Transcript House of Lords: meeting on Welfare Reform Bill, 25 Oct 2011

House of Lords: meeting on
Welfare Reform Bill, 25 Oct
2011
Universal credit (UC) issues for second earners
Susan Himmelweit
Women’s Budget Group
[email protected]
Work incentives
• The UC taper means that it will affect work
incentives
• Whether an earnings disregard applies crucially
affects this
– First earners have access to the household’s
earnings disregard; the vast majority of them retain
over 40% of their earnings (even if they pay NI/tax
too)
– Second earners who do not have access to any
earnings disregard will retain between only a quarter
and a third of their earnings (so long as household
remains in UC system)
• As the government acknowledges, this provides
a substantial disincentive to taking/incentive to
give up employment for second earners
For second earners who need
childcare clawback is higher still
• UC will pay 70% of childcare costs up to a
maximum, which still leaves 30% to be paid by
parents (approx £2.25 per hour for two children)
• Added to UC taper makes taking employment
not financially viable for second earners who
have to pay for childcare
• Higher proportion of childcare costs paid would
make a big difference
• For anyone who has to pay for childcare, an
earnings disregard would be necessary to make
work pay
Comparison with current system
• High PTRs/MDRs are a problem with tax credits too
– effective in raising lone parents’ employment rates
– for couples increased first earners’ work incentive but lowered
second earners’ (IFS documents this)
• Proportion of earnings taken from second earners is
greater in UC. Among those affected by the change, it will
rise for:
– ¾ of potential second earners (from 35% to 65% on average)
– all existing second earners (from 30% to 45% on average)
• Under tax credits this disincentive problem was
subsequently mitigated, though only in the short-term, by:
– introducing a very large disregard for within year increases in
earnings
– raising the childcare subsidy to 80%.
Why do second earner work
incentives matter?
• Earnings of second earners crucial for keeping
families out of poverty.
– Child poverty rate is 18.9% in couples with a single
FT earner
– But less than 5% among those with two earners and
2.1% with 2 FT earners
• Many second earners will become first or sole
earners in the future
– if partner loses job
– if couple splits
– earning power (human capital) and job opportunities
deteriorate fast out of the labour market
They will make that transition more easily if they
have stayed in the labour market
Fairness and equality
• Government has duty to promote gender equality
– Although UC terms framed in gender neutral terms, its impact is not
gender neutral
– Most second earners are women
• Women’s financial autonomy:
– Total financial dependence on a partner is not good for relationships or
individual well-being
– Women gain more benefit from household income if they contribute
earnings themsleves
• Could be argued to be unfair:
– to impose conditionality on many potential second earners but give
them no earnings disregard
– to make second earners the only group not to have any earnings
disregard
• Government is keen to promote shared parenting, see “Modern
Workplaces”
– Gender pay gap works against this
– UC system without a second earner disregard will only exacerbate this
Summary
• Keeping second earners in work is therefore a cost effective
way of meeting a number of govt objectives in the longer
run:
–
–
–
–
reducing joblessness in households
reducing child poverty
reducing dependence on UC
raising tax revenues
• These problems inherent in any means tested system but
– including a second earner disregard (and ideally raising the subsidy
to childcare to at least 80%)
– will mitigate some of the most severe effects of UC on second
earners