Jane Millar is Professor of Social Policy in the Institute for Policy Research (IPR), University of Bath. Peter Whiteford is a Professor in the Crawford School of Public Policy at The Australian National University, Canberra.
Suddenly losing your only source of income, when you have no savings, and with family members who rely on you, is a nightmare at any time. But that’s one of the main reasons for social security systems: to provide a safety net, so that people who fall on hard times can receive financial support, to meet their needs, to replace lost income, and to give them a chance to get back on their feet again.
Providing that support quickly, and on a mass scale, is exactly the challenge currently facing governments around the world. COVID-19 is preventing millions of people from following their usual ways of making a living. This is a major challenge for social security systems in general, and a severe test of social protection safety nets in particular.
In previous blogs we have compared the UK and Australia on benefit design issues and on the treatment of overpayments and debts. Here we look at the responses so far to COVID-19, still an emerging area of policy innovation and initiatives. The UK and Australia both rely heavily on means testing, so in comparing the responses in the two countries we can also think about the specific challenges in delivering timely and targeted support in this way.
New measures; protecting jobs
In the UK, one of the first measures announced was intended to protect the incomes of working people: the Coronavirus Job Retention Scheme. This is for employees who still have jobs, but whose employers are unable to provide any work. For employees who have been placed on leave of absence (on ‘furlough’) by their employers, this pays up to 80% of regular wages, up to a monthly cap of £2,500, initially for up to three months. The employer will pay this and claim the money back from HM Revenue and Customs. The scheme should be up and running by the end of April, with payments backdated to 1 March.
For the self-employed, the equivalent scheme (the Coronavirus (COVID-19) Self-employment Income Support Scheme) pays a taxable grant worth 80% of trading profits, with a maximum payment of £2,500 per month, for up to three months. Trading profits are based on the Income Tax Self-Assessment records, with a threshold of less than £50,000 and more than half of income coming from self-employment. The first payments are expected to start by June.
In Australia, the main new measures have evolved rather quickly. An initial stimulus package of $17.6 billion was announced in March, giving a lump sum payment of $750 to around six million households receiving social security benefits, income-tested family benefits and health concessions. Further measures to augment existing working-age payments are discussed below.
The new payment, of $1500 per fortnight will be flat rate and set just over the full-time adult minimum wage, and will apply to all employees regardless of their previous wage. Employers will be able to top up wages for higher-paid employees. There are various eligibility requirements, including a 30% downturn in business and a commitment to maintain employment. Not-for-profit entities and self-employed people that meet the turnover tests are eligible. However, casual employees – workers without paid leave entitlements – will only be eligible if they have worked for the same employer for at least 12 months up to 1 March. This will exclude about 950,000 casual workers. Payments will be delivered by the Australian Tax Office, using information collected from employers, and starting in May (backdated to March).
Changes to existing measures: sickness benefits
In the UK, Statutory Sick Pay (SSP) is the main provision for people off work due to short-term illness. There has only been one change to SSP in response to COVID-19, which is that it is now payable from day one, rather than day four. Eligibility conditions have not changed, nor has the flat-rate amount of £94.25 per week, paid for up to 28 weeks. But smaller employers will be able to claim government refunds for short-term COVID-19 related payments. Nearly seven million UK workers do not qualify for SSP. This includes five million people who are self employed and 1.7 million employed people earning below the Lower Earnings Limit. Some people may qualify for Employment and Support Allowance, which includes contributory and means-tested versions. It will also be paid more quickly, with waiting days reduced from eight to one.
In Australia, sickness and carers leave has primarily been provided directly by employers as part of the system of regulation of wages and employment conditions. Covered workers are entitled to 10 days’ leave paid at their ordinary wage rates. But casual workers are not entitled to paid sick leave or paid holidays, and these account for nearly one-quarter of all employees. A further 13% of the workforce are self-employed and must also provide for themselves.
