Where next for Universal Credit and tackling poverty?

JRF has always supported the introduction of Universal Credit (UC). However, it must be done in a way that loosens the grip of poverty and does not risk increasing hardship and destitution.

Creating a system that is integrated and responds to people’s changing circumstances is the right thing to do. We all depend on public services such as our health, education and social security systems at various times in our lives; we must ensure they provide the right support. 

The Government has already made changes to UC which mean it has the potential to substantially raise the incomes of millions of people locked in poverty. However, these changes have not gone far enough. More and faster improvements must be made to its design, funding and delivery. Otherwise, there continues to be a high risk that UC will fail to realise its potential and even increase hardship for some of those moving on to it in 2019 and beyond. 

What you need to know:

  1. UC is likely to reduce the number of people in poverty in working families by 300,000; but sweep 200,000 more people in out-of-work families into poverty.
  2. 5.5 million people in poverty should see increases to their income, the majority in working families. However, it is not right that 3 million people in poverty are set to see their incomes reduced, the majority also in working families.
  3. The Government must also take more and faster action to speed up payments, increase the control claimants have over frequency and timing of payments, and ensure deductions for debt do not drive claimants into destitution.

Enabling more families to break free from poverty

Our social security system functions as a crucial anchor, helping us keep steady when we are buffeted by the tides of ill health, rising costs, unemployment, low pay and changes in family life. UC replaces a system of benefits and tax credits which was complicated and fragmented, and that greatly reduced its effectiveness as that anchor. The previous system required people to apply for multiple benefits and tax credits and reapply for different ones every time they moved in and out of work. Many missed out on support they should have received. The multiplicity of rules meant that it was very difficult for claimants to know what support they would be entitled to if they changed their hours of work or other aspects of their situation. 

The original goals of UC were right: simplify the system, create a single source of support which adapts as people’s circumstances change, enable people to make one claim and receive everything they are entitled to. The original design of UC was also much more generous than it later became, making it a step forward in loosening the grip of poverty. 

Since those early days, cuts to the funding of social security have greatly undermined that position. These include cuts to UC itself and those which stretch across both the old and new systems, such as the benefit freeze. In addition, as UC has rolled out, flaws in both design and delivery have led to serious hardship for some claimants. 

The Government has shown that it is listening to these concerns and wants to make UC a success. The 2018 Budget injected £1.7 billion into UC, supporting low-income workers and their families by increasing Work Allowances (the amount claimants can earn before their support begins to be reduced, similar to the Income Tax Personal Allowance). This significantly improved the impact that the introduction of UC will have on low-income working families.

The Department for Work and Pensions has also announced several improvements to the delivery of UC, including reductions to debt repayment limits, more time for people to repay advances and a ‘run-on’ of previous benefits for those being moved onto UC.

These changes are welcome, but it is not good enough that UC is still set to increase poverty for some groups. This includes 1.7 million people living in poverty in working families who face a substantial reduction in income, on average £2,500 a year. The Government have shown that they are willing to reform the policy to increase its contribution to releasing people from poverty. They must now go further to ensure that it enables more families to break free from the constraints poverty places on their daily lives and prospects for the future.

1. What impact will Universal Credit have on families locked in poverty?

The move to UC is likely to lead to a fall of 300,000 in the number of people locked in poverty in working families. The number of children in working families in poverty is expected to be reduced by 200,000 by this change.   

However, the overall number of people in poverty is only likely to fall by 100,000; this is largely due to more out-of-work families being swept into poverty. The number of people in poverty in out-of-work poverty is expected to increase by 200,000 as a result of the switch to UC.

It is important to note that there are other policies applying to both the legacy system and UC which are increasing poverty, particularly among families with children. The most significant of these are the freeze on working-age benefits (due to end in 2020) and limiting child tax credit and the child element of UC to the first two children in a family. These policies are locking more families in poverty. They also risk further damaging the reputation of UC in the eyes of claimants and the wider public.

