What are the Social and Economic Consequences for Claimants of the Welfare Reform Act 2012 - Essay Example

? Sociology By Due Welfare reform is a process that requires great examination and scrutiny of current circumstances regarding the provisions of social security and welfare, so that the right decisions can be made for the future course of action. Welfare Reform Act 2012 is one big step as it demands some radical changes. It is regarded as the most significant reshaping of the welfare state in 60 years (Field, 2012). The main goal of the reforms is to encourage people to get into work. It has been a general feeling among people on benefits that if they get employed, their gain is going to be very small. The net benefit that they obtain from work becomes very low due to the costs incurred while doing work e.g. transport. For people on benefits, working part-time is oft times not even an option because of the fact that costs of work almost completely set off the benefits received. The major steps in curtailing this culture of dependency involve the introduction of Universal Credit. This is a measure to make the system simpler by replacing five work-based benefits with one benefit. Universal Credit is considered to be an efficient and less complicated system by its advocates. The Universal Credit is made up of the following elements: The standard allowance; An amount for responsibility for children and young people; An amount for housing; and An amount for ‘other particular needs and circumstances’. (NHA Briefing, 2012) The award is calculated by the determination of a ‘maximum amount’ through the aforementioned elements. In order to avail the Universal Credit, a claimant must be at least 18 years old (but under the qualifying age for pension credit), must reside in Great Britain, must not be receiving education, and must have accepted a ‘claimant commitment’. Claimant commitment is a set of general expectations and requirements that are placed on the claimant. This may also include work related requirements. Whether a claimant is entitled to Universal Credit or not depends on his income and capital. This means that he also must satisfy certain financial conditions. Limits would be set for income and capital in order to be eligible for the Universal Credit. A claimant shall be deemed ineligible for Universal Credit if either his income or capital exceeds the limit. (NHA Briefing, 2012) Universal Credit is to be paid in arrears as a single monthly payment for most of the households. This is an effort to replicate the efforts of working people who get their salaries by the end of the month as a single payment. It might be also be paid jointly to a couple with the couple itself deciding as to who receives the payment. Currently, many people are receiving benefits on a fortnightly basis. Also, claimants of housing benefits are not being paid directly; their benefit is paid directly to their landlords. The Universal Credit system would bring a change in the payment of both types of beneficiaries. It will be paid on a monthly basis instead of fortnightly basis, and the tenants would be receiving their benefit directly in the shape of a monthly payment. However, the Government has not overlooked the fact that there might be some cases where a single monthly payment would not be suitable. There may also be instances where it is more appropriate to pay the couples separately rather than jointly. There might also be cases where it is not suitable to pay the tenants directly. These exceptions would be identified after the demonstration project that began in June 2012 and is to end in June 2013. The system of Universal Credit would be formally employed in three phases: Phase 1 (October 2013 to April 2014): In this phase, all new claims to current benefits and credits would be gradually withdrawn. The last to end in this phase are the new claims to Housing Benefits and Tax Credits. There are existing claimants to benefits who might experience a change in circumstances of their lives. For instance, the birth of a child brings a huge change. Such claimant will also be migrated to the Universal Credit in this phase. Phase 2 (April 2014 until the end of 2015): In this phase, existing claimants whose circumstances have not changed will begin to be migrated to Universal Credit. It is being expected that the majority of such households will be relying heavily on benefits. This is why they might either have people in part-time work or they might be economically inactive. In this phase, the priority of the Government would be to prefer those households whose work behaviour is most likely to benefit from Universal Credit. Phase 3 (end of 2015 to end of 2017): In this phase, all remaining households will be transferred to Universal Credit. This phase will work geographically by allowing each local authority to withdraw from housing benefit administration at a set point. This phase would work in this way so that there is no burden of managing of a handful of claims. By the end of 2017, this phase would be complete. (NHA Briefing, 2012) In respect of Universal Credit, the concept of tapers and disregards is very important. The key role of taper is to reduce the amount of benefit as the earning of a household rises. Universal Credit is likely to use a single taper rate. The taper rate would be the rate at which the support would be withdrawn at a constant rate. For instance, a taper rate of 65% would mean that support would be withdrawn at the constant rate of 65p for each additional ?1 of net earnings, after tax and