Policy paper

Government response to SSAC report on jobs and benefits COVID-19 challenge

Published 18 March 2022

This was published under the 2019 to 2022 Johnson Conservative government

The government response to the joint Social Security Advisory Committee Report Jobs and Benefits: the COVID-19 challenge.

The government notes the joint report by the Institute for Government and the Social Security Advisory Committee entitled, Jobs and Benefits: the COVID-19 challenge.

Since mid-March 2020, this government has invested billions of pounds into the welfare system and introduced a raft of new measures and easements at unprecedented speed. This includes the temporary uplift to Universal Credit (UC), relaxing the Minimum Income Floor for self-employed Universal Credit claimants and increasing Local Housing Allowance (LHA) rates for 1.5 million households. As a result, giving claimants, on average an additional £600 per year in housing support of which 500,000 households in the highest demand areas gained £1,200.

The recommendations have been given full consideration and the government’s response to each of these is set out below.

Recommendations

The £16,000 savings rule in Universal Credit needs to be updated. Savings at that level debar receipt of Universal Credit whether the claimant is in or out of paid work. The limit has not been increased since 2006. Had it risen in line with prices it would be nearer £25,000. We recommend it is increased to £25,000. Funds held in a Lifetime ISA – a longer-term saving instrument – should also be exempt from the savings rule. (Page 21 to 23 of Jobs and benefits: the COVID-19 challenge).

The savings rule should then in future be indexed automatically each year so that its value is maintained over time. This should also apply to all other such thresholds and limits, including the household benefit cap, child benefit withdrawal points and local housing allowances, the last of which was frozen in cash terms in the autumn 2020 spending review. (Page 11 of Jobs and benefits: the COVID-19 challenge).

It is important to encourage saving, and through means like Help to Save we do so, yet substantial amounts of capital should be considered for the purposes of means-tested benefits. Means-tested benefits are there to support those who have no other resources to which they can turn. It is appropriate that means-tested benefits, including UC, take all forms of savings into account, irrespective of the savings instrument in question. This should include investments where the government provides a contribution to encourage saving such as the Lifetime ISA and Help to Buy ISA. Individuals will not be required to cash in these ISAs in order to claim UC, but they will be taken into account as part of their capital. We have no plans to change the savings limit.

Moreover, alongside means-tested benefits we also have contribution-based benefits such as Jobseeker’s Allowance (New Style) which do not have a capital limit. Therefore, overall, the welfare system offers both targeted support for those who need it most and a safety net for those who have contributed to it.

When individuals or households are debarred from Universal Credit by their savings, the government should much more actively – on its websites and in its contacts via Jobcentres – point individuals to the possibility that they may qualify for contribution-based JSA or ESA. (Page 25 of Jobs and benefits: the COVID-19 challenge).

We signpost individuals to contributory benefits in several ways. Firstly, we do this through our staff. In addition, the gov.uk site for UC signposts to New Style Benefits. In the specific scenario where a claim for UC is disallowed because of excess capital, the notification we provide claimants also flags the availability of New Style Benefits.

The government should consider introducing a non-repayable ‘starter payment’ for new claims to Universal Credit, where a run-on of legacy benefits is not otherwise provided. Its precise level, and the steps needed to reduce the risk of fraud, still need to be debated and designed. But as with our recommendations for contributory-JSA below, this would provide a little more initial generosity in the face of unemployment, easing the 5 week wait for the first payment and reducing the need for, and scale of, repayable advances. The government has already conceded the principled need for such a payment in the 2 week ‘run-ons’ provided for existing claimants of non-contributory JSA, ESA, Income Support and Housing Benefit. (Page 23 to 24 of Jobs and benefits: the COVID-19 challenge).

No one has to wait for a payment in UC. Advance payments are available to claimants in need of urgent financial help to support them through to their first formal UC payment. They can then receive their total entitlement over a year in 13 payments or over 2 years in 25 payments.

