Universal Credit and Savings

Sixer

tagq2 wrote: »

The original aim of the National Insurance Act 1911 was to encourage people to contribute toward their safety net. I just looked up some stuff on contributory ESA (other thread) and it seems that it the rules are quite complex for people to get help on the basis of actually having contributed.

I don't understand the philosophy behind Universal Credit: it seems to allow employers to pay below-market and below-living wages while discouraging saving, so setting a poverty trap. Have I misunderstood this new law, or is it following the Tax Credits idea that the government de facto subsidise employers so they can pay lower wages? Even with my self-employed hat on, it seems implausible that the government would actually continue with that. But it seems that this is indeed the plan?

The plan is to reduce the benefit bill and encourage work in all forms - eg several part-time or even micro jobs rather than one part time job and benefits. Or one part time job rather than all benefits.

But I agree - a crucial [unintended?] consequence of this will be to encourage low wages. This is nothing new; tax credits already do that. But I also agree that a second crucial [unintended?] consequence will be to create a poverty trap and consequently to discourage home ownership. This is not only generally undesirable but - in the absence of any serious housebuilding policy - will also have knock-on upward pressure on the housing element of UC, so any government savings will be diminished.

At the root of this is the historical, incremental amalgamation of low income welfare payments with tax allowances.

No other developed country (including the welfare-free USA) has no tax allowances for dependent children, or other dependants, or dependants in education. Anyone would think their abolition was part of a concerted plan to demonise the working poor... heaven forfend the thought.

tagq2

Sixer wrote: »

will also have knock-on upward pressure on the housing element of UC, so any government savings will be diminished.

Thanks first for your response.

I seem to recall some charts which suggested that the biggest recent (non-HMRC-based, anyway) increase in welfare costs has been housing allowance - due to having privatised housing stock + property boom. To further expand the channel of welfare payments to private landlords seems irrational.

I understand what you're saying about encouraging work, but it would surely be healthier for the candidate and the nation to encourage the former into skilled, efficient, regular work through challenging vocational education backed up by appropriate infrastructure. We had this attitude in the past and the now quite Keynesian China seems to be winning with it today. Investment seeks return.

I now read a UC "always better off in work" tagline, but (even assuming the distortion created by UC doesn't make work worse) it seems to imply that work is an end - when in fact work is a means. An on-going subsidised "work in all forms" approach doesn't guarantee more work, but moreover it doesn't create more economically beneficial production. So who is it actually helping? Will UC at least provide equivalent support for people training to fill skill shortages?

I may be going off topic from examining what UC provides into why... and I'm not implying that you agree with any of it, just trying to understand what it entitles the country to expect from an economic PoV. Keeping on-topic, I guess the answer for why people with or accruing savings through frugality are punished is "because we think it will save money on paper in the short term", even though in the long term it's likely to do no such thing.

princessdon

I just find it totally bizarre that a family just above the breadline can be expected to prop up a lifestyle of another family.

ie £26K a year (which after tax isn't a huge amount of take home) - who are already feeling the financial pinch of having their own TC removed - many of which may only have just cut their cloth after maybe their partner not working/being a SAHM/working PT as have children under 5 - now pay for a family to work say part time with older children.

Or those without children (say under 25's) or older whose children have now left and are feeling the pinch. Many variations of hard workers who really struggle daily.

When you add that not only *may* that couple with older children work the bare minimum of hours to qualify to TC despite no disabilities and children at an age to look after themselves they may also have a huge amount of savings.

Tax Credits - are benenfits - and if they are income related - they should be subject to savings too (not just interest earnt). Everyone (bar the very rich) are feeling the squeezes at the moment and I suspect some families are wondering why their money is being used to support families with many thousands in the bank.

MissMoneypenny

Sixer wrote: »

I gave the link to the briefing note PDF on transitional protection in my earlier post, Big Aunty. I also summarised it. But I can paste it for you if you can't be bothered to download it:

a) For many claimants, the Universal Credit will provide a level of support that is the same as, or higher than the current system. 2.7m households stand to receive a higher amount under Universal Credit than they do now. There will be no cash losers directly as a result of the migration to Universal Credit where circumstances remain the same.

b) The Government will provide cash protection to claimants whose Universal Credit award would be less than under the old system, in the form of an extra amount to make up the difference between the old and the new. The maximum amount will be fixed at the point of change, and will continue to be paid until the value of the award under the new system overtakes the levels of the pre-Universal Credit entitlement: paragraph 4 outlines what happens to the cash protection as the amount of a Universal Credit award changes.

c) The cash protection amount will not be uprated over time along with the rest of the entitlement, and the protection will cease if the award of Universal Credit ends or has to be reassessed for a significant change of circumstances. Any cash protection will not be applied to future claims.

All that just seems to confirm what BigAunty belives will happen with UC, and not what you think will happen. IMO, BigAunty posts like she has read (and understood) Universal Credits.

I've bolded the relevant bits; which seems to talk about those who can claim UC and get get limited protection when they transfer onto UC. If a claimant has over 16k, then how can they claim UC in the first place?