National Insurance. It is important to note that it is only after a household reaches the earning threshold that the support starts to be withdrawn. Therefore, households can earn some money and still receive their support under Universal Credit up to a certain limit. This characteristic of Universal Credit is called earning disregard. The earning disregard would not be similar for all the households. The households obtaining fewer benefits in forms of support would be entitled to a higher earning disregard. For example, claimants receiving little or no support for their housing costs would be entitled to higher earning disregard. There will be a set of maximum and minimum earning disregards. Maximum earning disregard would be awarded to the households that receive absolutely no support for their housing costs. (NHA Briefing, 2012) It is likely that as households move from the previous system to Universal Credit, they would experience a change in the entitlement to benefits that they receive. Government has vowed to leave no beneficiary a loser in terms of cash by the provision of transitional protection to the households that face the risk of losing money as a result of moving to Universal Credit. However, this protection will be limited to the households that do not experience any change in the circumstances of their lives. The Government would also provide cash protection to the households who would receive less benefit under Universal Credit than under the previous system. The protection would be equal to the difference in the amounts paid under the two systems. It will continued to be paid until the household experiences a change in circumstances or the value of the award under Universal Credit overtakes the levels of entitlement under previous system. (Department for Work and Pensions, 2012) Universal Credit will be more beneficial to the working households as they would be able to benefit from the earning disregard. They would be able to keep more money. The non-working households, for the same reason, might not experience any change at all. They might end up receiving the same benefit as they did before. However, the availability of earning disregard might influence the workless households to look for work more diligently. The households with lower entitlements are likely to be the people who fall into one or more of the following categories: those currently in receipt of a large amount of Working Tax Credit; those who do not currently receive Housing Benefit; mainly in-work households with substantial amounts of capital; and higher earners on tax credits only. (Department for Work and Pensions, 2012) According to the Department of Work and Pensions, the claimants under Universal Credit would be more inclined towards getting into work or increasing their work hours. Universal Credit is designed to impact two key measures i.e. participation tax rates and marginal deduction rates. Participation tax rates (PTRs) refer to the proportion of earnings that are lost in tax national insurance. They also include the reduced benefit payments when an individual moves into work. High PTRs reduce the incentive to work as the benefit from work is curtailed. It is expected that the Universal Credit would set the PTRs for the majority of households at less than 70% of their current levels. Therefore, the incentive to get into work would increase. Marginal deduction rates (MTRs) refer to the increase in earnings which is lost due to tax or reduced benefit payments. As mentioned before, Universal Credit would be using a single taper. Therefore, it would remove the highest MDRs and also increase some of the lower MDRs hence increasing the incentive to work. (Department for Work and Pensions, 2012) Another major aspect of the Welfare Reform Act 2012 is the introduction of the new size criteria for housing benefit claims in the social rented sector. This is also known as under-occupation penalty or Bedroom Tax. The basic principle is that any working-age household will lose part of their housing benefit if they are deemed to be under-occupying their home. Working-age refers to age that is below the Pension Credit age. This age is currently set at 61 and it will rise in line with the women’s state pension age until both ages become equal in 2018. More is the Pension Credit age; more is the number of people subjected to the Bedroom Tax criteria. However, for couples, the rules require that both the claimant and their partner need to be under the Pension Credit age in order to successfully claim housing benefit. But when Universal Credit is introduced in October 2013, such couples would also be treated as being of working-age. Bedroom Tax restricts the housing benefit to allow one bedroom for each person or a couple living as part of the household. However, there are following exceptions: Children having same gender and are under 16 expected to share a room; Children having different genders and are under 10 are also expected to share a room; An extra room will be allowed for a disabled tenant or partner who needs the assistance of an overnight carer. However, the carer has to be a non-resident. (Department for Work and Pensions, 2012) This measure is likely to affect the divorced couples who share the custody of their children and also the care for them. Bedroom Tax rules would allow only one room in such cases too. Therefore, the parents would be required to designate the ‘main carer’ for their children. The main carer would be able to receive the extra benefit. Couples who use their separate bedroom to