New report backs campaigners’ concerns on Universal Credit - LITRG Press Release

Published on 22 November 2012

Campaigners for those on low incomes have welcomed today's report on universal credit from the House of Commons Work and Pensions Select Committee.

In the report, the Committee highlights a number of concerns which have also been raised by the Low Incomes Tax Reform Group (LITRG) about the impact of the Government’s welfare changes on vulnerable claimants. These relate in particular to those who are self-employed and those whose employers will find it hard to comply with new rules to submit PAYE data as ‘real time information’ (RTI), in some cases because of problems accessing the internet.

Anthony Thomas, chairman of LITRG, commented:

“We want both universal credit and RTI to succeed. Yet both HMRC and DWP, in their rush to get the systems ready for the majority, are seemingly in total denial about the very substantial problems facing a very significant minority. The success of two major government systems could founder on a lack of realism about the extent of digital exclusion among the business community. There are far-reaching consequences for claimants and small businesses alike of erroneous data creeping into the systems which could seriously impact their operation in practice.

“The Committee’s observation that the RTI timetable leaves little opportunity for dealing with any issues that may arise is very much to the point. It is significant that they feel they did not receive satisfactory answers to their questions from DWP and HMRC officials. More worrying was a failure to consider any contingency plans, which could seriously bite HMRC if things do not proceed as planned. Adequate preparation and sufficient lead-in time is essential to protect the interests of the more vulnerable claimant, whether as employee, micro-employer or business start-up.

“We also welcome the way the Committee endorsed our concerns about the significant additional burden for the self-employed. As the Committee says, the Government needs to look at this issue as a matter of urgency.”

Background

Universal credit is a highly ambitious programme which, if successful, will simplify and transform the delivery of welfare support. In their report Universal credit implementation: meeting the needs of vulnerable claimants, the House of Commons Work and Pensions Select Committee have welcomed the principles underpinning universal credit and recognise that the new system will be effective for the majority of claimants. But they are concerned that the majority model may not answer to the needs of the more vulnerable claimants.

LITRG share those concerns, particularly for claimants who will be unable to make and manage their claims online, or will find it difficult to do so. Employed claimants whose earnings are reported to HMRC outside the planned RTI system will require the full co-operation of all employers for the system to operate as planned. Self-employed claimants will face substantially greater burdens to starting and growing their own business than now, which is worrying.

The Committee notes the concern of LITRG’s parent body, the Chartered Institute of Taxation (CIOT), that that the requirement on employers to report information “on or before” the date of payment is an unrealistic obligation for many, particularly small businesses where employees are paid on an ad hoc basis (such as shift workers paid late at night in a nightclub or harvest workers paid on piece work in a field). The CIOT last week welcomed HMRC guidance alleviating concerns on this point, by allowing PAYE information to be filed up to seven days later in some limited circumstances.

In written evidence, LITRG expressed particular worries about claimants who are treated as self-employed by their employer (probably as a ruse to avoid RTI) but are in reality employed; those who are paid weekly, or at irregular intervals other than a month; those with employers among the small and micro-businesses whose owners do not have online access; and those whose benefit awards are calculated incorrectly based on faulty information which might have crept into the RTI system. The Committee quotes LITRG’s evidence that “penalising people who cannot use online channels for their inability to use them, which is the strategy practised by HMRC at present will not help them achieve the impossible. It simply creates hard cases and hard cases make bad law.”

Those requiring some support from the welfare system to get a self-employment business going will need to prepare accounts for the DWP each month on a completely different basis from those it has to prepare for HMRC once a year. This will impose extra bureaucratic burdens and material additional time and financial cost which are likely to deter claimants from starting up and building their own businesses. This is not the right way to go about encouraging new business start-ups. The minimum income floor proposed for self-employed earnings will create distortions, in some cases resulting in self-employed claimants receiving less universal credit than employed claimants on a higher income. The length of time it will take to set up advice programmes for the self-employed with online information and tools, coupled with telephone and face-to-face support, should not be underestimated.

The Committee, echoing our concerns, says that the minimum income floor may act as a disincentive to entrepreneurship. They describe the use of an accounting method different to that used by HMRC as a significant and unnecessary burden on the self-employed and recommend that DWP should liaise with HMRC and the professional bodies as a matter of urgency to address those issues.

Notes to editors

LITRG responded to the Social Security Advisory Committee’s consultation on the DWP’s draft regulations on universal credit in July, dealing in greater detail with the proposals for self-employed earnings and other the matters covered in evidence to the Work and Pensions Committee’s inquiry.


(22-11-2012)

Contact: Robin Williamson (please use form at http://www.litrg.org.uk/ContactUs)