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Election Result - Government set to cement welfare reforms

May 11, 2015


The General Election result has confirmed there will be no change to the real time integration of UK tax and welfare systems using real time PAYE information. Ministerial appointments announced by David Cameron in the days since the Conservatives secured a parliamentary majority on 8 May have already signalled it will be business as usual. Iain Duncan Smith as Secretary of State for DWP, Lord Freud, Minister for DWP and David Gauke as Financial Secretary to the Treasury have been reappointed. These ministers directly determine the tax and welfare policies which rely on PAYE real time reporting by UK employers.

Although the Labour Party had announced its intention in opposition to review Universal Credit and pause the programme for 3 months, the Conservatives working parliamentary majority removes any remaining political uncertainty from the continued roll out of Universal Credit. A Conservative election manifesto commitment to deliver £12 billion of additional unspecified welfare savings looks certain to be taken by the Government as a mandate to accelerate welfare reforms.

The reappointment of Iain Duncan Smith as Work and Pensions Secretary means he will be allowed to “finish the job he started” according to the Prime Minister, David Cameron. The decision puts Mr Duncan Smith at the heart of the new Conservative government as he has the responsibility to see through the £12 billion worth of cuts to welfare, planned over the next two years.

These additional cuts to the welfare budget are likely to be one of the most contentious areas of the new government. It has been suggested they could involve further reductions or restrictions to working tax credits, child tax credits and housing benefits. However the further reductions in the welfare budget are widely seen as critical in reducing the UK deficit over the course of the new Parliament.

Universal Credit merges six benefits in to one but also tops up low pay by paying claimants a premium for being in work, thereby avoiding the cliff edge of an automatic reduction in welfare benefits when earnings or hours worked reached a cut off threshold. Universal Credit represents a radically different approach to previous welfare programmes such as working tax credits.

Universal Credit’s operation is entirely dependent on employers timely reporting of real time PAYE information and HMRC’s delivery of accurate employee earnings data its systems receive in this way, to DWP. This is because the premium Universal Credit claimants earn can be lost unless employers and HMRC both play their part in getting correct information to DWP the same day as it is paid to the claimant by their employers. DWP rely on timely earnings data to calculate a claimant’s top up Universal Credit payment.

Mr Duncan Smith said “It is a privilege to serve in the government, and I am delighted to have the opportunity to complete the vital welfare reforms that have already helped so many people back into work. The completion of Universal Credit will ensure work always pays, and will improve the incomes of those on low salaries."

UK employers’ obligation to report PAYE in real time generates the data which is now central to Government’s reform of welfare as well as tax and pensions policy. HMRC’s digitisation of the tax system - including the move to personal digital tax accounts - and Auto Enrolment, DWP’s private pension policy by default, all rely on the payroll function of UK employers to report employee earnings when paid.

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