recover from an illness would also be affected by these rules. According to the rules, foster children do not form a part of the household which is why their room will not be allocated. There are also parents whose children visit them. Such children do not form a part of household as well and a room for them will not be allocated. The rules would also affect disabled people and people living in adapted or specially designed properties. Parents having disabled children would also be affected as it is necessary for them to use a separate room for such children. (NHA Briefing, 2012) Under the Bedroom Tax rules, the cut would be a fixed percentage of the Housing Benefit-eligible rent. The percentage of cut is 14 for one extra bedroom. For two or more extra bedrooms, the cut would be 25%. This means that more money would be deducted under Housing Benefit each week if the rents are higher. It is important to note that the cut is the percentage of the Housing Benefit-eligible, and not the actual amount of the Housing Benefit that a household receives. This means that the working people would lose exactly the same amount as the non-working people. (Department for Work and Pensions, 2012) As a reaction to the size criteria, people might opt to move into smaller houses. However, in reality, not many properties are available that are suitable for the size of particular households. Therefore, for many households, it might be extremely difficult to downsize. In certain parts of the country, some families have been purposefully allocated properties that will be considered too large for them under the Bedroom Tax criteria. The new rules would not have any regard for such circumstances. Another viable option for households with extra rooms is to rent out the extra rooms. There are certain contracts of tenancy that require that the tenant must not sublet any portion of the property, or must sublet only after the landlord has permitted them. In the absence of such contracts, the tenants can sublet the spare room to a lodger without the landlord’s permission. This might also be very difficult to do in practice. Some families feel that it would be impossible to find a market for their room. Or the families with young children might feel concerned regarding the fact that living with an adult stranger, who is not a part of the household, might be very dangerous. (NHA Briefing, 2012) It is not the mere introduction of Universal Credit that is impactful; it is the change that it is going to bring to the current system that is being watched with questioning eyes. Another major impact of Universal Credit is the merging of tax credits. The Government has announced a cap on the total amount of benefit that working-age people can receive. This means that even if the full entitlement of a household is higher, they would not be able to recover more than a set amount. The cap will be set at the average net earned income of working households: ?350 per week for a single adult with no children; ?500 per week for a couple or lone parent, regardless of the number of children they have. (Department for Work and Pensions, 2012) In order to work out the benefit cap for a household, allowances from different benefits would be added together. These benefits include Bereavement Allowance, Carer's Allowance, Child Benefit, Child Tax Credit, Employment and Support Allowance (except when in the support group), Guardian's Allowance, Housing Benefit, Income Support, Jobseeker's Allowance, Maternity Allowance, Reduced Earnings Allowance, Severe Disablement Allowance, and Widowed Parent's Allowance. Certain allowances are exempt from the benefit cap. A household will be exempt from the cap, regardless of the amount of benefits they receive, if they, their partner or a dependent child is: Entitled to Working Tax Credit; Receiving one of the following disability benefits - Disability Living Allowance; Personal Independence Payment; Employment and Support Allowance (if in the support group); Attendance Allowance; Receiving Industrial Injuries Disablement Benefit; Receiving a War Widow's Pension or War Widower's Pension; Recently unemployed (if a household had been employed for at least 12 months continuously prior to claiming benefits, the cap will not be applied until they have been unemployed for 39 weeks). (Department for Work and Pensions, 2012) Working Tax Credit is money for the people who are working but are on a low income regardless of the fact whether they are self-employed for working for somebody else. Universal Credit will merge this tax credit. After probably 2017, the workers claiming tax credit would be same under Universal Credit. However, it is likely that Universal Credit would allow them lesser benefit as its major aim is to encourage the workers to work more. Currently, tax credits also work as subsidies for employers who deliberately pay low wages knowing that the Government will cover the deficit for the workers. The workers know this too and they do not push as hard as they should for higher paying jobs. There is no incentive for the employers to create well-paying jobs either. Universal Credit would aim to direct the workers’ reliability more on themselves. This aim has generated many heated debates in recent times. There are critics that say that if the criteria for entitlement for Universal Credit are made too strict, the idea of a “welfare” state becomes questionable (Wintour, 2013). A recent proposal regarding implementation of Universal Credit suggested that jobcentre staff should have the right to withdraw the