My Lords, I can confirm that, in my view, the statutory instrument is compatible with the European Convention on Human Rights.
These regulations support the powers introduced by Section 101(1) of the Welfare Reform Act 2012 to make payments on account of benefit. Two new types of payment on account are introduced by these regulations. First, short-term advances of benefit for universal credit and legacy benefit claimants will replace interim payments and social fund crisis loan alignment payments from 1 April 2013 for legacy benefits and 29 April for universal credit. Secondly, budgeting advances will replace Social Fund budgeting loans for eligible universal credit claimants from 29 April 2013. Short-term advances will provide an advance of benefit against a new claim or a change of circumstances which significantly increases the amount of the benefit award. Budgeting advances will help finance intermittent or unforeseen expenses, such as essential household items or expenses related to maternity or obtaining or retaining employment. These are advances of a claimant’s benefit. They are not additional money provided through a budget-capped scheme as is the case with the existing Social Fund.
I turn to some of the reasons for these changes. The existing Social Fund has been part of the benefit system since 1988. The fund was designed to help people meet exceptional costs that were difficult to budget for out of mainstream benefits. However, it has not kept pace with wider welfare reform which has led to complex administration. Parts of the scheme are poorly targeted and open to misuse. In future, claimants will have access to financial support through advances of benefit and local provision.
Social Fund reform, of which the introduction of short-term and budgeting advances are a key part, was partly in response to various comments and criticisms of the current Social Fund, including from the National Audit Office, the Public Accounts Committee, the Commons Work and Pensions Select Committee, the Social Fund commissioner, and customer representative and other stakeholder groups. As noble Lords know, crisis loans and community care grants are being abolished from April 2013 as part of the reform of the Social Fund. I know that there has been some interest in the progress being made by local authorities and the devolved Administrations in putting their new arrangements in place.
We know from the detailed work being carried out at a local level by Jobcentre Plus that English local authorities are at various stages of readiness. At this point in time we are not aware of any that will not be providing some form of local welfare provision from 1 April. The Scottish and Welsh Governments are both delivering their own national models from 1 April.
Returning to advances of benefit, our core aim remains to provide essential support targeted at people on the lowest incomes, whether in low-paid work or out of work, to manage the demands on their budgets that cannot be addressed through their regular benefit payments. Financial capability plays an important role in helping people to enter the world of work and in enabling self-sufficiency in budgeting and financial management. The Government want people to be able to manage their affairs in a manner that best reflects the demands of modern life, whether in or out of work.
Universal credit will provide a range of financial support to help people achieve financial independence and rely less on government to manage their money. Improving financial responsibility will allow households increased access to affordable credit, will reduce reliance on borrowing from government and will encourage households to take advantage of cheaper tariffs for essential costs such as utility bills.
We recognise that some claimants will need support at the start of their claim when they are waiting for their first payment of benefit, or during their claim when they have a one-off expense for which they have been unable to budget. The new system of advances of benefit will be much simpler to understand and to administer. We will ensure that those in financial need have access to support when they need it.
I want to draw a couple of aspects of the regulations to the attention of the House. For short-term advances, claimants have to be in financial need in order to receive an advance. Regulation 7 defines this as a serious risk of damage to the health or safety of the claimant or a member of their family. This is a high bar to pass but rightly so considering that these advances are paid using public funds. However, it is not a new test within the benefits system. This has been the test in Social Fund crisis loans for the past 25 years or so, so it is one that our staff are used to operating.
Claimants cannot receive a second budgeting advance if they have an existing one which has not yet been fully recovered. This means that they can have only
one budgeting advance at a time. This is set out in Regulation 14. I know that this is one element of the new arrangements that has caused some concern.
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The new scheme has been designed to provide an improved and simplified system. The existing budgeting loans scheme works by allowing claimants multiple loans up to the maximum debt limit. These loans can be recovered only one at a time in strict date order, oldest first, and can result in the claimant remaining in debt and on reduced benefit for several years. As I have just said, budgeting advances are limited to one at a time, with one repaid before another can be considered. This new approach is intended to encourage improved budgeting and personal financial responsibility and should help claimants make the transition to work by preparing out-of-work households for the realities of budgeting on a monthly income. Budgeting advice and other support will also be available to claimants.
On universal credit, the Government understand that the move to single monthly household payment is a significant change from the way many benefits are currently paid and that some claimants will require support to help them manage that change. The support available will be a mix of general and targeted budgeting advice, alongside universal credit benefit transfer advances, which are not part of these regulations, and financial products that will be made available dependent on the claimant’s circumstances. In exceptional situations, alternative payment arrangements will be made for those households unable to manage receipt of single monthly payments of benefit.
Extensive stakeholder engagement has taken place on the provisions contained in these regulations. We have held workshops with customer representative organisations and devolved Administrations to outline detail within the draft regulations and to provide the opportunity for them to seek clarification and to comment on proposals. We have responded to the comments made, including, for example, increasing the maximum earnings thresholds for eligibility to a budgeting advance following observations from welfare organisations that the proposed thresholds were insufficient to ensure broad parity between the arrangements for the legacy benefit system and for universal credit.
During discussions with the Social Security Advisory Committee, an issue was raised regarding the way in which the earnings of self-employed people were treated when it came to accessing budgeting advances. Therefore, we plan to lay a minor amendment to the regulations in due course to ensure that assumed income from the minimum income floor is not included in the earnings calculation for accessing a budgeting advance. I am grateful for the work of the Secondary Legislation Scrutiny Committee. Although it drew this instrument to the special attention of the House, it did not appear to have any particular concerns. I seek the approval of noble Lords for these regulations and I commend them to the House.