Tax Credits transition to UC

Summarising a post on my Welfare Reform blog to see what other difficulties we can think of.

Tax Credits, as you know, are paid on an interim basis; largely calculated by the estimates of income provided by the claimant (as we’re told the current ministers now want to refer to the last administration’s ‘customers’). In the following tax year, or often the next again for the self-employed, HMRC reconcile the amount paid against the amount the claimant was entitled to and, subject to various disregards of increases or decreases in income, recover or pay the difference.

Universal Credit is meant to be paid on live, monthly incomes, although they’re still working on the details for self-employed people, so that reconciliation won’t be an issue any more.

What I want to know is how, or whether, the reconciliation will work when people move onto Universal Credit, a different benefit from a different department and paid under a different act. Even more interestingly the government has promised that transitional protection will apply to people moving onto Universal Credit and that no-one will be worse off in cash terms.

So… will claimants be expected to pay back money perhaps two years after moving onto Universal Credit? Will transitional protection apply or not to these people? Will the government just write off any under or over payments of Tax Credits at the point of transfer?

The DWP answer – it’s being thought about!

............and that is one of the simpler problems of dealing with the self-employed under Universal Credits

An issue which I fear may arise, especially after reading through the 2010 Lord Freud DWP/HMRC report on ‘reducing fraud and official error’, is that under the Universal Credit, overpayments, caused by official error, may not be appealable in much the same way as they aren’t under WTC/CTC. 

Issues on entitlement will have a right of appeal, but the normal route of appeal against recoverability under section 71 SSAA and official error HB grounded appeals may be lost to Tax Credit legislation.  This potential area needs vigorous challenge.

The other problem is over the software used by DWP/HMRC and how robust it will be when dealing with all the issues which arise.  The systems are seemingly designed by people who have lots of IT knowledge but little in terms understanding the huge range of complexity caused by the whole claim process. 

I understand the software providers are already having problems!

Nickd - 16 July 2011 01:42 PM

I understand the software providers are already having problems!

Tell us more.

Hi Gareth.

I’ve heard various concerns over this for a while, there was an article in the Guardian not too far back.  Needless to say the DWP are going to keep pretty quiet on this front as they wouldn’t like to embarass the Government with any indication that the welfare reforms may have to be delayed because they haven’t done their homework on something as basic as ‘would the system work’. 

But when you think about the enormity of the task, working out the system before the reforms and legislation has been finalised is just a recipe for absolute disaster.  It’s all about merging IT operations with the DWP, LA’s and DWP together with other validation tools.  I’d also heard there were some problems over criminal record checking - which I take relates to JCP and the details they hold on claimant’s seeking work and their suitability.

And then you’ve always got the problem of training staff on new IT and a benefits system they are not yet familiar with; - it’s a total recipe for disaster!

Here’s an extract from a little snippet I picked up on the way, it refers to the problems they’re having on welfare to work and IT, as far as I can gather the problems are a lot more widespread…

“IT issues threaten the effectiveness of the government’s single welfare-to-work scheme, according to the Department for Work and Pensions’ (DWP) IT training and software provider.

Written evidence to Parliament’s Work and Pensions Committee includes a submission by Seetec, warning that the Work Programme could be could be hampered by duplication of data entry and multiple IT systems.

The document was published on 9 May 2011 by the committee, along with its report on the contracting arrangements for the £5m programme.

Seetec calls on the DWP and the Department for Business Innovation and Skills to develop common IT systems and standards which will streamline information processes across employment and skills providers.

It says that the DWP’s Provider Referral and Payment (PRaP) system, which was introduced to improve the flow of referrals and payments between the department and employment service providers, has been seen as “an isolated task, rather than the start of a customer-centric electronic customer record”.

According to the submission, this has led to “implementation problems” as well as unnecessary administrative costs.”“

We’re following this on the Ilegal/Mylegal forums too.  I’m sure it’ll get an airing soon.

I am a member of the management committee of Intellect’s Government Group, which produced the report the Guardian story was based on, so I have a copy of the full report but I can’t comment on it other than to say that it was looking at feasibility rather than performance.

The PRaP stuff though does seem odd.  I spoke on welfare reform at the Welfare to Work Convention a couple of weeks ago and in one session a software supplier talked about taking the data that providers were sent and transferring it to their own systems. A DWP bod in the audience popped up and said that wasn’t permitted under their terms of usage and should stop at once!  Always good to see joined up government at work.

JohnA - 16 July 2011 05:55 AM

............and that is one of the simpler problems of dealing with the self-employed under Universal Credits

John, could you mention others?

It is said in the transistional arrangement in transferring people from WTC to Universal credit mean no one will lose out.  However it seems one group will specifically lose out, those with saving above £16000

Currenlty in claiming WTC you can have above £16000 savings as long as you do not arrive more than £300 income from those savings, which would then have to be declared to HMRC.  No one will be entitled to Universal Credit if they have saving of more than £16000 so some will lose out.

Those who have been left money in a will or havemanaged to save will be penalised when wtc ir replaced with Universal Credits.

According to the DWP Briefing note, updated in September:

“People with capital of £16,000 or more who are entitled to Tax Credits before migrating to Universal Credit will receive transitional protection to protect their cash income….We believe that in 2014/15 the Tax Credits population will include up to 100,000 households with capital over £16,000 and around 100,000 with capital between £6,000 and £16,000…As stated above, transitional protection will ensure that none of these Tax Credit claimants will lose in cash terms at the point of transfer because of the introduction of Universal Credit where their circumstances have not changed.”

http://www.dwp.gov.uk/docs/ucpbn-3-capital.pdf

Its not clear what would count as a change in circumstances for these claimants, though, and presumably the amount would be frozen so they would lose out in real terms over time.

Mark

Will this transitional protection apply to all WTC recipients at the point of transfer (who would not qualify for UC at all)?

At the moment, Shared Lives carers can claim WTC on more or less the same basis as Foster Carers (i.e. payments from the local authority are ignored as income up to the same level of Qualifying Care Relief - this means many SL carers are treated as having nil income for WTC). However, the current situation is different for means-tested benefits (fostering allowances ignored, SL payments mostly taken into account).

In the UC briefing notes, there is a commitment to protecting the position of Foster Carers and not taking fostering allowances into account as income but there doesn’t seem to be (and I guess I’m not expecting) the same commitment to Shared Lives carers. Any views or info whether a Shared Lives carer already getting WTC at the point of transfer to UC would be transitionally protected if they otherwise would not qualify on income (rather than capital) grounds?

Thanks.