It will be interesting to see the rules when they come out, but one of the aims of UC seems to righting the wrong of giving income based benefits to those who have the capital/savings to provide for themselves.

tagq2

Savings often reflect a decision to put money aside for later. This is how a (vaguely) capitalist economy is supposed to work: you accrue capital and invest it when the time is right, e.g. in a house, education, business or whatever. People who choose to work in the system by being frugal and saving are being punished in favour of those who choose to spend money when they receive it.

To compare it with private options, if I buy some form of insurance then I don't expect the insurer to tell me that I already have enough money so they won't be paying out. Welfare was more traditionally a national insurance system in which everyone is encouraged to contribute to a pool in order to spread the burden of particular costs, e.g. illness or unemployment - what it seems to be turning into is a perverse and exploitative way of stopping poor people from starving.

If you believe in means-testing in principle, consider the following typical scenario for someone in the USA: tomorrow you're diagnosed with a condition which requires £10,000s of medical treatment for the rest of your life. Since the NHS is just another form of welfare, should this mean that you have to give up everything and live on the bread line for the rest of your life? If not, why not? You have capital to contribute. Even the "not the house you own and live in" exception seems arbitrary - if a tenant can move, why can't an owner-occupier?

Now I know that some people can hardly afford to save at all, but the aim is surely not to create some lowest common denominator - that does not foster economic or humanitarian progress. These people could instead be encouraged and funded for training in areas with skills shortages.

princessdon

tagq2 wrote: »

Savings often reflect a decision to put money aside for later. This is how a (vaguely) capitalist economy is supposed to work: you accrue capital and invest it when the time is right, e.g. in a house, education, business or whatever. People who choose to work in the system by being frugal and saving are being punished in favour of those who choose to spend money when they receive it.
.

I agree - but there is also the "lifestyle" choice of Tax Credits - where people actively seek to work bare minimum hours or start a business knowing it will never pay to avoid JSA etc and have thousands in the bank.

I have been there a few times (both myself and OH losing our jobs) and have been told - savings = no benefits.

It isn't fair that someone can work 24 hours a week between 2 healthy people and get Tax Credits with savings and a family facing both losing jobs - get nothing due to savings.

It also isn't fair that 2 people with similar incomes - 1 who spends (has debts) and 1 who is frugal would create a denial of benefits.

But not 100% sure what the answer is - I don't think it right they get TC - I also don't think it is right that maintenance isn't counted (it is income) and so much more.

I think UC and the purse tightening is only just beginning

tagq2

princessdon wrote: »

I agree - but there is also the "lifestyle" choice of Tax Credits - where people actively seek to work bare minimum hours or start a business knowing it will never pay to avoid JSA etc and have thousands in the bank.

Yes, I read that someone doing enough hours a week (assuming honesty) of unprofitable self-employed work could claim a long term "wage" from the state on this basis. It did not seem sensible to me, and I did not consider it even for a period where in law I probably could have.

Per earlier posts, it seems that Tax Credits - and so similar UC elements - are questionable in principle. While it seems UC might be fixing some oddities like arbitrary cut-offs, its "poverty maintenance" rather than "national insurance" approach remains less than rational.

Anyway, thanks for your feedback - must get on!

zagfles

Sixer wrote: »

I've posted the link and pasted some of it already on this thread. I don't think you can be clearer than:

There will be no cash losers directly as a result of the migration to Universal Credit where circumstances remain the same.

People who have an entitlement under the old system will receive transitional protection, plain and simple. There's no exception to say that those with savings will be the only group not to receive transitional protection. NEW claimants with savings or those whose circumstances change SIGNIFICANTLY will lose entitlement.

In fact it specifically says that transitional protection will apply to those with savings: in section 4e of http://www.dwp.gov.uk/docs/ucpbn-3-capital.pdf

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.

zagfles

SkyeKnight wrote: »

I don't think that works if you have two separate accounts, i.e. a savings account which is offset against a mortgage account. If it is just one account but you can take out your overpayments then I think that might work. Paying any savings over £6k off your mortgage is obviously the simplest solution but means you lose access to the money.

Yes a flexible mortgage is safer, as you can truthfully state you have no savings (even if you can withdraw overpayments). It's no different to paying off a max-ed out credit card, you're paying off debt, and providing yourself with a credit line as the same time. Just because you can re-borrow on the mortgage, or credit card, doesn't mean they are savings. But offset accounts, where you have a visible positive balance, may be a grey area.

Sixer

MissMoneypenny wrote: »

All that just seems to confirm what BigAunty belives will happen with UC, and not what you think will happen. IMO, BigAunty posts like she has read (and understood) Universal Credits.

I've bolded the relevant bits; which seems to talk about those who can claim UC and get get limited protection when they transfer onto UC. If a claimant has over 16k, then how can they claim UC in the first place?

It will be interesting to see the rules when they come out, but one of the aims of UC seems to righting the wrong of giving income based benefits to those who have the capital/savings to provide for themselves.

Actually, I would say neither you nor Big Aunty have read the relevant data. I have. Please see the capital briefing note - the link for which I already posted. This makes it entirely clear that tax credit claimants with capital will receive transitional protection. Even though what I already posted and you quoted makes it equally clear. You have a very odd reading of "There will be no cash losers directly as a result of the migration to Universal Credit ".

Edited to add: hadn't seen that Zagfles had already posted.