On Tuesday 21 September there will be an Opposition Day Debate on the "Effect of Government policy on the finances of working people"
This is a fast-moving issue and should be read as correct at the date of publication (27.05.20).
In response to the coronavirus crisis, the Government increased Universal Credit and Working Tax Credit payments by around £1,000 a year. They also increased support for private renters.
This was welcomed across the political spectrum, but opposition parties and campaigning groups have called for rises to be applied to other benefits. These include Employment and Support Allowance (ESA) and Jobseekers Allowance (JSA).
This Insight looks at the increases. Who does and who doesn’t gain? And what are the arguments for and against applying these to other benefits?
The furlough scheme
On 20 March, Chancellor Rishi Sunak announced a Coronavirus Job Retention Scheme (CJRS). This meant very different outcomes for furloughed workers and those made redundant. For furloughed workers, the CJRS pays 80% of earnings up to £2,500 a month. People made redundant may claim unemployment benefits.
Prior to the crisis, the main rate of unemployment benefits had never been at a lower level relative to earnings. However, when the Chancellor introduced the CJRS he also increased the level of some working-age, means-tested benefits:
- Universal Credit (UC)
- Working Tax Credit (WTC)
- Local Housing Allowance (LHA)
This did not include any other benefits. There was no increase to income-based JSA or income-related ESA, the contributory versions of JSA and ESA, extra-costs disability benefits such as Personal Independence Payment (PIP), or categorical benefits like Child Benefit. But people claiming these may also receive the benefits which have been increased.
The State Pension was also unchanged. The Government has pointed out that the “triple lock” has seen pensions rise faster than working-age benefits in recent years.
UC standard allowances have been increased by £1,040 per year. The WTC basic element went up by £1,045 per year compared with the previously announced rates for 2020/21.
There have also been increases to the LHA. This is used to calculate how much housing support people in the private rented sector can receive. The LHA had been frozen since 2016, but has now been set at the 30th percentile of market rents in each broad rental market area. The LHA caps for each category of accommodation have also been reset to the equivalent of the maximum outer London 30th percentile market rent with an added 20%.
Who gains and who doesn’t?
The charts below show that claimants of benefits which have not increased (ESA, JSA and Income Support) tend to be older. They are also more likely to be claiming extra-costs disability benefits like PIP than those claiming UC. Increasing UC payments benefits younger people, and those who are less likely to claim these disability benefits.
Of the 2.65 million working-age people on UC as of November 2019, around 297,000 (11%) were recorded as also being entitled to either PIP or Disability Living Allowance (DLA). Among the 1.89 million claimants of ESA who were not also on UC, 1.33 million (70%) were on PIP or DLA.
Universal Credit claimants also have a younger age profile than claimants of other working-age income-replacement benefits. The median age of a person on UC in November 2019 was 35, whereas among claimants of ESA, JSA or Income Support it was 49.
We have not included WTC in this analysis since it’s not captured in the same DWP datasets. For families who are in work, 106,300 out of 1,812,100 (5.9%) on WTC get the disabled worker element and/or the severely disabled adult element as of Dec 2019. However, not all extra-costs disability benefit recipients are eligible for these elements, so this count isn’t comprehensive.
How much would it cost to increase other benefits?
Using the UKMOD microsimulation model (version A1.5+, developed by the Institute for Social and Economic Research (ISER) at the University of Essex) and data from the Family Resources Survey, we estimate that increasing ESA, JSA and Income Support by £20 a week this year would cost in the region of £1.38 billion.
This estimate is however based on pre-coronavirus benefit caseloads. It is not yet clear to what extent the pandemic has affected the number of people on these benefits. This cost would be additional to that of the welfare package introduced by the Government, which the Office for Budget Responsibility has estimated at around £8 billion has estimated at around £8 billion.
Arguments around limiting increases
Although the increases have been widely welcomed, there have been concerns about those left out. Organisations such as the Child Poverty Action Group (CPAG), Scope (both responding to the Work and Pensions Committee) and Citizens Advice have pushed for increases to the benefits mentioned above.
On 20 April, The Labour Party called for recipients of benefits such as ESA to also receive the £20 a week rise. Similar recommendations have been made by the Scottish National Party front bench and the Chair of the Work and Pensions Committee.
Giving evidence to the Work and Pensions Committee, the Secretary of State for Work and Pensions, Thérèse Coffey, justified limiting the increases to certain benefits only. Dr Coffey referred to operational concerns and a desire to focus help on new claimants as a result of the pandemic, “who are coming into the process for the first time.” These claimants are mostly claiming Universal Credit.
Clarifying the position further on 4 May, Dr Coffey explained that as both the UC and WTC systems are digital, temporary increases could be applied very quickly. She contrasted that to other benefit systems where changes “tend to happen four or five months before the actual changes come through, because that is how long it takes our computer systems to work.”
- Coronavirus: Support for household finances, House of Commons Library, 8 April 2020.
About the authors: Frank Hobson, Rod McInnes and Djuna Thurley are researchers in the House of Commons Library specialising in social security.
This paper tracks the evolving impact of the coronavirus outbreak on the labour market.
This briefing paper provides an overview of the Social Security (Uprating Of Benefits) Bill 2021-22 which is scheduled to complete all its Commons stages on Monday 20 September 2021.