Tag Archives: universal credit

Figuring it out: five issues emerging from the Scottish draft budget

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The week before Christmas might not seem an ideal time to be mulling over the minutiae of economic forecasts and the implications of tax changes. But on Monday morning, the Fraser of Allander Institute (FAI) review of last week’s Scottish draft budget attracted a big turnout, and helped make sense of the numbers announced by Scotland’s Finance Secretary, Derek Mackay.

Here are some of the key issues to emerge from yesterday morning’s presentations.

  1. Growth: degrees of pessimism

Last month, the UK Office for Budget Responsibility revised downwards its growth forecast for the UK economy to less than 2%. The FAI, meanwhile, has forecast a slightly lower growth rate for the Scottish economy of between 1% and 1.5%. However, the independent Scottish Fiscal Commission (SFC) is much more pessimistic, forecasting growth in the Scottish economy of less than 1% up to 2021. If the SFC’s forecast turns out to be accurate, this would mean the longest run of growth below 1% in Scotland for 60 years.

Dr Graeme Roy, director of the FAI, suggested that the SFC’s gloomy outlook is based on the view that the Scottish working-age population is projected to decline over the next decade. In addition, the SFC also believes that the slowdown in productivity, which has been a blight on the Scottish economy since the 2008 financial crisis, will continue.

  1. Income tax rises: reality v perception

Mr Mackay proposed big changes in Scotland’s tax system, with five income tax bands stretching from 19p to 46p. While these measures attracted the biggest headlines for the budget, the FAI believes that most people will see little meaningful impact in their overall tax bill (relative to income). Charlotte Barbour, director of taxation at the Institute of Chartered Accountants of Scotland, also suggested that the tax changes are unlikely to result in any significant behavioural changes in the way people pay tax in Scotland. And, as has been noted elsewhere, high taxation does not necessarily lead to unsuccessful economies.

However, as the FAI highlighted, perception is important, and if Scotland comes to be seen as the most highly taxed part of the UK, this could have serious implications for business start-ups and inward investment.

  1. Taxation: two systems, multiple implications

Charlotte Barbour also highlighted some of the implications of the tax changes in Scotland that haven’t featured widely in press coverage. How the changes interact with areas such as Gift Aid, pensions, the married couple’s tax allowance, Universal Credit and tax credits will need careful examination in the coming weeks.

  1. Public spending: additional resources, but constrained settlements

The FAI’s David Eiser noted that Mr Mackay was able to meet his government’s commitments to maintain real terms spending on the police and provide £180m for the Attainment Fund. He also announced an additional £400m resource spending on the NHS. But these settlements are constrained in the context of the Scottish Government’s pay policy,

Mr Mackay’s plan offers public sector workers such as nurses, firefighters and teachers earning less than £30,000 pounds a year a 3% pay rise, and those earning more than that a 2% rise. For the NHS alone, this could cost as much as £170m.

In addition, analysis published yesterday by the Scottish Parliament Information Centre (SPICE) has estimated that, if local authorities were to match the Scottish Government’s pay policy, this would cost around £150m in 2018-19.

  1. The budget’s impact on poverty

If the growth forecasts are correct, even by 2022 real household incomes in Scotland will be below 2007 levels. Dr Jim McCormick, Associate Director Scotland to the Joseph Rowntree Foundation, looked at the Scottish budget in the context of poverty, and suggested that three principles need to be addressed before the budget can be finalised: there are opportunities both to increase participation by minority groups in employment and to improve progression in low-wage sectors, such as hospitality and retail; energy efficiency is one important way of lowering household bills and improving housing quality in the private rented sector; and options such as topping up child tax credits and more generous Council Tax rebates are better at reducing poverty than cutting income tax.

Finalising the budget

As all of the speakers noted, the Scottish draft budget is not a done deal. The minority Scottish National Party government in the Scottish Parliament needs the support of at least one other party to ensure its measures are adopted. The most likely partner is the Scottish Green Party, which has indicated that the budget cannot pass as it stands, but could support the government if an additional £150m is committed to local government.

It took until February this year before the Scottish Government’s 2016 draft budget could be passed. Time will tell whether a budget announced shortly before Christmas 2017 can finally be agreed before Valentine’s Day 2018.

The complete collection of slides presented at the Fraser of Allander Institute’s Scottish budget review are available to download here.

