Social Affairs: The Failing Universal Credit System

Universal Credit is "failing millions of people", especially the vulnerable, according to a new report from peers.

The Lords' Economic Affairs Committee said that although it agreed with the government's aim for the scheme - to bring together multiple benefits into one payment, it criticised its design, blaming Universal Credit for “soaring rent arrears and the use of food banks”.

Welfare delivery minister Will Quince said the government was “committed to supporting the most vulnerable”. But he said the scheme had “defied its critics in unprecedented and unforeseeable circumstances” during the coronavirus pandemic, adding: “The case for Universal Credit has never been stronger.” One poverty charity, the Joseph Rowntree Foundation, said the report “reinforced the scale and urgency of reforms needed”. And Labour said the system was “simply not working”, instead “pushing people further into poverty and debt”.

The Lords' report said cuts to social security budgets over the last 10 years had caused “widespread poverty and hardship”. As a result, the committee said Universal Credit needed “urgent investment just to catch up and provide claimants with adequate income”. The peers called on the government to make the rise in payments due to the coronavirus crisis permanent. They also called for a non-repayable two-week grant to be introduced to cut the current five-week wait for a claimant's first payment. The government said urgent payments were already available, but peers said the standard five weeks “entrenches debt, increases extreme poverty and harms vulnerable groups disproportionately”.

One claimant, who has asked for her name to remain confidential, signed up to Universal Credit in March after the coronavirus outbreak. “I had started a role a few weeks before lockdown, but I was told on the first day that the project was going to shut down,” said the 31-year-old freelancer from London. “I was then told I would be unlikely to find work in my field before August and I wasn't eligible for furlough because of my start date, so, for only the second time... I signed up for benefits.”

This claimant found the online process quite fast and managed to get ahead of the backlog, but it took almost six weeks for her first payment, and the amount changed from month to month, leaving her struggling to make ends meet. “The people running it don't how PAYE freelancers or zero hour contracts work,” she said. “They send constant demands to apply for work and at the start of lockdown I was being told to apply for places that weren't even hiring. No-one picks up on the phone line and then when they finally do, they tell you they can't help. And the payment itself is for rent, and then under £100 a week for all bills, transport and food.”

The claimant said her “whole life was overturned” and the stress caused her to suffer with very severe depression, which she is still struggling with now she is back in employment.

“They expect us to focus on job applications and interviews, but you can't do anything but worry about survival,” she said. “I'm just glad I have no dependents as I have single mother colleagues who are going through the same thing, after never signing on before.”

The committee also criticised the way payments were calculated, claiming the system could result in “large fluctuations in income month-to-month, making it extremely difficult for claimants to budget”. It wants payments to be fixed for three months and for historic tax credit debt to be written off. Tory peer Lord Forsyth, who chairs the committee, said the system “fails to provide a dependable safety net” for those in need. “The mechanics of Universal Credit do not reflect the reality of people's lives,” he added. “It is designed around an idealised claimant, and rigid, inflexible features of the system are harming a range of claimant groups, including women, disabled people and the vulnerable.

“It needs rebalancing, with more carrot and less stick, particularly as large numbers of claimants will have ended up on it because of events completely out of their control.”

Universal Credit was introduced by the coalition government in 2010 to replace six benefits with one payment. But it has led to a number of controversies, including cuts to the amount people receive, delays in payments and questions over assessments.

'Extra help given'

Mr Quince said the government currently spends over £95bn a year on the benefits system and has put in an extra £9.3bn to help “those most in need” during the current crisis. He said the system had processed more than 3.2m new claims “at pace” since mid-March and was “paying more than a million advances worth hundreds of millions of pounds to those in urgent need within days”. The minister added: "We welcome the acknowledgement by the Committee that Universal Credit is here to stay and we will consider their recommendations in detail."

So what is universal credit?

Universal credit is a benefit for working-age people, replacing six benefits and merging them into one payment:

income support
income-based jobseeker's allowance
income-related employment and support allowance
housing benefit
child tax credit
working tax credit

It was designed to make claiming benefits simpler. A single universal credit payment is paid directly into claimants' bank accounts to cover the benefits for which they are eligible. Claimants then have to pay costs such as rent out of their universal credit payment - though there is a provision for people who are in rent arrears or have difficulty managing their money to have their rent paid directly to their landlord.

The latest available figures show that there were 2.6 million universal credit claimants as of October 2019. Just over a third of claimants were in employment.

