There are a few things in Michelle Ballantyne’s question, which I will try to address quickly.
In principle, universal credit could smooth out someone’s income month to month—they have their month’s earnings, and then they get their payment three or four days later, if everything is going nice and smoothly. The payment reflects what they earned in the previous period, so that could smooth things out.
The problem is that people might not be able to understand what that amount will be. It is a change to the current system in which people get paid a flat monthly payment. If people know how much money they will get, they can try to budget around that, because they will also know what they have earned.
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UC can support some people with fluctuating earnings. If earnings are taken over a month, and people work different amounts week to week, the system does some averaging within that, so things are smoothed out a little bit. In relation to the big picture, universal credit is at one end of the spectrum. It assesses income on a monthly basis and tries to ensure that the payment is accurate for a certain amount of income. The tax credit system went in the completely opposite direction and tried to ignore any changes in circumstance because it simply could not handle them, so there were big disregards in income change.
There is a trade-off between having some form of averaging and having a more timely system. We could have a three-monthly system, but there will always be a trade-off. On the one hand, the benefits will be inaccurate, which might lead to overpayments and underpayments. That issue is not really discussed when we talk about universal credit, but it causes people a lot of hassle, which you probably want to avoid.
On the other hand, with a very tight monthly assessment period, the way in which the earnings are counted within that month is based on when people are actually paid rather than, as you may think, the month of work that that income actually applies to. That could cause people to move out of the system. A person could get two pay packets in one month, which could mean that they have earned so much that they move out of the system altogether. We could take an actual average of a person’s earnings for the work that they have done over a period, but how would we measure that? There are lots of trade-offs, and I am not offering a great solution.
On surplus earnings, there are very specific complicated rules. I do not know of any accountant who looks at the issue, such as the accountants from the Low Income Tax Reform Group, who understands all the technical detail. They think that the rules are far too complicated—no one really understands them. From what I understand, the purpose of the rules is to stop people colluding with employers so that they are paid in periods in a way that maximises their UC. The likelihood of that happening is quite slim and if we are worried about that issue, we can probably address it through enforcement arrangements elsewhere. We could target employers who suddenly come out with odd pay arrangements rather than have that complicated workaround on top of UC.
For people who might move out of UC, the real risk is that, if the threshold is lowered to £300, someone who takes on seasonal work will have their earnings counted against their UC for the next six months, although they will not get any UC in that period, then they drop out of work and get no income at all. We do not want to create that incentive. I suggest that the rules are scrapped entirely, because they are really complicated and create some perverse incentives.