Our blog post on the Fraser of Allander Institute’s review of the Chancellor of the Exchequer’s 2017 Autumn Budget is available here.

Universal Credit – “forcing many into debt”

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Jul 07 Dealing With Debt - Magnifying Glass

By Heather Cameron

“The biggest change ever made to the benefits system… is currently failing too many people and forcing many into debt.”

This is the conclusion of a new report from Citizens Advice on Universal Credit (UC). It warns that the roll-out should be paused to allow ‘significant problems’ to be fixed.

What is Universal Credit?

UC was introduced in 2013, with the aim of simplifying the benefits system, making transitions into work easier and making every hour of work pay. UC replaces six means-tested benefits and tax credits with one benefit, to be paid in arrears, as a single household payment, on a monthly basis.

The objective of UC is to help people on low incomes or not in work to meet their living costs. It affects a range of people, both employed and unemployed, disabled people with health conditions, single people, families, homeowners and renters.

Roll-out so far has been gradual but the process is to speed up considerably from October. By the end of roll-out in 2022, it is expected around 7.2 million households will receive UC, over half of which will be in work.

With such a significant number of people affected, it is imperative that the system works in their interests. But evidence from Citizens Advice suggests the system has a number of flaws that need addressing to prevent 7 million households from facing serious financial risk.

And this isn’t the first time similar conclusions have been reached.

Flaws

Back in February, a Guardian investigation found that policy design flaws in UC are pushing thousands of benefit claimants into debt. Former welfare minister Lord Freud also admitted to MPs that administrative problems and design issues with UC are causing around one in four low-income tenants to run up rent arrears, putting them at risk of eviction.

In 2016, an inquiry into UC and its implementation by the Public Accounts Committee highlighted the inflexibility of the payment systems which may cause financial hardship for some claimants.

Citizens Advice highlight three “significant problems” with UC:

  • people are waiting up to 12 weeks for their first payment without any income;
  • UC is too complicated and people are struggling to use it; and
  • people aren’t getting help when the system fails them.

The data shows that:

  • more than one in three people helped on UC by Citizens Advice are waiting more than six weeks to receive any income, with 11% waiting over 10 weeks;
  • nearly a third of people helped have to make more than 10 calls to the helpline to sort out their claim;
  • 40% of people helped said they were not aware they could get an advance payment to help with the initial waiting period for their first payment;
  • over half of the people helped borrowed money while waiting for their first payment; and
  • UC clients are nearly one-and-a-half times as likely to seek advice on debt issues as those on other benefits.

A recent report from the Joseph Rowntree Foundation similarly highlighted the issue of waiting time, arguing that it required immediate action.

While Citizens Advice support the principles of UC, it argues that pushing ahead with roll-out while these problems remain will only put thousands more families at financial risk.

Recommendations

In response to these findings, a number of short and longer term considerations were highlighted where action will be needed to help secure the aims of UC by the end of roll-out. These include reducing the six week wait for initial payment, improving the support available for those moving onto UC, and helping people achieve financial stability on UC.

The charity recommends that the roll-out is paused while the government addresses the significant issues that have been highlighted. If improvements are not made, it is argued that both UC claimants and the government will face significant financial risks, which will increase rapidly if thousands more households move onto the benefit later this year.

If you enjoyed reading this, you may also like our previous article on in-work poverty.

Follow us on Twitter to see what developments health, social and community care are interesting our research team.

Basic Income – a simple solution to a complex problem?

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By Heather Cameron

“If you want to incentivise work at every level of income then Basic Income is simply the best system.” (RSA, 2015)

Last month MPs in the UK Parliament were asked to consider the question of introducing a universal basic income to be payable unconditionally to all citizens without means-testing or work requirement.

The motion, which was tabled by Green Party MP Caroline Lucas, says the policy “has the potential to offer genuine social security to all while boosting entrepreneurialism”.

While no vote was taken on the policy, and it is unlikely to be made law any time soon, the motion raised the profile of the issue by enabling MPs to add their name in support.

And with ever increasing global interest in the idea, and basic income pilots set to spring into action all over Europe this year, perhaps it’s not as far away from becoming a reality in the UK as we may think.

Pilots

A number of cities and countries across Europe have committed to trialling a basic income.

Last year Finland announced a national basic income experiment, scheduled to start in 2017, which will be the EU’s first nation-wide project. It will see up to 100,000 Finnish citizens paid an unconditional income for a period of two years, after which the results will be analysed to see whether it should be rolled out nationally.