How does it work?

The idea of universal credit is that it can be claimed whether you are in or out of work. There's no limit to the number of hours you can work per week if you receive it, but your payment reduces gradually as you earn more. It is designed to mean that no-one faces a situation where they would be better off claiming benefits than working. Under the old system many faced a ‘cliff edge’, where people on a low income would lose a big chunk of their benefits in one go as soon as they started working more than 16 hours. In the new system, benefit payments are reduced at a consistent rate as income and earnings increase - for every extra £1 you earn after tax, you will lose 63p in benefits.

How much you can receive in universal credit payments in the first place depends on things like whether you have children and if you qualify for housing or disability payments. Payments are then reduced from this maximum amount the more you earn - although each household can earn a certain amount, called a work allowance, before they lose anything.

What are the concerns?

Cuts to universal credit since it was announced have made the overall system significantly less generous. For example, the work allowance has been cut so people can earn a smaller amount of money before their benefit payments start to reduce. Low pay charity the Resolution Foundation warned that these kinds of cuts may weaken the benefit's main purpose - to make sure people always feel it's worthwhile to work more hours.

There have also been concerns over how long new claimants have to wait before receiving the benefit. Universal credit is paid in arrears. For example, if you sign on and start a new claim on 1 January, you'll receive your first payment on 5 February, based on what you earned in the previous month. So four weeks of earnings are assessed, plus a further week to process the payment.

Those who don't have enough money saved to wait 35 days from claim to payment can get an advance on their first instalment of the benefit. But this is treated as a loan that is then taken off future benefits payments for the following year.

The fact that it is assessed monthly has also proved difficult for some people who are paid weekly and whose pay fluctuates throughout the month.

Will some people lose money?

Transferring onto universal credit from the old system meant a loss of at least £1,000 a year for 1.9 million adults and a gain of at least £1,000 a year for 1.6 million other adults, according to an April 2019 report by independent think tank the Institute for Fiscal Studies. Those with the lowest incomes stood to lose the most. This included many who have a job of some kind.

The government had set aside £3bn in total to ease this process, designed to ensure that no-one moving from the old to the new system would lose out initially. But new claimants are said not to benefit from the protection and if people's circumstances change or if they come off benefits and then go back on them, they will lose this transitional protection. The Resolution Foundation said three years ago in 2017, “the long list of conditions that are deemed to reflect a change in circumstance, bringing such support to an end, is likely to mean relatively short durations of protection”.

KJM Today Opinion

There are few who disagree that a reform of the Welfare system and the way in which benefits are paid was long overdue. With a plethora of different benefits for different things – and sometimes the same or very similar things – having been developed under Labour between 1997 and 2010, the old system had become unwieldly and expensive to run. In addition, the consistently soaring cost of buying a home had, and has, meant fewer and fewer people have the income to buy. The result has been a huge increase in renting yet the cost of that has also ballooned and to the point where people cannot afford rents either.

Even Gordon Brown suggested, during his time as Prime Minister, that a reform of Housing Benefit would be needed, simply to get the cost down. Nothing was done however and the Cameron/Clegg/Osborne-led Coalition government had to do something.

That something however, has been brought in by people who know nothing of real life for real people and the cack-handed introduction of the Universal Credit system has made a bad situation worse. Yet still the cost of having a home has continued to rise remorselessly - as has the cost of living generally, including that of having internet access.

One of the DWP’s primary tasks seems to be to work out how quickly it can either reduce benefit payments or stop them entirely. It is not only the benefits system that needs to be reformed but also the DWP itself. Universal Credit, given that most employers now pay monthly into their worker’s bank accounts, is not a bad idea. But the amounts paid must reflect what is actually does cost to keep a roof over one’s head, pay the bills – rent, light, heat, internet access, clothes and footwear as well as fund a job search. The rates paid must be consistent.

And with the onset of the Covid-19 pandemic, the numbers without a job are going to go up by some distance. People now cannot be penalised with benefit cuts because they can’t apply for jobs that no longer exist. This applied before Covid-19 and will apply even more in the coming years. No government, of any party, can guarantee full employment. Righteous ministers cannot preen in front of the media, spouting on about “getting people back to work”.

And every government has a duty to ensure its citizens have a home, can feed it and themselves as well as adequately clothe themselves. It doesn’t seem unreasonable in a so-called civilised society.

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