Independent report

The Universal Credit (Transitional Provisions) (Managed Migration) Amendment Regulations 2018: Letter from the Secretary of State for Work and Pensions

Updated 13 November 2018

5 November 2018

I am grateful to the Committee for their very thorough report of 5 October, which sets out their advice and recommendations following its public consultation exercise on these draft regulations.

As you know, the draft regulations form the legislative basis for moving claimants in receipt of a working age income-related benefit on to Universal Credit. These managed migration regulations specifically extend the benefits of Universal Credit to around 2 million additional households, who would otherwise remain on legacy benefits and tax credits. They also introduce transitional protection payments and additional provisions to support existing and former Severe Disability Premium recipients.

I appreciate the amount of work that has gone into producing your report and the fact that you were able to produce it in a relatively short timescale despite the high numbers of responses, which were welcome. We have considered each of the recommendations in the main body of the report and government’s response to these has been published today.

You also included some other issues for the department to consider at Annex A of your report. I thought it would be helpful to write and set out our position on the 4 additional areas on which you have commented.

Severe Disability Premium

The report suggests that there is a good case for looking again at the level of the transitional payments being offered following natural migration for those who were previously entitled to a legacy benefit which included the Severe Disability Premium and/or the Enhanced Disability Premium.

In designing Universal Credit, one of the key aims was to simplify the existing system. For people with health conditions and disabilities, a conscious choice was made not to replicate every aspect of disability provision in the current system, which contains 7 different disability payments. Instead, the right levels of support can be provided through 2 rates of payments, reflecting the current Employment and Support Allowance components.

Savings from this simplification will be reinvested to increase the level of financial support available in Universal Credit for severely disabled claimants. As part of their Universal Credit award, claimants who have limited capability for work and work-related activity are entitled to an additional £328.32 per calendar month. The rate in Universal Credit for these claimants of £328.32 per month is substantially higher than the equivalent rate of £163.15 per month in Employment and Support Allowance.

The monthly ‘SDP transitional payment’ rates reflect the extra financial support that has been provided through the more generous limited capability for work and work-related activity addition.

The government has already made a commitment that anyone who is moved to Universal Credit without a change in circumstance, i.e. as part of the managed migration process, will not lose out in cash terms. Transitional protection will be provided to eligible claimants to safeguard their existing benefit entitlement until their circumstances change.

To safeguard their financial position and ensure that they are managed migrated to Universal Credit and therefore have access to transitional protection, the regulations introduce a provision to ensure that these claimants will be unable to make a claim for Universal Credit on or after 16 January 2019.

Once the regulations are in place, existing Severe Disability Premium recipients who have a change of circumstances will not be able to claim Universal Credit. These claimants previously would have been required to claim Universal Credit following a change of circumstances. This is known as ‘natural migration’. Former Severe Disability Premium recipients who have already naturally migrated to Universal Credit will have access to ongoing additional monthly payments. Once the regulations are passed by Parliament and come into force, we will identify those claimants who have moved to Universal Credit and who are potentially eligible for a payment. Eligible claimants will receive both a lump-sum payment to cover the period since they moved to Universal Credit and then an ongoing monthly payment. At a point to be decided, these monthly payments will be converted into transitional protection, becoming part of the overall Universal Credit award, and treated in the same way as other transitional protection payments. We are aiming to make these payments by spring 2019.

Impact on the self-employed

You have received a number of comments about the operation of the minimum income floor (MIF) and the self-employed rules more generally. You note that a number of respondents argue that the department should undertake a robust evaluation of the policy and its operation. You agree with that view and think that evaluation should extend to the related tests of ‘gainful self-employment’ which underpin the way in which the MIF operates.

We have committed to a detailed evaluation of the policy, as part of Universal Credit’s test and learn approach, once the volume and duration of gainfully self-employed claimants have grown to the point where meaningful analysis is possible.

The government continues to believe that the MIF is necessary, and is set at the correct level, and should be applied after a reasonable duration. In particular, we need to address the shortcomings of tax credits and Housing Benefit, which allowed claimants to persist in low earning self-employment, sometimes for long periods, thus trapping them and their families in benefit dependency.

The MIF therefore seeks to incentivise those in gainful self-employment, who earn less than an employee at minimum wage, to increase their earnings and become more productive and self-sufficient in the long term. Some people will respond to this by increasing their earnings from self-employment, others will look for different employment as an employee; they may even combine the two.

Nevertheless, we have listened to stakeholder concerns that self-employed Working Tax Credit claimants and others moving to Universal Credit need time to adapt to the greater demands that Universal Credit will make of them.