Trials have also begun in the Netherlands. The Dutch city of Utrecht will pay a small group of benefits claimants, whether they work or not, a basic income of £660 a month to provide a basic standard of living and help them avoid the ‘poverty trap’.

In Switzerland, a national referendum on a basic income is planned for this year, and support for the idea has also been reported in France and Canada.

While it is too early to tell whether these pilots will have the desired positive effect, the concept of a basic income is far from new and there have been signs of success from past experiments.

Positive outcomes

In the 1970s, a basic income social experiment, ‘Mincome’, was carried out in the Canadian town of Dauphin, which involved making payments to the entire population, relative to income to cover basic living costs. The programme succeeded in reducing poverty, improving health and alleviating other urban problems.

More recent basic income projects in developing countries have also helped alleviate poverty. In Namibia, a coalition of aid organisations trialled a basic income, funded through tax revenues, of 100 Namibian dollars to each citizen. The result: crime was reduced, children attended school and many villagers used the money to fund micro-enterprises. Meanwhile, in Uganda, a similar programme increased business assets by 57%, work hours by 17% and earnings by 38%.

Critics of such a system say that it would cost the state too much money, and would lead to welfare dependency and a reluctance to work, ultimately resulting in higher unemployment.

A recent survey undertaken in Switzerland would seem to refute this. It indicates that only a very small proportion of the population would stop working if they had a basic income and a majority believe that it would “relieve people from existential fears.”

Similarly, the Canadian experiment found no substantial difference in either female or male unemployment. There were changes in the labour market, as would be expected, with a reduction in working hours within families as a whole. Female spouses reduced their working hours to spend more time with children; and hours were reduced for adolescents within the family who entered the workforce later, suggesting that they were able to stay in education longer.

Way forward for the UK?

The Royal Society for the encouragement of Arts, Manufactures and Commerce (RSA) has recently concluded that there is a strong practical case for basic income in the UK to replace the current tax and benefits system – “it underpins security, replaces the complexity of the current system, and provides a platform for freedom and creativity.”

The RSA report sets out a potential basic income model for the UK. It would provide a universal payment to every citizen, (with restrictions for migrants and those serving custodial sentences). A ‘basic’ amount paid to everyone of working age would provide incentives to work, therefore mitigating against low pay traps of the current system. It would also, the RSA report claims, mitigate against some of the negative distributive effects of basic income schemes by redistributing from higher earners to families with children.

The report calculates household income, comparing the proposed model with the current system of likely Universal Credit/National Living Wage income for 2020/21. In all instances, ranging from single parent families with children under or over five to couples with children under or over five, there was a gain for household income under the basic income model.

With the current welfare system and all its complexity, the new Universal Credit apparently not doing what it’s supposed to and the continued increase in job automation, is this really just a simple solution to a complex problem?

Perhaps by the end of 2016, there will be more evidence for the UK to seriously consider.

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Universal Credit and housing benefit: facing up to the challenge of change

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by James Carson

English money

How are housing associations and their tenants preparing for Universal Credit?  It’s one of the big questions at the heart of the coalition government’s reform of the benefits system. Until recently, the answer was unclear, but we’re now starting to get a better picture of the likely impact of benefits reform on social housing.

In 2010, the coalition government embarked on a major programme of changes to the welfare system. The staged roll-out is intended to simplify the system, replacing five different benefits with a single payment, known as Universal Credit. One of the major changes will see social tenants who previously had their housing benefit paid to their landlord receiving a single monthly payment.

Right from the start, there have been concerns that tenants will have difficulties managing direct payments, and that rising numbers will struggle to pay their rents. Initially, it was difficult to assess whether these concerns were valid, but last month the Department for Work and Pensions published a package of reports evaluating a series of demonstration projects testing the direct payment of housing benefit to tenants living in social housing.

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Ending the stigma around anxiety: Mental Health Awareness Week 2014

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by Steven McGinty

Today marks the beginning of Mental Health Awareness week. The campaign started in 2000 with the aim of raising the awareness of a specific mental health issue. Previous issues have included alcohol, stigma and exercise and this year’s focus is the impact of anxiety. To highlight this event, the Knowledge Exchange has summarised some of the most recent literature on anxiety and mental health more generally. Continue reading →