 2017.
For those of you with branches or bases in the north-west of England, you will be particularly interested to know that Universal Credit will start to expand to cover more of the north-west by the end of this year. Employers such as Blue Arrow and Premier Inn are already working with Jobcentre Plus to prepare for this.
Universal Credit is totally different to the current benefits and tax credits system. It supports claimants seamlessly, both in and out of work. The smooth taper means their Universal Credit payment decreases gradually as their earnings rise – so their overall income goes up as they work more. What this means is your employees will be able to agree to more work without worrying about what it means for their benefits – because under Universal Credit they will be better off working more.
Impact on employers
So let’s move onto the key benefits of Universal Credit for employers.
Firstly, we’ve abolished the 16 hour rule. This artificial tipping point where you can claim Jobseeker’s Allowance and work up to a maximum of 16 hours prevents many people increasing their hours. They fear losing their safety net, their benefits – and if their hours change – being short of money whilst reclaiming benefit. Many of you have employees who are restricted in this way. Universal Credit has no such limits.
Secondly, the new PAYE in real time system has been designed to support Universal Credit payments. 99% of employers are now reporting their PAYE in real time every month. Not only does it prevent fraud, it ensures that every person who is in work on Universal Credit has their award automatically adjusted every month, based on these returns. So it’s absolutely crucial that you as employers report this accurately, as this will affect the payments of claimants.
Thirdly, Universal Credit claimants keep more money in their pocket for every pound they earn. That’s at least 35 pence in every pound compared to JSA claimants who cannot earn more than £5 a week before having it deducted against their benefits.
Blue Arrow told us they’ve had numerous candidates turn down offers of work as they would lose benefits, or were unwilling to sign off and sign back on again. They say Universal Credit will make it easier to recruit – particularly when it comes to part time positions or for temporary work.
Finally, claimants apply for Universal Credit online and are paid monthly. This will include money for housing costs, childcare costs, and additional costs such as caring. So they’ll develop the budgeting skills and IT skills employers look for in their staff – and it will help them to adjust to monthly payments, the way most employers pay their staff.
What all of this means for employers is that you’ll have a more flexible workforce both in your existing employees and in potential recruits. I’m going to be upfront with you – it is certainly possible that those of you in certain sectors have built up HR structures around the 16 hour rule – such as care, retail or hospitality – and you will need to change them as this rule disappears and your employees can be much more flexible.
Specific groups in more detail
In fact, Universal Credit is already having a big impact on the kind of people you all employ – people with caring responsibilities, young people – and those for whom work has not just been worthwhile.
People for whom work is not attractive
It will help these people who have not found work – or working more – to be very attractive in the past. The current system can trap people on benefits – just the sheer complexity of moving off one benefit and onto another when going into work is a real barrier for some people. This complex system just does not reflect the modern workforce where hours can change from week to week.
Under Universal Credit, the benefit payment adjusts depending on earnings month-to-month. It also lets people take up short-time work without closing down their claim. This means they can accept a job for one month and know they won’t have to reclaim when that job ends.
Our Universal Credit claimants are already seeing the positives of this approach: Craig, a jobseeker in Rugby said:
Universal Credit is much easier to use than Jobseeker’s as you don’t have the hassle of starting a rapid reclaim. Since starting my claim I have had part-time work and in the past you stress over the reclaim.
Another claimant Greg, who took up short-term work at Christmas, said:
It was good to know that my Universal Credit claim wouldn’t be closed. Anything that comes along – just give it a try!
Under Jobseeker’s Allowance, it would have been a difficult decision to take up these jobs. Now they have something else to put on their CV as they continue to look for full-time work.
Universal Credit will particularly help young people under 25. Nearly 7 out of 10 claimants receiving the new benefit are aged between 16 and 24. We’ve committed to increasing youth employment and Universal Credit is a key platform of this policy, alongside Youth Contract and apprenticeships, which the Minister for Employment spoke about earlier.
Under 25’s, who are currently excluded from Tax Credits, will receive this in-work support under Universal Credit. Getting a short-term job or a work experience placement is now so much easier as they’ll continue to claim Universal Credit – the payment will be adjusted automatically depending on how much they are earning.
Take Ben, one of our first Universal Credit claimants, aged 19 – after intensive preparation with his work coach, he started work experience for a fortnight and was taken on this month as an apprentice by Delta Laminates, a manufacturer in Wigan. He is one of the first Universal Credit claimants to qualify for a wage incentive.
Lone parents will benefit greatly in Universal Credit. There’s a whole range of benefits and add-ons designed for lone parents, but it is a complex system which hasn’t been working well enough to help them manage the transition into work.
Universal Credit will give them much greater financial incentives to move into work, and instead of claiming Child Tax Credit, Housing Benefit and Working Tax Credits, they will receive one Universal Credit payment.
We have announced an additional £200 million in childcare payments for those needing it and we’re determined to find the best solutions for parents with childcare issues to help them once they are in work.
People with caring responsibilities
Employers are recognising that for those who have other commitments, Universal Credit will bring much needed flexibility. B&Q are supportive of the changes it will bring for their staff, in particular those who have caring responsibilities. Carers will be able to flex their hours up and down around their commitments and earn more, rather than be restricted to a certain number of hours.
Progression theory – in-work conditionality
We’re improving the way we set conditionality for jobseekers. The new Claimant Commitment mirrors an employment contract, setting out clearly what a jobseeker needs to do and the consequences of failing to meet their side of the deal. All Universal Credit claims include it and by spring it will cover all new Jobseeker’s Allowance claims.
Under Universal Credit, because there are no limits to the number of hours a person can work, we also need to include some in-work conditionality, so that unlike the current Tax Credit system, people are encouraged to progress and, with time, move off benefits. The in-work progression pilots are looking at the best ways of achieving this.
11 Jobcentre Plus led pilots are running across England, Scotland and Wales. We are encouraging people to consider work beyond their first part-time job – to think about the skills they will need in the longer term.
You are a key component in this. We’ve ramped up apprenticeships and work incentives to help you train recruits in the skills that you need in your industries. As the economy grows, as labour market conditions improve and with your ongoing engagement we can ensure that once in work people can develop their skills and gradually become financially independent.
Engaging with employers, zero hours
I’m really pleased we’re engaging with you in the delivery of Universal Credit: I’m meeting with local employers in rollout areas; we’re working with you on in work conditionality and we’re consulting with trade bodies and employer organisations on how best to communicate Universal Credit to employers.
In the north-west we’re working with some large employers such as Premier Inn to specifically recruit Universal Credit claimants.
Some of you have asked about zero hours – these contracts support business flexibility, they provide entry to work for young people and give people the flexibility to combine work with other commitments, but they need to be fair. Universal Credit is not prescriptive about the hours people work, provided they are able to earn enough to support themselves and their families without undue reliance on state benefits, and a zero-hours contract may well be consistent with that, particularly where people have work flexibly for a number of employers.
The Department for Business, Innovation and Skills has an ongoing zero hours employment contracts consultation which closes in March, so do take part and give your views on how zero hours can be sensibly regulated.
So we’re introducing Universal Credit gradually, learning lessons as we go along, freeing up the labour market and making sure work pays for every person, and we’re working with you to help people become financially independent.
Universal Credit is a fundamental reform – we hope you will champion it – to make the most of the benefits it offers – flexible, supported labour. We need to get more people into work. And Universal Credit will help people into work, stay in work and progress in work.