Changes to existing measures: Universal Credit in the UK
The biggest issue for the UK concerns Universal Credit, as discussed recently in Institute for Policy Research (IPR) blogs by Rita Griffiths and Fran Bennett. Universal Credit is the main social security benefit for people of working age. It is paid to people in and out of work, so it should be covering all the various circumstances that people are now facing – replacing wages for people who have lost their jobs and topping up if wages have fallen.
Two main changes have been announced to Universal Credit. First, the level of the standard allowance will be increased from April, by £1,000 per year. This also applies to the working tax credit basic element. This is in addition to the inflation uprating announced last year, ending the benefit freeze of recent years. The Universal Credit increases will take the standard monthly allowance for a single person aged 25 or over to just over £400 per month, a substantial increase. Secondly, the ‘minimum income floor’ for self-employed claimants has been suspended. This means that Universal Credit entitlement will be based on actual self-employed income, not on the basis of assumed earnings. This will particularly help those with low, or falling, income.
Other changes include increases in the Local Housing Allowance, so that housing support will now cover 30 per cent of median private rent costs in the local area, the relaxation of requirements to visit the JobCentre, and abolition of the checks on work conditionality requirements, which means fewer sanctions for failure to seek work. There will also be a pause on deductions for overpayments and debt recovery, although advances will still have to be repaid.
These measures – and especially the increase in the standard rate of Universal Credit – have generally been welcomed. According to the Resolution Foundation, this increase ‘has reversed 30 years of retrenchment to unemployment benefits’ and the provisions are well targeted on the poorest, with 59 per cent of the roughly £7 billion of additional benefit spend going to the bottom quarter of the income distribution.
But perhaps the most glaring omission in this response lies in how quickly people can get access to the system. New claims to Universal Credit take a minimum of five weeks from successful (i.e. complete and fully validated) claim to first payment. This has already been the source of many problems and much hardship, and even before COVID-19 there were many calls for reform to make Universal Credit easier and quicker to access, including, for example, from the Joseph Rowntree Foundation, the Trussell Trust, and others. Now might have been the moment, but as Rita Griffiths notes, there are seemingly no plans to reduce or remove the waiting period, not least perhaps because of the technical difficulties in changing the monthly assessment. Advances are available, but in the form of repayable loans.
And it is also important to note that many millions of people are still reliant on the ‘legacy system’ of six benefits and tax credits that Universal Credit is replacing. These have been largely excluded from the COVID-19 response provisions, including the increase of £80 per month, which applies to Universal Credit and Working Tax Credit but not to other benefits. There is a hardship fund for local authorities to support people in hardship in their area. The Child Poverty Action Group has criticised the failure to increase Child Benefit, and the child-related elements of Universal Credit or Child Tax Credits, although many families with children are facing extra costs with the closure of schools and nurseries, only partly recognised in free school meals vouchers for some.
Changes to existing measures: Jobseeker Payment in Australia
In Australia, the changes to JobSeeker Payment announced on 22 March were part of a package costing just over $66 billion - just over 3% of GDP. This package includes some of the most significant changes to social security payments Australia has ever seen, but only on a temporary basis.
The package effectively doubled rates of JobSeeker Payment for most people without children for the six months from April 27 through a special time-limited Coronavirus Supplement. For a single adult aged 22 and over, this raised payments to $1,115 per fortnight or nearly £1,100 per month on current exchange rates. Assistance with housing costs, however, is much lower in Australia than in the UK (even given recent cuts there).
The Supplement will be paid for only six months (at present) not only for new claimants, but also to current recipients - including those who get a reduced rate because they have assets or are in part-time work. It will also go to both existing and new recipients of many other working age income-tested payments and will be paid automatically. Current recipients will receive the full amount on top of their regular payment without having to apply for it. Subsequent amendments passed by Parliament extended the Supplement to people receiving a range of income-tested student payments, many of whom work part time in the hospitality and retail sectors.
