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Forum Home  →  Discussion  →  Universal credit administration  →  Thread

20% decrease in marginal deduction rates?

RAISE Advice
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RAISE Benefits Advice Team, Liverpool

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Today’s press release says ‘Marginal deduction rates will decrease by an average of 20 per cent for 1.5m workers following the implementation of Universal Credit, according to Minister for Employment Chris Grayling’
Does this include the Council Tax benefit taper, which is not part of universal Credit?

Dolge
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Senior adviser - Wirral Welfare Rights Unit, Birkenhead

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Not a press release, an answer to a parliamentary question. And it’s as silent about the effects of a putative replacement for CTB on marginal deduction rates as is the Universal Credit White Paper.

The real answer I suspect is that they don’t know and don’t care, because CTB replacement will not be their responsibility; they can just blame local authorities (which will mostly be Labour run the time this implemented) for messing up IDS’s nice new system.

Can no-one get a intelligent PQ asked about this?

Richard Atkinson

RAISE Advice
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Can you give the the exact quote for ‘Marginal deduction rates will decrease by an average of 20 per cent for 1.5m workers following the implementation of Universal Credit, according to Minister for Employment Chris Grayling’ and i will ask my MP to ask ‘does Mr Grayling’s marginal deduction rate before the ‘decrease’ include the 20% council tax benefit taper? How much does he allow for this taper after the ‘decrease’?’

Paul Treloar
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Universal Credit
Miss Begg: To ask the Secretary of State for Work and Pensions what estimate he has made of the number of people in respect of which marginal deduction rates will increase consequent on the implementation of his proposals for a Universal Credit. [32131]

Chris Grayling: Following full implementation of Universal Credit, marginal deduction rates will reduce for around 1.5 million workers in total, with the average (median) reduction in marginal deduction rate being 20 percentage points. As part of this, Universal Credit will particularly improve earnings incentives for 700,000 low-earning workers, reducing the highest marginal deduction rates from 95.8% to around 76%.

The Government are committed to ensuring that no-one loses as a direct result of these reforms and we expect 350,000 children and 500,000 working-age adults to be moved out of poverty. We also anticipate that the Universal Credit will reduce the number of workless households by around 300,000.

Around 2 million workers will see an increase in their marginal deduction rates with a median increase of just 4 percentage points, and none of these households will be worse off financially when they move to Universal Credit. A change in marginal deduction rate does not mean a change in what a family receives, only a difference in how much of their benefit they retain as they increase their hours worked or earnings marginally. Indeed, many of these families will see this change in their marginal deduction rates because Universal Credit allows low-earning households to keep more of their benefit, so as a consequence some households who previously received no state support will now do so. They will therefore have an increased marginal deduction rate but a higher income, as they are now receiving support which is withdrawn where previously there was none. Other households among this group will receive more than they previously did-and hence be better off financially. Some households will see a slight increase in deduction rates but they and their families will see no actual loss at the point of change, because they will be transitionally protected.

Dolge
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Exact Ministerial answer is linked to from the news story on the Rightsnet front page. It reads:

“Miss Begg: To ask the Secretary of State for Work and Pensions what estimate he has made of the number of people in respect of which marginal deduction rates will increase consequent on the implementation of his proposals for a Universal Credit. [32131]

Chris Grayling: Following full implementation of Universal Credit, marginal deduction rates will reduce for around 1.5 million workers in total, with the average (median) reduction in marginal deduction rate being 20 percentage points. As part of this, Universal Credit will particularly improve earnings incentives for 700,000 low-earning workers, reducing the highest marginal deduction rates from 95.8% to around 76%.

The Government are committed to ensuring that no-one loses as a direct result of these reforms and we expect 350,000 children and 500,000 working-age adults to be moved out of poverty. We also anticipate that the Universal Credit will reduce the number of workless households by around 300,000.

Around 2 million workers will see an increase in their marginal deduction rates with a median increase of just 4 percentage points, and none of these households will be worse off financially when they move to Universal Credit. A change in marginal deduction rate does not mean a change in what a family receives, only a difference in how much of their benefit they retain as they increase their hours worked or earnings marginally. Indeed, many of these families will see this change in their marginal deduction rates because Universal Credit allows low-earning households to keep more of their benefit, so as a consequence some households who previously received no state support will now do so. They will therefore have an increased marginal deduction rate but a higher income, as they are now receiving support which is withdrawn where previously there was none. Other households among this group will receive more than they previously did-and hence be better off financially. Some households will see a slight increase in deduction rates but they and their families will see no actual loss at the point of change, because they will be transitionally protected.”