Impacts on working families’ incomes

Changes to UC in the 2018 Budget mean that moving from the legacy tax and benefit system to UC will now create more people gaining than losing among working families:

  • 5.6 million people in working families are likely to see an increase in their incomes as a result of switching from the legacy system to UC. The average gain is £3,000 per year.
  • 5.1 million people in working families are expected to see a reduction in income. The average loss is £2,300 per year.

Although not all of those receiving legacy benefits and tax credits or UC are in poverty, those groups with the highest risk of poverty are more likely to gain; parents, renters and families who work fewer hours. Home-owners are the main group to lose.

The impact of switching from the legacy system to UC is more positive for families in the grip of in-work poverty than it is for working families more generally. Among people living in poverty in working families (defined as working families who would be living in poverty if the legacy benefits system remained in place):

  • 3.9 million people are set to increase their income, by an average of £3,400 a year.
  • 1.7 million people are set to see a reduction in income, by an average of £2,500 a year.

UC was always intended to help loosen the grip of poverty. It is encouraging that the majority of those in poverty in working families are likely to see their income rise. It is not right, however, that nearly 2 million people already locked in poverty in working families are still set to lose substantial parts of their income from the switch to UC.

Impacts on out of work families’ incomes

The impact of UC on people in out-of-work families is less positive than is the case for those in working families.

More people in out-of-work families lose than gain from the move to UC. The impacts on families’ incomes are smaller than is the case among working families (both for those who see increases and reductions) but are still very substantial for families already struggling to get by on a low income.

Overall, 1.9 million people living in families are expected to see their incomes increased by an average of £2,000 per year, whilst 2.6 million people living in families are expected to see their incomes reduced, by an average of £1,400 per year.

Among people in poverty living in out-of-work families, there are fairly similar numbers of people gaining and losing, although slightly more gain than lose, and the increases in income are larger than the decreases:

  • 1.5 million see incomes increasing, by an average of £2,000 per year.
  • 1.3 million see incomes reduced, by an average of £1,400 per year.

Among out-of-work families, couple families with children are more likely to gain, whilst single parents and adults without children are more likely to lose income. 

2. How can the Government make the delivery of Universal Credit a success?

There are a number of ways in which the design and delivery of UC must be improved in order to realise its potential benefits and prevent it causing additional hardship. Four of the most important are set out below. 

Stop relying on advances to paper over problems or compensate for the five week wait that has been designed into the system. Providing an advance to help claimants get by whilst waiting for their regular payments to start has become the Government’s main tool to manage the problems caused by the five-week waiting time for an initial payment as well as further delays and mistakes in UC payments. However, advances must be repaid out of future benefits. Our evidence suggests that repaying debts to the Department for Work and Pensions, as well as to other organisations, is a key factor contributing to destitution (see below). Advances are a useful occasional tool, but their widespread use fuels on-going hardship and debt and is a signal of serious failures.

…you could get an advance, if you need it quickly, but then that advance comes out whatever money you're getting. So, you're still not left with very much at the end, by the time you pay everything back, your loan or advance, or whatever it is, by the time you pay it back, you're not left with much.
Female, 25 – 45

Speed up payments. The design of UC includes a five-week wait at the start of a new claim. This is simply too long for many people on low incomes to manage, especially as the majority have no or very low savings. Living on a low income means budgeting very tightly to afford the essentials, leaving little or no headroom to cope with unexpected bills or interruptions in income. 

The Government is planning to introduce a two week ‘run-on’ of Jobseekers Allowance, Employment Support Allowance and Income support from July 2020. However, this does not help the millions who will be moving onto UC before that time. It also does not tackle the fundamental problem of the five-week waiting time for all claimants, including those making a new claim rather than moving from previous benefits. Speedily allowing all claimants to choose to receive payments fortnightly rather than monthly would make a big difference, as would committing to provide all claimants with a payment within two weeks, whatever their future payment cycle.

