The Universal Credit youth penalty
Young people have lower pay, and lower benefit awards - and now young Universal Credit claimants are far more likely to have income withdrawn through sanctions
One of Universal Credit’s (UC’s) lesser known features is the Administrative Earnings Threshold (AET). While it might sound obscure, the AET determines the extent of conditions that someone on UC might have attached to their benefits. And more conditions means a higher likelihood of income being withdrawn through the imposition of sanctions.
The Conservative government has recently increased the threshold quite dramatically. Young people — already treated poorly by employment regulation and the benefits system — are likely to be affected to a far higher extent than other age groups.
Acceleration
The Johnson and Truss governments both introduced steep increases in the AET. highlighted recent increases in the AET. The Sunak government intends to go even further.
With a higher AET, more people on UC will earn less than the new threshold, unless they can quickly increase their hours or pay. In most cases, they will become subject to an intensive work search (IWS) regime, meaning stricter expectations of searching for higher paid work will be applied. Previously, they’d have fallen into the ‘light touch’ regime.
IWS means more strings are attached to UC awards, which may mean more people receive sanctions (withdrawal of or reductions in their benefits for a period of time) if, for instance, they fail to show they’ve been searching for higher-paid work, or miss a job centre appointment.
And to be clear, those affected by these changes are among the 40% of UC recipients already in work (since most people not in employment without a disability will have already have been subject to IWS).
The evidence that conditionality and sanctions are ineffective for most is mounting. Kate Harrison recently reviewed Department for Work and Pensions (DWP) research on the impact of sanctions, finding that ‘not only have sanctions not been beneficial, they may have actually been harmful to the pay and progression of people who were sanctioned’.
In terms of conditionality for in-work UC recipients expected to seek more hours or higher pay (which is most relevant to those affected by AET increases), part of the explanation is the disconnection between UC conditions and the nature of local labour markets. Employers have little appetite to offer more hours or higher pay to their staff simply because DWP requires employees to ask.
Bearing the brunt
We know from government data that young people on UC are already more likely to be subject to conditionality. And among those on UC subject to conditionality, young people are more likely to receive a sanction — particularly people in their early twenties (this is partly because they’re less likely to have a disability or long-term health condition, and so are more likely to be subject to the maximum job search requirements).
The AET changes are likely to exacerbate this situation – by the government’s own admission.
According to the equality impact assessment accompanying the Johnson government’s decision, whereas only 5% of UC recipients in the ‘light touch’ regime were aged 16-24, 10.5% of those moving into the IWS regime, as a result of earning less than the new AET, were in this age group.
There was a similar story in the equality impact assessment accompanying the Truss government’s decision. 4% of UC recipients in the ‘light touch’ regime were aged 16-24 (a lower proportion precisely because of the impact of the earlier AET increase), but 4.9% of those moving into the IWS regime as a result of the further AET increase were in this age group.
And the story continues.
Now, 3.1% of UC recipients in the light tough regime are aged 16-24. But they will make up 3.8% of those who move to the IWS regime following the Sunak government’s decision to increase the AET again. The accompanying equality impact assessment details a 30.2% likelihood of moving from light touch to AWS for this age group – far higher than for any other age group.
Triple whammy
The explanation for this impact is relatively simple: most young people do not qualify for the National Living Wage (NLW), despite it being the reference point for calculating the AET. The NLW rate of £10.42 per hour is only available to those aged 23 or over. People aged 17 or below, 18-20 and 21-22 are eligible instead for National Minimum Wage (NMW) rates of, respectively, £5.28, £7.49 and £10.18 per hour.
This means low-income young people have to work more than older groups to rise above the AET, even more now as the threshold increases.
A 20 year-old on the NMW, for example, would have to work more than 25 hours per week, and a 17 year-old more than 35 hours per week, in order to reach the new threshold (in contrast to 18 hours for people aged 23 or over).
This is on top of the fact that people aged 24 or under already get lower rates of UC: a standard allowance of £291.11 per month for single recipients, compared to £368.74 per month for those 25 or over. (Note that single people aged under 35 without children also receive lower amounts of additional support for housing costs.)
Lower pay as a rule (whammy #1), lower benefits to start with (whammy #2) – and now more likely to lose benefit income through sanctions (whammy #3).
The government may well argue that young people are justifiably being sanctioned at a higher rate as a result of failing to meet the required conditions. And we should acknowledge that some people moving into the IWS regime may well benefit over time from enhanced support of work coaches.
The government’s own evidence strongly suggests, however, that this would be an overly optimistic conclusion. Either way, the fact remains that, at a time of rising living costs, the government has made an escalating series of decisions which it knows are highly likely, in the here and now, to make the poorest young people even poorer.
An earlier version of this post was first published on the We Are Citizens Advice blog.