Suggest you get your friendly MP to ask about “whether the effects of income tapers in any replacement for Council Tax Benefit have been taken into account in the figures for marginal deduction rates under Universal Credit given in an answer on 10.1.11” rather than about CTB which won’t exist. Probably get a waffly reply to the effect that they haven’t decided on the details of CTB replacement but it might flush something out.

Richard Atkinson

Dolge
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Just to add to this: the IFS have now published an analysis of US broadly in line with the Government’s, but whichj explicitly draws attention to the issue of the future of CTB:

http://www.ifs.org.uk/publications/5415

Most relevant passage is this:

Council Tax Benefit

The October 2010 Spending Review announced that Council Tax Benefit
(CTB) will be localised from 2013–14, but so far there are no concrete
details on how this will be implemented in practice. This reform will affect
Great Britain but not Northern Ireland, which still has a system of
domestic rates and an associated rebate scheme that is unaffected by this
reform.

It is difficult to see how a localised form of CTB could work alongside
Universal Credit without undermining the government’s aims of a simpler
benefit system with more transparent and stronger incentives: a fully
localised CTB could lead to a complicated and opaque benefit system, if the
hundreds of authorities that currently administer CTB each have their own
rules for its replacement; and giving local authorities the ability to
determine the withdrawal rate of CTB (or its replacement) could
undermine any strengthening of work incentives that might arise when
Universal Credit is introduced.

Perhaps the option that would do least harm to the government’s aims of a
simpler benefit system with stronger incentives to work would be to
include CTB within Universal Credit (in a similar way to the proposed
housing element), but to give local authorities the power to determine the
basic entitlement to this council tax element. For example, local authorities
could be given the power to determine what fraction of a household’s
council tax bill can potentially be rebated (it is currently 100%), or set
caps on the amount that can potentially be rebated in cash terms or
relating to the Band of a property, and where these limits could vary by
family type (but not by income; the means-testing would arise through
Universal Credit). Under such a scheme, CTB would become an integrated
part of Universal Credit, but with certain parameters under the control of
local authorities. However, such a benefit system would still be more
complicated than one where DWP was responsible for policy on CTB, and
it is not clear to us that the advantages (if any) of localising CTB policy
offset this.

In our quantitative analysis, we have assumed that CTB will become a part
of Universal Credit in a way similar to Housing Benefit; this allows us to
focus on the impact of Universal Credit per se, rather than the
complication of future CTB reform.

So no answers there either.

Richard Atkinson

AGodfrey
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Welfare Benefits Adviser, Money Advice Unit, Herts

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I am slightly concerned why they have used the median to give an average as opposed to the mean.

Rebecca
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Welfare Rights Team - London Borough of Camden

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I emailed the Universal Credit team in the DWP a few weeks ago to enquire about what they had done with council tax benefit in considering the MDRs under Universal Credit. This is the response that I got:

Dear Josh,

Thank you for your E mail of 3rd December. 

The White Paper made it clear that more work was needed on the practicalities of replacing Council Tax Benefit with a less centralised system of support.  It also made it clear that a key aim in developing the details would be to avoid undermining the positive impact of Universal Credit on work incentives.  The interaction with the Universal Credit taper and the impact on overall withdrawal rates is therefore one of our critical success factors and something that we are determined to get right.

Ministers are still considering the detail of how CTB should be handled in Universal Credits.  They are very mindful of issues relating to the taper and the potential impact on work incentives.  No final decisions have yet been taken.

Finally, I can confirm that our MDR calculations included CTB as part of the UC rather than having it taper separately.

Hope that this is helpful.

Best Regards

Frank
DWP Benefit Reform Division
Caxton House
Tothill Street
London
SWIH 9NA

Ros
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hi

chris grayling has said in parliament -

‘All analysis presented to date includes the 20% council tax benefit taper when calculating marginal deduction rates in the current tax and benefit system. It has also been assumed for modelling purposes that council tax benefit is included within the universal credit and is subject to the single overall taper of 65% when calculating marginal deduction rates under universal credit.’

here’s link to hansard -

http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm110117/text/110117w0002.htm#11011720000035

RAISE Advice
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Wow! That’s an interesting reply - how are they going to do that? Whose benefit will taper first? Will the local tapers be set nationally? etc