How do you say to somebody ‘oh you are not going to get any money now for x number of weeks’ because they live hand to mouth don’t they? … It is supposed to be a month but it is about six weeks before they get any money. And if they have a loan then that comes off the money anyway so they are in this vicious circle. I just feel privileged that I don’t have to do it because it is scary.
Work coach

Give claimants more control over how they receive payments. The Department should allow all claimants to choose the frequency of their payment. Many low-paid workers are not paid on a regular monthly basis (Brewer et al, 2017). Even those that are paid monthly face major fluctuations in their income from UC, and can lose large chunks of support, when their claim date falls very close to their usual payday, resulting in their having two pay days in some UC assessment periods and no paydays in others (Tucker and Norris, 2018).

The system should support people to responsibly manage their budgets in a way that works for them, adapting to their working patterns. Claimants should therefore have the option to receive payments on a fortnightly rather than a monthly basis and to change their UC payment date so that it does not fall too close to their work pay day. The Department should also explore ways to average earnings across longer periods to reflect the reality that many employees, as well as self-employed people, have irregular earnings and varying pay cycles.

At the start of 2019, the Department for Work and Pensions announced that they would work towards more frequent payments to new UC claimants, using Jobcentre Plus pilot schemes. This is welcome but it does not address the risk of hardship for claimants moving onto UC in the interim. The Department should immediately commit to ensuring that claimants do not experience increased hardship or miss out on income because of the current system. As discussed above, it should avoid using benefit advances to address this problem as this increases debt and carries a high risk of causing future hardship or destitution. 

You don’t know how much they are going to take off you. So you don’t know what you got coming in.
Male, directly employed, North Tyneside

Similarly, the Department announced in early 2019 that they would build an online system for private landlords so that they can request their tenants’ rent to be paid directly to them, as has been done for social landlords. This is a positive development, but the Department needs to do more to reduce the level and amount of rent arrears affecting UC claimants and increase landlords’ confidence in renting to UC claimants. Work coaches and case managers should give all claimants the immediate option of paying the housing element direct to their landlord.

Case study

Vicky is a single parent living in Rochdale. She works 16 hours a week as a lunch lady at a local school and has a 10-year-old son. Since being moved onto UC she has found it harder to manage her finances, especially the change to a monthly payment. She described how she ‘rotates’ the household bills she cannot pay in order to ensure that she does not fall into severe debt with any one organisation. She has realised that her Council Tax and water bills are ones where there is usually a bit more flexibility with the payment date. So, in a month where she can’t afford all the outgoings, she says she’ll cancel her direct debit to the council and wait until she is chased for payment (buying her a bit of time) before paying it. She says as long as she pays up before it gets to the point of receiving a court summons or risking bankruptcy, she can manage her finances in this way.

I miss my Council Tax … I’m on a direct debit thing now and sometimes I have to cancel my direct debit because I think I can’t afford to pay that sixty-odd quid. It has gone to seventy-five now because I missed it … So if I’m having a bad month and I need that seventy-five pound I will just phone the bank and cancel it.
Vicky (name changed), Rochdale

Change how childcare support is paid. Help with childcare costs is more generous under UC than the previous system. Low-income parents can claim 85% of childcare costs. However, this is undermined by the requirement for parents to pay childcare fees first and then claim the cost back. Many low-income families cannot afford to make these large payments up front. The system increases barriers to work and the risk of debt (Work and Pensions Select Committee, 2018).

Childcare support for better-off parents, under the Tax-Free childcare scheme, provides matched support up-front. The Government should change the UC system to make payments directly to childcare providers and set out a timetable for achieving that.

In the meantime, we welcome the Secretary of State’s announcement in early 2019 that the Department would use the Flexible Support Fund to help claimants with upfront childcare costs, and that this would not involve advances which have to be repaid. However, work coaches’ use of the Flexible Support Fund overall has been very low thus far. The Department should clarify how they will ensure that all work coaches know that they should proactively use it to help claimants with upfront childcare costs. In addition, they should commit to monitoring whether this is being done and gathering evidence to evaluate whether this is ensuring that upfront childcare costs are not creating barriers to work. The data and evidence from this monitoring and evaluation should be published, before managed migration is begun.  

