Passported Benefits and the Universal Credit

The Government are consulting on the treatment of passported benefits within a Universal Credit system.  Under the current system, claimants qualify for passported benefits such as free school meals, free prescriptions and free dental care while they are out of work.  These entitlements are withdrawn when the claimant moves into work creating a big disincentive to work.

There are a number of options for withdrawing passported benefits, those that align with the principles of the Universal Credit are to:

  1. Introduce a series of thresholds at which entitlements are withdrawn.
    This removes the cliff edge under the current  system with a number of smaller ‘waterfalls’.  This lowers the disincentive to move into work with the trade off of a slightly more complicated system.  If three thresholds were set, the state would meet two-thirds of the cost of passported benefits on moving into work, one-third after earning reached a certain amount and zero once the claimant was no longer entitled to Universal Credit.
  2. Taper entitlement to passported benefits after universal credit is withdrawn.
    This would require that a cash value be assigned to passported benefit entitlement, and it be withdrawn at 65p in pound, effectively raising the UC award and extending its withdrawal.  The impact would depend on the value of passported benefits to each household.

Many passported benefits are essential for workless households, and some are used as an important indicator of poverty, any reform should retain entitlement for workless households and remain simple.  As ever, the government will have to balance improved work incentives with the need to control cost, complicated by the fact that the value of passported benefits can vary from household to household, and the loss of passported benefits can have a different psychological impact to the loss of earnings.

Alternatives include a) Leaving passported benefits as they are, leaving in place a major disincentive to work.  b) Adjusting earnings disregards, classing the loss of passported benefits as a cost of moving into work, adding significantly to the cost of Universal Credit and leaving a cliff edge at the point of withdrawal.  c) Reducing disregards for claimants moving into work so passported benefits are tapered away early, raising the participation tax rate and weakening work incentives.  d) Have a separate taper alongside Universal Credit under which passported benefits are withdrawn, adding unnecessary complexity.

Arguably the most important submissions will be made by the Department of Health (Prescriptions, Dental Treatment) and the Department for Education (Free School Meals), and of course the Department for Work and Pensions own views.  A number of organisations have made have made submissions that are available publicly including an excellent introduction to the complexity of the issue by the SCoWR.

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