Not all new UC claimants require the same level of immediate support. As such, the government does not believe replacing every new claimant’s advance with non-repayable advances would be a responsible use of taxpayer’s money.

Many benefit rates over the 45 years prior to the pandemic had fallen appreciably relative to average earnings and, in the last decade, in real terms. In some cases, they had reached historic lows. This is the long-term background that has led to arguments being made in favour of the ‘temporary’ £20-a-week (or £1,040-a-year) increase to the standard allowance in Universal Credit being made permanent. Allowing the increase to expire would doubtless be difficult for – and may well surprise – many recipients.

We communicated with claimants (via both their statement and their journal) to inform them that Assessment Periods ending on / after 6 October would not include the £20 uplift. All statements were updated in July to give them notice of changes to their payment, with texts and emails sent in August to encourage them to check their statement. By Friday 3 September, we had messaged all claimants via a combination of text or email to notify them to log in. Over 6 million messages were sent.

UC has provided a vital safety net for 6 million people during the pandemic. We have always been clear the uplift was temporary as part of an extensive £407 billion package of measures put in place to protect incomes, businesses and public services during the pandemic.

Our focus now is on our multi-billion Plan for Jobs, which will support people in the long-term by helping them learn new skills and increase their hours or find new work. There are over 1.1 million vacancies in the Labour Market, and the sustainable way to level up the UK and build back better from the pandemic is through getting people into work and empower people to progress in work.

For understandable reasons of speed and simplicity, the temporary Universal Credit increase was a flat rate amount. This means it is not as well targeted as it could perhaps have been if there had been more time available. In percentage terms, it is worth appreciably less to families with children than to childless singles and couples and there has been growing concern over poverty amongst in-work families. Therefore, we recommend that the level of support provided by Universal Credit to those out of work is carefully reviewed in the context of the government’s objectives for reducing poverty. Any enhancement to Universal Credit should also apply to legacy benefits and (as argued below) to contributory benefits. (Page 14 to 16 and page 23 of Jobs and benefits: the COVID-19 challenge).

The government notes the committee’s comments.

We believe the best route out of poverty is through work. Work allowances are given to households with children or with limited capability to work. These are the amounts that claimants can earn before their UC award is affected.

At the 2021 Autumn Budget, the taper rate was reduced from 63% to 55%, and work allowances increased by £500 a year. This will mean nearly 2 million working households will be able to keep, on average, an extra £1000 on an annual basis.

The National Living Wage will increase by 6.6% to £9.50 an hour from April 2022 and the government is committed to increasing it further to reach two-thirds of median earnings by 2024 provided economic conditions allow.

We established a £500m Support Fund to be delivered through Local Councils and Devolved Administrations to support people through this winter.

As the unemployment costs caused by the pandemic start to fall, however, some of those savings could be used to adapt Universal Credit (and legacy benefits) to the changing needs of both claimants and the economy. They could be used, for example, to increase work incentives either by increasing the work allowances and/ or reducing the taper in Universal Credit and/or providing stronger incentives than Universal Credit currently does to encourage second earners: a move that would reduce in-work poverty. (Page 23 of Jobs and benefits: the COVID-19 challenge).

UC recipients in work now benefit from a reduction in the taper rate from 63% to 55%. Work allowances, which are £335 per month for those also receiving support for housing costs, and £557 per month for those not receiving support for housing costs, have been increased by £500 a year for eligible people. This means nearly 2 million working households will be able to keep, on average, an extra £1000 on an annual basis.

The benefit cap provides a strong work incentive and fairness for hard-working taxpaying households and encourages people to move into work, where possible. Universal Credit households with earnings of at least £617 in an assessment period and Housing Benefit claimants who are entitled to Working Tax Credits are exempt from the cap.

The pandemic has shown that the system can change effectively (and dramatically) if it needs to. In future, it should be much more open to continuous improvement, greater transparency and flexibility.