Ensure debt deductions do not lead to destitution. Our evidence suggests that repaying debts to the Department for Work and Pensions, local authorities and utility companies is a key factor leading to people experiencing destitution (Fitzpatrick et al, 2016 and 2018). The Government has announced that the amount of the UC award that can be deducted at source for debt repayments will be reduced from 40% to 30% from October 2019. This is welcome. However, it is still a sizable portion of a low income. There is no evidence the Department has evaluated the risk of destitution associated with these debt deductions.

Destitution means going without the bare essentials we all need: a home, food, heating, lighting, clothing, shoes and basic toiletries. Our research shows that people with incomes below £70 per week (for a single adult) are likely to experience destitution. The Department should demonstrate that they have evaluated the risk of destitution arising from debt deductions and, if necessary, reduce them further to minimise the destitution risk.

Make Universal Credit work for those moving onto it now

The Government must take action to improve UC for people moving on to it in 2019, as well as preparing for the full roll-out of managed migration. 

Around 1.5 million people currently receive UC, out of 7 million that are eventually expected to receive it. Around 1.7 million more claimants are expected to move onto it over the course of 2019, through ‘natural migration’ – changes in circumstance that will trigger a ‘new claim’ for UC rather than a change to existing benefits or tax credits. None of these people will receive transitional protection. They are exposed to the impacts of all the flaws in UC which the Government has committed to fix, as well as those which they still need to address. The Government must move quickly to introduce improvements so that, if millions of people still move onto UC in 2019, they experience its positive benefits and are not swept into greater hardship, debt or destitution.

Up to 10,000 people are expected to be moved onto UC in 2019 as part of the managed migration pilot. The Department has committed to working extensively with stakeholders to co-design and test the system. It must live up to its commitment to implement this pilot slowly and carefully, moving all claimants safely onto UC. To make this work, we believe claimants themselves should be involved in co-designing the process, not just in testing specific elements of it. This would help to smooth the process of testing and learning and enable the Department to come closer to getting it right first time.

The changes made so far to plans for managed migration reduce the risk of claimants seeing their income completely removed because they have not made a UC application in time. Giving a minimum of three months and allowing unlimited flexibility to extend claim periods enables claimants known to be vulnerable to be given time and support to make a claim. However, it requires a work coach to extend the claim period and will still mean that people’s benefits are stopped after three months if they have not been able to make a successful claim in that time.

Claimants who are not known to be vulnerable and do not have external organisations advocating for them still bear the entire risk of the move to UC. We believe that the Department should work with claimants, and better use the information they already hold, to ensure that everyone moves safely onto UC.  

3. How will we know when Universal Credit is ready to be rolled out to all claimants?

The improvements set out above should be implemented before UC is rolled out to all claimants. 

In 2018, the Social Security Advisory Committee (SSAC) recommended that the Department:

  • Publicly define what it considers good operational readiness to be.
  • Undertake a rigorous and transparent assessment of whether it has met these criteria.
  • Publish a detailed impact assessment of the migration plans by the end of March 2019, with an action plan for mitigating the effects of any adverse impacts published alongside the assessment.

The Department accepted these recommendations ‘in principle’ but has not committed to publish the information that the SSAC called for. We believe that they should do so.

In addition, we would like the Department to commit to assessing the roll-out of UC so far, and acting on three immediate priorities as a matter of urgency:

  1. Reduce the percentages of people who don’t get their payment on time. This has improved over the last year, but more than one in six still do not receive their first full payment on time. Of the households with new claims to UC full service in August 2018, 89% that were paid received some payment on time, compared to 86% in August 2017. For households with new claims to UC full service in August 2018, 84% of households that have been paid received full payment on time, compared to 74% in August 2017 (Department for Work and Pensions). 
  2. Reduce the level of rent arrears for people on UC and ensure security against homelessness and unsustainable debts arising from moving on to UC.
  3. Publish robust evidence showing that sanctions are not, and do not become, higher in UC than they were in the legacy system prior to 2006. Until 2006, the rate of sanctions among JSA claimants was steady for several years, at around 2%. After that time, the rate became very volatile, ranging between 2% and more than 5% (JRF Analysis Unit, 2017).

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