Universal Credit if the claimants are deemed to be making insufficient efforts to increase their earnings. Further, more frequent interviews at jobcentres are also suggested so that the Government can have a proper check and balance on the benefits that it distributes. It would also assure that the benefits are distributed among the people who deserve them. Throughout history, the Government has never intervened in this manner with tax-credit recipients in work. This shows the Government’s intent to end the dependency culture once and for all. “Claimants will be defined as "working, could do more", according to a formula based on wages, working hours and children's age.” (Wintour, 2012) For the very first time, the Government would be able to keep the individuals in work and support them when needed. The most important thing is to encourage them to work more and attain self-sufficiency. Once the working tax credit is abolished, the employers would no longer be able to rely on the subsidy. The hard working employees would demand a raise from their employer and there would be a great possibility of creation of high-paying jobs. The system of Disability Living Allowance (DLA) has been in function for quite some time. DLA is basically money for people who have care needs or who have difficulty in getting around different places. It is now being replaced by Personal Independence Payment (PIP) for people who are of the age of 16-64. It was decided by the Government that DLA needed to be reformed as it was not reflecting the needs of people with disabilities and the extra costs in a suitable manner. PIP is introduced as a simpler and more efficient system that aims to support those people that need to be independent the most. PIP will be paid in two parts: A daily living component which looks at an individual’s ability to carry out a number of activities related to daily living, such as cooking, dressing, bathing and engaging socially with other people; and A mobility component which considers an individual’s ability to get around independently when they are not at home. (Department for Work and Pensions, 2012) A claimant of PIP has to meet the disability conditions in order to be eligible. The conditions are to be met for a period of three months prior to making the claim and they must be expected to be followed for a period of nine months after making the claim. People who are currently receiving DLA and are aged between 16 and 64 would have to make a claim for PIP from April 2013. Meanwhile, the process of inclusion of people making claims due to illness or incapacity to Employment and Support Allowance (ESA) that started in 2008 is to be continued till 2014. There are still people who are receiving incapacity benefits in old style. The cases of these people are being reassessed and they are also being moved to ESA. (Department for Work and Pensions, 2012) Welfare Reform Act 2012 is not a perfect measure. It has some problems that are identifiable at its very inception. There are other problems that might surface as the program moves ahead. One of the hallmarks of this system is the periodical checks and scrutiny. The system would be monitored very closely and its faults would be reported. This system is better and efficient than the previous systems. Its faults are required to be addressed at an early stage and it should not be abolished. It might seem a bit harsh from the fact that it is tightening the criteria for eligibility for universal credit. The idea that it refutes the principle of a welfare state is wrong because making the people of country self-reliant is one of the biggest services that a welfare state can perform. The culture of dependency spreads laziness among people and their unemployment means that all the resources of the economy are not being utilized. Therefore, lack of self-reliance is tantamount to economic inefficiency. The direction of the major aims of Welfare Reform Act 2012 is absolutely right. It might be somewhat rigid but at the end, it is going to make sure that those people receive benefits that truly deserve them. References Field, F 2012, ‘The universal credit programme is on course for disaster’, The Guadian, Retrieved from http://www.guardian.co.uk/commentisfree/2012/sep/10/universal-credit-benefits-disaster 24 April 2013 N.A 2012, ‘Impact Assessment: Universal Credit’ Department of Work & Pensions, Retrieved from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/174996/universal-credit-wr2011-ia.pdf.pdf 24 April 2013 N.A 2012, ‘Simplifying the welfare system and making sure work pays’, Department for Work & Pensions, Retrieved from https://www.gov.uk/government/policies/simplifying-the-welfare-system-and-making-sure-work-pays 24 April 2013 N.A 2012, ‘Universal Credit Briefing Note 14’ Department of Work & Pensions, Retrieved from http://www.dwp.gov.uk/docs/ucpbn-14-disregards-tapers.pdf 24 April 2013 N.A 2012, ‘Universal Credit equality impact assessment’, Department of Work & Pensions, Retrieved from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/174971/eia-universal-credit-wr2011.pdf.pdf 24 April 2013 Tate, A 2012, ‘Welfare Reform Act 2012: Size Criteria’, National Housing Federation, Retrieved from http://www.housing.org.uk/publications/find_a_publication/legislation/idoc.ashx?docid=a86b6363-0dcf-45fd-a7c0-e889397d18c9&version=-1 24 April 2013 Wintour, P 2013, ‘Ministers want low-paid workers to put in more hours’, The Guardian, Retrieved from http://www.guardian.co.uk/politics/2013/apr/02/plan-to-push-low-paid-into-doing-more 24 April 2013 Read More