The Supplement, however, is not payable to people receiving Australia’s income-tested Age Pension, or payments for people with disabilities, and people caring for those with disabilities, who ordinarily receive payments about 67% higher than JobSeekers, but below the new level for those receiving the Supplement. This group will receive a second lump-sum payment of $750 starting in mid-July.
In order to get payments to households as fast as possible, the assets test for JobSeeker Payment, Youth Allowance Jobseeker and Parenting Payment will be waived for the duration of the Coronavirus Supplement. In addition, the normal one-week waiting period will be waived, as will the liquid assets test waiting period (which can be up to 13 weeks).
In addition, the government will no longer need to pass legislation in order to make further changes to social security parameters, including eligibility criteria, payment rates and income tests, giving the Social Services minister unprecedented powers until December 2020. This will give the government the ability to respond flexibly as circumstances change.
One of the first issues addressed using these powers was a significant change in the income testing of couples. As we have discussed in an earlier IPR blog post, the treatment of couples in the Australian income test provides a form of ‘partial individualisation’. Each member of a couple has their own individual work allowance and the income test is sequentially applied. Previously, the unemployed partner in a single-earner couple would be disqualified from receiving payments once their partner’s income exceeded around $48,000. This also meant that losing the last dollar of the JobSeekers Payment, would mean that they were ineligible for all of the Coronavirus Supplement, thus producing a significant “benefit cliff”. This partner income threshold is right in the middle of the Australian income distribution. Of the primary earners who lose their job in two-earner couples aged 25 to 54, about half would get the Coronavirus Supplement, while of the secondary earners – more likely women - only somewhere between a quarter and a third would get it. The government has since announced under the Minister's new powers that the income test taper rate for couples will be cut from 60% to 25%, with the result that the threshold for non-payment of the supplement would be raised to just under $80,000 per year. While this still leaves a “cliff edge”, it means that many more newly unemployed partners will be able to receive assistance.
Assessing the changes: An initial overview
How do we assess these measures? Of course, it is still too soon to say how effective they are. We will need much more data on how they work out in practice – who gets what and when, what happens to income and poverty, and how well the safety net catches people whose income has dried up. But there are some standard criteria, used in much existing research on social security, against which we can start to assess the changes and judge their effectiveness.
First, there is the extent to which these measures are effective at prevention/protection – at ensuring that those who have lost income are protected from falling into hardship as a result. UK’s job retention measures score well on this. These measures are in effect income replacement benefits covering an interruption (but not ending) of earnings. The general design parameters are an attempt to provide support quickly and with few rules and eligibility requirements and no means test. The earnings-related element is a straightforward way to help people maintain their living standards in the situation of (hopefully) short-term income loss. In temporarily suspending assets testing and waiting periods, as well as in making changes to the income testing of couples, Australia has moved to significantly broaden coverage. However, it has kept benefits flat rate rather than relating them to past earnings.
Second, there is the extent to which the measures are adequate to meet needs, and are equitable in treating people in similar circumstances in the same way. Here the UK’s response has some widely differing outcomes, as the Resolution Foundation has shown. Its researchers calculate that the replacement rates (how much benefit is received compared with previous earnings) for Universal Credit are less than half those of comparable employees on the retention scheme with the same pre-crisis earnings. The failure to increase legacy benefits also widens the gap between different groups of claimants. In the UK, the most recent official poverty figures were published in March, showing around one in five people in income poverty. Those with the lowest incomes have seen their incomes fall, not least because of the working through of benefit freezes and cuts. As the Resolution Foundation concludes, this ‘is the context showing we badly need increased support for the families who are facing very significant income hits as this crisis deepens’. The gendered implications of the measures are not yet clear, but in both countries women make up a significant proportion of low-paid (and front-line) workers.