Utilising feedback, we improve the service regularly. We have released new functionality and improvements more than 100 times since the service was introduced; all resulted in enhancements to the claimant’s or our staff’s experience.

The IT system currently supports and pays almost 6 million people with the service achieving 99.997% availability for claimants, rivalling the performance of other leading digital services. It is designed to meet user needs, avoiding the need to navigate multiple systems. It also offers one integrated experience across on-line, telephony and face to face usage. In line with agile methodology, the product is being incrementally developed in response to feedback.

Second, the COVID-19 experience has shown that the approach for managing the return to employment and the sectoral shifts involved needs to be systemic. There is a big policy and organisational question about how we deliver the return to employment; this is likely to be the most important emerging challenge in 2021.

The differential impact of the pandemic on different sectors of the economy raises, to a higher level than usual, the need for re-skilling and re-training. Some people will need to change sectors. The UK has become unusual by international standards in no longer having a Ministry of Labour or its equivalent. Responsibilities for education, training and labour market policy reside in multiple different departments (including DWP, BEIS, DfE and MHCLG). Health issues lie with the Department of Health and Social Care and the NHS, while the Treasury has a clear interest in all aspects of labour market policy. Now is not the time for machinery of government changes. Departments understand the need to work together and are already doing so but a fully co-ordinated response is essential, especially around training and re-skilling. That could be achieved by either an inter-departmental joint committee or a cabinet committee. (Page 25 to 26 of Jobs and benefits: the COVID-19 challenge).

The government notes the committee’s recommendation.

We already work with other departments on this issue to support people back into work, particularly through Plan for Jobs.

The already announced Kickstart (providing work subsidies for the young unemployed) and Restart (aimed at the long term unemployed) programmes are welcome. But a purely centralised response it unlikely to be fully effective. Jobcentres need to work even more closely with local government – with its knowledge of local labour markets and its ability, alongside the Jobcentres, to bring together employers, education providers and career advice services. To assist them, DWP should seek to provide, automatically, much more detailed data as swiftly as possible on the local Universal Credit claimant population – including information on last job held, gender, family make up, disabilities, and whatever information it holds about skills. DWP should also learn from other countries that conduct audits of the digital skills of claimants, provide training to enhance them while also offering online and telephone delivery of careers advice that is available more widely than to just those claiming benefits. (Page 27 and page 28 to 29 of Jobs and benefits: the COVID-19 challenge).

DWP works closely with local partners through the Jobcentre Plus network. This includes Mayoral Combined Authorities, Local Authorities (LAs), Local Enterprise Partnerships, businesses and charities - all of whom have valuable expertise and knowledge of their local labour markets. We are building on this experience, engaging with local partners to understand place-based labour market issues and reflect feedback in the implementation of employment programmes. The department already shares significant amounts of UC data through a secure mechanism with local authorities, including through a daily feed of change notifications to support administration of Council Tax Reduction schemes.

In addition, LAs have access to claimant level UC data via a system called Searchlight. We continue to engage with LAs to enhance our understanding of where requests for greater access to UC data occurs.

On digital skills, we are seeking to identify claimants to upskill in order to be more competitive in an ever-changing labour market. Where we identify digital skills needs, we work with skills providers and those in the third sector to match demand to the supply of available provision.

There will, as already noted, be a significant need for re-training and re-skilling, not just for Universal Credit claimants but for those who have lost jobs but whose savings debar them from benefits. Vouchers for training could help there, even though that will involve an element of ‘picking winners’ – that is, choosing the sectors to which they will apply, while ensuring the eligible training is carefully regulated to make sure that it is of sufficient quality. In the past it has been made a condition of some local and central government contracts that individuals are taken on for training. That approach can be used again. (Page 29 of Jobs and benefits: the COVID-19 challenge).