We already provide a 12-month start-up period where the MIF is not applied for newly-created businesses. We also proposed to give those claimants moved by the Department for Work and Pensions (DWP) from legacy benefits to Universal Credit, whose circumstances otherwise remained unchanged, a 6 month grace period from the MIF. However, that left a gap in support and applied different rules to different groups of gainfully self-employed claimants. We will therefore now apply the exemption more consistently, creating a 12-month period that will eventually apply to all new gainfully self-employed claimants, irrespective of how long they have previously been self-employed. Initially, this will apply to the small number of claimants who move to Universal Credit from legacy benefits during the managed migration testing period, beginning in July 2019.

From September 2020, we will provide a 12-month exemption from the MIF to all new gainfully self-employed claimants. This will include new claims, including from those running a long-standing business, and those moving from legacy benefits to Universal Credit, whether following a change of circumstances or moved by DWP, plus those existing Universal Credit claimants who become gainfully self-employed. There will be no retrospective application to those claimants already subject to the MIF.

This recognises that it takes time for new businesses to grow, and also that established businesses can experience difficulties. It will therefore provide all gainfully self-employed claimants with an equal chance, including support from specially trained work coaches, to grow their earnings and to prepare for the application of the MIF. Importantly, it also maintains a sensible balance between support for business and not propping up unsustainable enterprises indefinitely, not trapping claimants in welfare dependency, and fairness to the taxpayer.

Capital above £16,000 for former tax credit claimants

Your report comments that the department will be hard-pressed to explain the rules effectively without inadvertently encouraging claimants to bring their capital below £16,000 as the first anniversary of entitlement approaches. Should claimants do that they would risk being disentitled to benefit because they spent their savings in order to continue to receive Universal Credit. A claimant with capital just over £16,000 who dips below that limit entitlement, only to go above it again within the first year of Universal Credit entitlement, would have their award terminated.

The award of transitional protection is a long-standing feature of the social security system. It provides a period of time for the claimant to adapt to any differences that might apply when they are moved to a new benefit so that over time they can bring into the same position as some in the same circumstances who will make new claims to Universal Credit.

For claimants who are managed migrated with capital exceeding £16,000, we will disregard any capital in excess of £16,000 for 12 months. If the capital of these claimants subsequently falls below £16,000, their Universal Credit will be re-assessed accordingly. If their capital rises back above £16,000, the Universal Credit award will terminate as it would for all new Universal Credit claimants who have capital fluctuating around £16,000.

However, whenever there is a reduction in any Universal Credit claimant’s capital, it is right that this change should be considered under the existing deprivation of capital provisions, where appropriate, as it would for all other Universal Credit recipients.

We will be telling people with more than £16,000 capital that their Universal Credit will terminate after 12 months, if their capital remains above that level. The department is exploring the best way to communicate with claimants who will be managed migrated to ensure that they are aware of the deprivation of capital rules.

Loss of transitional protection

Some of your contributors commented about the erosion of transitional protection. You suggest that the department should devise a number of different case studies where transitional protection will be lost under these proposals, including instances of couples splitting where a disabled child is involved, domestic violence is alleged or where one member of the couple dies. You cannot see that there is anything which necessarily prevents transitional protection from attaching to more than one award. You have also asked that the department examine the hard cases that seem likely to emerge as a result of terminating an existing award of benefit and make provision for transferring the transitional protection where it is justified.

The government made a commitment that no one on existing benefits whose circumstances remain unchanged and has entitlement to the same support will lose out in cash terms as a direct result of managed migration. The availability of transitional protection to those claimants who are managed migrated to Universal Credit from existing benefits fulfils this commitment.

Transitional protection, and its erosion is a longstanding feature of the benefit system. It is designed to protect the level of a household’s award at the point of transfer. Therefore, it will not track previous existing benefit entitlement. In other words, it does not replicate legacy benefit entitlement in Universal Credit, but is designed to safeguard the claimants’ household incomes at the point of managed migration, while, at the same time, allowing for managed migrated claimants to reach parity with new Universal Credit claimants in similar circumstances through erosion and cessation rules.

The rules for cessation will be as follows:

• a sustained (3 months) earnings drop below the administrative earnings threshold where the claimant has moved into a more intensive conditionality regime, and/or
• the formation or separation of a couple
• the ending of the Universal Credit award – where this was due to an increase in earnings and a new claim is made within 4 months of the Universal Credit award ending, the claimant will have their transitional protection re-awarded as part of their new award of Universal Credit

While the government believes it is right to protect claimants who are managed migrated, it also considers it appropriate to end transitional protection when the claimants’ circumstances underlying the award are no longer recognisable to those on which the benefit calculation was made (i.e. it is no longer a like-for-like comparison). Again, this has been a long-standing feature of the benefit system.

The Rt Hon Esther McVey MP

Secretary of State for Work and Pensions