2 October 2010
Last updated 21.02 on 03 October
Many major benefits will be scrapped and replaced by a single ‘universal credit’, the chancellor George Osborne has confirmed, according to a report by the BBC today.
It is believed that work and pensions secretary Iain Duncan Smith has won his battle to get extra funding up-front to introduce the universal credit, which is expected to save billions of pounds in the long-term but will be expensive to set up.
Below, we’ve tried to answer a few of the burning questions about universal credit.
Which benefits are likely to be scrapped?
The main benefits likely to be incorporated into the universal credit are:
Employment and support allowance
Council tax benefit
Working tax credit
Child tax credit
However, many other benefits are likely to be affected because huge saving will have to be made elsewhere in the benefits system to help pay for the universal credit. So, for example, child benefit may be means-tested, taxed or scrapped altogether for older children. Winter fuel payments may also become harder to qualify for
Will disability living allowance (DLA) be affected by the universal credit?
DLA and AA will not be part of the universal credit – at least not at the outset – and will continue to exist. However, the coalition have already announced plans to introduce a new medical test for DLA for working age people with the aim of reducing the number who receive it.
Will there still be a work capability assessment?
Yes, the medical for employment and support allowance will still be used to decide whether or not a claimant is able to work.
So, how exactly will the universal credit work?
We don’t know exactly how it will work yet. But, broadly speaking, you will be able to claim universal credit if you are out-of-work or in work but on a low income. There will be a basic rate, plus additional amounts for such things as: couples, children, caring responsibilities, disabilities and housing costs.
If you are out-of-work and then move into work, a certain amount of your earnings will be ignored altogether and the rest will reduce the amount of universal credit you receive.
Will everything be means-tested in the universal credit?
According to the ‘21st Century Welfare’ document which gives details of the universal credit:
“There would continue to be some non-means-tested support, including contributory entitlements for people who have paid national insurance contributions, but generally the amount of benefit payable would depend on the level of household income and savings.”
So it seems, there may still be something equivalent to incapacity benefit or contribution-based ESA – but how much it would be worth and how long it would be payable for is unknown.
How is the universal credit different from what happens now?
In many ways it isn’t. It’s just combining a lot of different benefits into a single scheme. This should make it simpler for everyone to understand and much cheaper to administer.
The ‘big idea’, however, is that claimants will be able to keep much more of their benefit when they move into work and they will also be able to calculate quickly and easily just how much better off they will be in work rather than on benefits.
The intention is to ensure that everyone will be better off in-work than staying out-of-work and on benefits.
What about people who can’t work, will they be better off?
Again, we don’t know the answer. But given the experience of claimants under the previous administration and the untruths that were told – about no-one being worse-off on ESA than they were on incapacity benefit and about how many people would be forced onto JSA – it’s hard to be optimistic.
When is the universal credit likely to come in?
There will need to be widespread consultation, a great deal of new legislation and a huge amount of new IT systems put in place before anything can start. However, a white paper is expected later this year and legislation next year, leading to fears that the law will be hurriedly drafted and not fit for purpose.
Latest reports suggest it could be as long as 10 years before everyone is actually moved onto the new system, with no-one being moved before 2014. Cuts in benefits to pay for the new system, however, are likely to come in much sooner.