Coronavirus – Welfare or IP?

Coronavirus – Welfare or IP?

The following article, by SAMI Fellow Richard Walsh, was originally published in the April edition of the IPTF newsletter.

A few weeks ago when Italy was at the centre of the current lockdown, and we were waiting our turn, the Guardian published a powerful letter by the Italian author Francesca Melandri. “Class will make all the difference. Being locked up in a house with a pretty garden, or in an overcrowded housing estate, will not be the same. Nor is being able to work from home, or seeing your job disappear. That boat in which you’ll be sailing in order to defeat the epidemic will not look the same to everyone, nor is it actually the same for everyone: it never was.”

“If we turn our gaze to the more distant future, the future which is unknown both to you and to us too, we can only tell you this: when all of this is over, the world won’t be the same.”

In the last couple of weeks around 1.5 million people have applied for Universal Credit. Many of these people will never have experienced the means tested benefit system before and will be having a tough time. The Government have made some welcome changes in response to the coronavirus but times will still be tough for those who need to rely on welfare. Here are some of the key changes.

First many employees will be entitled to Statutory Sick Pay (SSP) if they fall ill, worth £95.85 a week. As a temporary measure, it will be paid from the first day of sickness absence, rather than the fourth. The Government has advised people who are not entitled to SSP to claim contributory ESA which will now be paid after two weeks. But who can live on this amount of money? Not many. So they will also turn to Universal Credit to top up their contributory SSP or ESA.

Here is the rub. No changes have been announced concerning the wait for first UC payments, so new claimants will usually have to wait around five weeks before receiving their first monthly payment. They can apply for a loan but that will be deducted from their future benefits. From April 6, the Government increased the standard allowance of Universal Credit by £1,000 a year, or about £80 a month, on top of the inflation uprating. This means that for a single Universal Credit claimant (aged 25 or over), the standard monthly allowance will increase from £317.82 to £409.89 per month. This applies to all new and existing Universal Credit claimants and will be in place for one year.

The amount households receive depends on their household circumstances and is complex. You can check it out on the ABI Percy calculator.

UC is a combination of several benefits so what happens if you have a mortgage or rent to pay on top of your weekly living costs?

No changes have been made for those who have mortgages ie support for mortgage interest payments has not been re-instated. Instead lenders have been asked to give 3 month “mortgage holidays”. But as with all holidays paid on a credit card the bill comes in when you get back.

As for renters, especially private renters, we do have a significant beneficial change for some. Changes to Local Housing Allowance (LHA) and to the support for renters in UC will effectively reverse the cuts to LHA made since 2012. This means that LHA rates will be set at levels to cover 30th percentile rents in the area. This re-linking means that housing support will rise most in areas where rents have risen fastest since 2012 – typically up to £50 per week. In areas where rents have risen by very little, the change will have little or no impact (it will also have no impact in inner London, where there is a separate cap on LHA rates).

What about benefits for self-employed people during the crisis? They won’t get the equivalent of furlough support until June. In the meantime they will have no option but to apply for UC.
If you are self-employed and claiming Universal Credit, and are required to stay at home or are ill as a result of coronavirus, the Minimum Income Floor (an assumed level of income) will not be applied while you are affected. This change applies to all Universal Credit claimants and will last for the duration of the outbreak. Under normal circumstances, the DWP assumes you are earning the same amount as someone in paid work.

Meanwhile those who are sailing in the IP boat can usually benefit from much higher payouts if they are off sick and for those on day one policies expect a payout in a couple of weeks. In addition the claims process is much simpler and is not dependent on a complex means tested household calculation. True it won’t help you if you lose your job, unless you bought unemployment cover, but I know which boat I would rather be sailing in, regardless of whether I was living in an inner city flat or a suburban semi with a nice garden.

Written by Richard Walsh, SAMI Fellow

The views expressed are those of the author(s) and not necessarily of SAMI Consulting.

SAMI Consulting was founded in 1989 by Shell and St Andrews University. They have undertaken scenario planning projects for a wide range of UK and international organisations. Their core skill is providing the link between futures research and strategy.

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