Universal Credit – why we need to stop, now

2 October 2017

There are times when it can be hard to know where to start. With the debate on Universal Credit (UC) reaching a fever pitch in the run up to the Conservative conference this week, this feels like one of those times.  So to save you from having to read to the end, I’ll start there: as Citizens Advice has said, Universal Credit needs to be paused now.  And as we and many others have said, before we press ‘play’ again the government needs to move back to fortnightly (or even weekly) payment and to address the huge cuts to financial support for low income, working families.

But to start at the beginning, there are three big problems with UC. First, it’s not getting paid on time.  The Department for Work and Pensions (DWP) finally published data on UC processing times on Friday 15 September, the day Parliament broke up for its conference recess.  Things published on a Friday afternoon before recess generally don’t have good news in them, and sure enough this didn’t.  The figures showed that fully one quarter of UC claimants don’t get their benefit on time, which in practice means waiting more than six weeks for payment.  By comparison, for the main benefits that UC replaced, just:

  • 89% of Jobseeker’s Allowance claimants were paid within two weeks;
  • 94% of Employment and Support claimants were paid within three weeks; and
  • 96% of Income Support claimants were paid within 2½ weeks.

Meanwhile for housing costs, which is by all accounts causing the biggest headaches in UC (and who could have seen that coming seven years ago?) the latest data shows that Councils are processing new claims for Housing Benefit on average in four weeks.

This matters because if people can’t get their money on time they’re at greater risk of falling into debt; more likely to see their health and wellbeing suffer; and are more likely to be wasting time chasing payment when they could be looking after their family, getting better or looking for work. All of this is well evidenced and understood – in research by Citizens Advice, ourselves and others.  But it also matters because we shouldn’t have to accept poor quality public services.  It shouldn’t be ok to replace tried and tested systems that work well, with new and untested ones that don’t.

The second big problem though is that even if UC is being paid ‘on time’, claimants need to wait up to six weeks to get paid. So the policy is the problem, and it is wrapped up in magic thinking that by making benefits replicate a monthly pay check, people would find it easier to take up work that is also paid monthly.  But there are three problems here.  First, the initial UC payment is not made a month after claiming, but six weeks later – creating unnecessary and counterproductive delays.  This needs to be fixed, although it would come with a one-off cost.  Secondly, around a third of low income workers get paid weekly or fortnightly and this figure is likely growing with the gig economy.  But thirdly, even for those who are paid monthly, the more frequent payment of tax credits makes it easier rather than harder for low income families to budget by helping to smooth income between pay cheques.  So weekly or fortnightly payment can be a help rather than a hindrance.  It can make work decisions easier, not harder.

In fact, there’s growing evidence that DWP (or Jobcentre Plus) recognises this. As on the same day that the UC processing data came out, the government also published data showing that half of all new claimants for UC are also getting a payment ‘advance’ – so receiving part of their money effectively up-front, to help with budgeting.  So why change the frequency of payment?  Why have a system where the default is to pay monthly, but then in half of cases pay the money sooner?  And even if you agree with the government, why not properly test the alternatives – with, for example, a rigorous trial that measures the impacts on debt, wellbeing, income and employment of paying UC weekly, fortnightly or monthly.  Sadly, the best argument that I’ve heard against doing this is that the computer would say no – it’s been built for monthly payment and it’s too difficult to change.

The third big issue, finally, is the swingeing cuts made to in-work support by George Osborne back in 2015. As the Resolution Foundation and others have explained, while these cuts were reversed for tax credits claimants they were baked in to Universal Credit.  I pointed out at the time (pdf) that this moved UC from being a measure that costs the Treasury money to one that saves it a lot of money, and so was the moment that UC finally became irreversible.

The consequence of these savings – around £3 billion – are hard to overstate. For many low income people out of work, particularly those with caring responsibilities or high costs, it will reintroduce the ‘unemployment trap’ – where it doesn’t pay to work; and for many of those in low paid work it will exacerbate the ‘poverty trap’ where working more leaves you little better off.  Again on 15 September, we had an early warning of how this will play out in the coming years – with rigorous research for DWP suggesting that many working claimants were actually less likely to want to increase their hours once they understood just how much of those earnings they would then lose.  The great hope of UC – for a more transparent, fairer and more generous system of support in work – risks unravelling.

We’ve called for these cuts to be reversed in our Budget submission.  This will cost money – likely around £3-4 billion a year – but without these changes UC will fail in the long run.  And what is more, without these changes lifting the cap on public sector pay would also fail, as many of the public sector workers who are most in need of a pay rise will see three quarters of that pay being clawed back again from Universal Credit, tax and national insurance.

So, it’s time to pause UC. In principle, there is much to welcome in Universal Credit – the simplification of the benefits system, the huge investment in work coaches, finally the replacement of computer systems that pre-date the worldwide web.  The signs are that this is having small but significant positive effects on employment (with UC claimants 3 percentage points more likely to be in work than under the old system).  But we risk undermining this if we don’t slow down and be prepared to change course.  It would take a brave Secretary of State to do so.  Changing course could ultimately mean writing off some development costs, writing off some of the savings, and possibly needing to legislate (which would realistically be the end of this parliament or the start of the next).  But it is the only way now that we will get UC right.  And in my view, it would take an even braver Secretary of State not to do so.

Sometimes, if you don’t know where to start the best thing that you can do is just stop.