The government notes the committee’s recommendation. There are fiscal incentives for employers to take on apprentices. Moreover, the Government’s Lifetime Skills Guarantee aims to transform the skills system so everyone, no matter where they live or their background, can gain the skills they need to progress in work at any stage of their lives.

The government is likely to have to enlist the independent sector in delivering ‘welfare-to-work’ programmes. It is crucial that DWP learns lessons from the experience of the Work Programme and from international evidence about how to contract effectively with external organisations – including ensuring that undue risk is not transferred to smaller organisations, whether for profit or not-for-profit. Getting the right balance between ‘payment only for results’ and service payments will be crucial. (Page 30 of Jobs and benefits: the COVID-19 challenge).

There is a great deal of care and due diligence taken in the contracting of provision by DWP. Operational voice has been embedded in design and much thought has gone into planning for operational readiness. Much of this has been the product of taking lessons from earlier programmes (in the current Plan for Jobs and more widely, including the Work Programme).

Greater conditionality should return within Universal Credit. But there should be flexibility locally in how and when that is applied. A constructive relationship between work coaches and claimants in finding not just any job but suitable jobs is likely to yield better enduring results for both individuals and the economy than merely enforcing work search conditions. (Page 11 and page 7 and page 27 to 28 of Jobs and benefits: the COVID-19 challenge).

We know the Claimant Commitment (CC) is an effective tool. We will continue to use it to encourage claimants to prepare and look for work. Moreover, the CC is a productive and reciprocal relationship with the shared aim of getting claimants into work or progressing in work. They are designed to be flexible, personalised, and responsive to their needs.

It is time to re-adopt the language of social security in place of the widespread use of ‘welfare’. Many of those who have already lost jobs had no reasonable prior expectation that was about to happen and that will be even more true in coming months. They will have an entirely reasonable expectation that they should receive at least a degree of security, rather than dependence on ‘welfare’. It needs to be better understood that Universal Credit is designed to provide security not just to those who are unemployed but, in normal times, to much larger numbers who are in paid work. Universal Credit is not ‘welfare’. It is part of a system of social security. A social security system for many who are in work, for those currently out of it, but also for those who face the risk of unemployment when the next major shock hits. The language used to describe the benefit system affects attitudes and matters. It should change. (Page 5 and page 17 of Jobs and benefits: the COVID-19 challenge).

The government notes the committee’s recommendation.

Contributory JSA should be strengthened. First, the rate should not be below that provided by the standard allowance in Universal Credit. Second, contribution-based JSA should run for a year, not 6 months. This would bring it into line with contributory ESA, which is already paid for a year. This is in line with our view that both individuals and the economy would benefit from greater, but time-limited, generosity when people who have paid their NICs first fall out of work. There is evidence that the UK’s flat-rate benefits lead to longer-term damage to both individuals and families – and potentially to the wider economy – than more earnings-related systems elsewhere. These changes would not make JSA an earnings-related benefit but they would provide a greater cushion against unemployment. (Page 18 to 19 and page 20 to 21 of Jobs and benefits: the COVID-19 challenge).

Finally, we would note that the recommendations here to strengthen contributory benefits are modest. There is a case, which we would urge the government carefully to consider, for going appreciably further – without necessarily moving wholesale to the earnings-related systems that are common in Western Europe and Scandinavia. Consideration should also be given to how such a system might best work for the growing numbers of self-employed, many of whom are in relatively precarious roles in the labour market. Beveridge, in what became the founding document of the UK’s post-war welfare state, judged that the British people wanted a ‘something for something’ system – benefit in return for contributions. That has been progressively eroded (page 13 to 14 of Jobs and benefits: the COVID-19 challenge). The time has come to restore at least an element of that.

The government notes the committee’s recommendation.

The benefit system is not intended to replicate the income that a claimant was receiving prior to making a claim.

As the government has done throughout this pandemic, it will continue to assess how best to support low-income families. We believe the best route out of poverty is through work.