The maintenance of flat-rate benefits in Australia – albeit higher for the JobKeeper Payment than for the JobSeeker Payment - is an interesting policy choice. The Prime Minister has explicitly defended the flat-rate payment: “Our job keeper plan sees every Australian worker the same, no matter what you earn … If anyone falls on a hard time ... we are all in this together. It’s uniquely Australian...”. On a more mundane note, it is possible that the flat-rate payment will make it easier for the Australian Tax Office to monitor that the payments are being correctly made and it will give lower-paid employees very strong incentives to report incorrect payments.
Third, there is the extent to which gaps in systems have been filled. Neither country has made significant changes to sickness benefits and these are therefore not playing a central role in the support available. Australians without paid sick leave are over-represented in some of the sectors with the greatest degree of personal contact with members of the public. 63% of people working in the accommodation and food services sector have no paid sick leave, with 45% of sales workers and 42% of community and personal service workers also not being covered. The JobKeeper Payment will close some gaps in relation to sickness and unemployment.
Self-employment has been included more directly. In the UK support for self-employed people is complex and patchy. The new measures to support the self-employed could therefore form the basis for filling that gap in the future. Self-employment in Australia is less prevalent than in the UK - 9.6% of employment in 2018, compared to 15.1%. Because entitlement to many payments is based on residence rather than contributions, the self-employed, depending on their income and assets, have the same access as employees to pensions in retirement, family payments and disability payments.
Where there appears to be a remaining significant gap in Australia is in relation to temporary visa holders. As Henry Sherrell and Peter Mares point out these include one million temporary visa holders, including students and graduates, back packers and New Zealanders. Some temporary visa holders with work rights can now access their Australian superannuation to help support themselves during the crisis, but how many will get support is not clear. In the UK, the benefit rules are complex, depending on immigration status. The London Mayor, Sadiq Khan has called for those with ‘no recourse to public funds’ (most non-EU immigrants), to be allowed to claim Universal Credit. The ‘no recourse to public funds network’ highlights the range of support that local authorities need to provide from often limited budgets.
Fourth, there is the issue of timely and efficient administration of the system. There are many aspects of administration that can make this challenging, especially in means-tested systems. These include verification of identity, verification of means, changes of circumstances, application of work conditionality requirements, application of deductions and so on. Undoubtedly most systems would struggle with the sort of mass claims seen in recent weeks. In the UK there were almost one million claims to Universal Credit in the last two weeks in March – up from around 100,000 in a normal two-week period. The UK’s civil servants are working flat out to deal with the demand. But there is a risk that the system will fail to deliver, with significant consequences for financial hardship. The administration of social security needs serious, and senior, government attention to avoid this.
The Australian government has seen similar difficulties. The decision to suspend a range of waiting periods and the assets tests on payments should make claiming payments easier. But inevitably it takes time to process claims. People laid off work are able to register “an intent to claim” online, which means that their payments can be backdated to that date of registration. The Minister for Social Services stated on 30 March that new claims had been unprecedented in the previous week, with “hundreds upon hundreds of thousands of people register[ing] an intent to claim”. Both countries are putting extra resources into administration, with new and/or redeployed staff, but there are already reports of long queues (real and virtual) and long delays. The current challenge of achieving efficient administration relates mainly to the volume of claims, but there are issues that arise from means-testing, and the challenges of getting support to people quickly while still taking into account their incomes and circumstances.
So, will there be a redesigning of social security, for a new future? In the UK there have been calls for radical change, such as Universal Basic Income and Minimum Income Guarantee, and others including the Trade Union Congress have set out comprehensive reform proposals. No doubt there will be more measures to come, but the changes are so far bold and far-reaching. Both the UK and Australia are using the social security system as one instrument to stabilise individual and household incomes, alongside measures intended to protect businesses and jobs. In both countries, the packages amount to significant increases in public expenditure. Both countries have tried to deliver support quickly and so have adopted relatively broad-brush eligibility rules. All this may shape different systems in the future. But, more immediately we have to pose the same question for our benefits as for our health services: can we deliver the support and safety net that so many millions of people now need?
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All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.