Work and Pensions Committee - Universal Credit implementation: meeting the needs of vulnerable claimantsWritten evidence submitted by VocaLink


1. VocaLink welcomes the Committee’s inquiry into the progress of the implementation of Universal Credit. VocaLink has been closely involved with the development of the Real-Time Information (RTI) project for PAYE, which is designed to underpin the introduction of the Universal Credit. Separately, VocaLink has been participating in pilot counterfraud projects with several government departments and agencies which could also have applications for Universal Credit. Finally, VocaLink has advanced some ideas as to how the payment process for benefit recipients can be improved and in particular how the challenges of financial exclusion can be overcome.

2. VocaLink’s submission therefore focuses on the first two elements of the Committee’s areas of interest:

The proposed arrangements for claims and payments.

Progress with the IT developments needed to administer Universal Credit.

Nature of the Challenge

3. Before looking at specifics, VocaLink would like to make two general points about the development of Universal Credit.

3.1 First, the record of government in delivering large scale IT projects has, understandably, been the object of much criticism over many years. This has led to some scepticism about the ability of DWP to deliver Universal Credit on time (and on budget). In VocaLink’s view, this is to misunderstand the nature of the technological challenge facing the Department. The fundamental concept of the thinking behind the RTI project was the reuse of existing infrastructure, not the development from scratch of new IT systems. Although HMRC (which is in the lead on delivering RTI) has, in VocaLink’s view, departed from this original concept in some important respects, it has, in great measure, avoided the temptation to reinvent the wheel and build unnecessary new systems. The challenge therefore is not to make something new but to take what is already available (and working) and ensure that the right components are deployed in the right way at the right time so that a new service (Universal Credit) can be built from pre-existing components.

3.2 Secondly, and related to the first point, the delivery of Universal Credit is not solely in the gift of DWP. In order for UC to be delivered successfully, and on schedule, DWP needs to work closely with a number of other major stakeholders, including, of course, HMRC, and VocaLink, as operators of the interbank payments systems, but also the rest of the banking infrastructure, the banks themselves and agencies such as the Post Office (for example in relation to Post Office Card Accounts). The challenge for DWP, as VocaLink sees it, is therefore to act as an enabler, ensuring that the disparate elements required to come together for UC to work are assembled in the right way and at the right time. This is undoubtedly a significant challenge but it is not the same challenge as building a new IT system from scratch.

Arrangements for Payments

4. A number of elements need to be addressed by DWP in order to ensure that:

The claimant entitled to receive UC is actually who he or she claims to be (Trust = ID Assurance).

The amounts claimed are those to which the claimant is entitled (Risk = Counterfraud/Eliminating Error).

Claimants without full bank accounts can receive payments and have some level of bank account functionality (Financial Inclusion).

Claimants have provision for budgeting and social landlords are protected (Jam Jar Accounts/Transporting of Housing Benefit Payments).

5. ID Assurance

DWP is aiming to move 80% of Universal Credit claims online (“Digital by default”), which will need a robust trust model to be in place across not just digital but also the proposed telephone and face-to-face channels.

However, this target (of 80% of Universal Credit interactions being conducted online) means that DWP needs to deploy an online trust model which utilises as wide a range of online identity verification sources as possible—including ones from the UK banking sector which are not currently part of the Department’s ID assurance procurement.

Equally as important will be that DWP does not restrict how individuals can assert their identity online by technically preventing existing online identities being used: eg will an individual be able to use their online bank account login as a means of asserting to DWP who they are?

6. Fraud and Error

There are a number of types of fraud practised on the benefits system, including: identity fraud (either falsely claiming to be someone who is entitled to benefits; or creating a wholly fictitious persona in order to claim benefits); or concealing personal information (or changes in circumstances) which would have an impact on benefit entitlement. Of course, change in a claimant’s circumstances could also lead to an increased entitlement, so it is doubly important that accurate data about a claimant’s circumstances are known to DWP at the time a claim is made (see below).

All fraudulent claims are wrong but the most serious losses to the Exchequer arise from the activities of organised crime. By tracking how accounts are linked together VocaLink is able, in conjunction with other agencies, to help to expose organised fraud by serious criminals.

7. Financial Inclusion

The Financial Inclusion Task Force (FITF—now disbanded) reported in December 2010 that, in 200809, there were just over 1.1 million households (3%) and around 1.5 million adults (4%) in the UK without a transactional bank account. Some of them will have a Basic Bank Account (BBA) or a Post Office Card Account (POCA). Many of them will be likely to be in receipt of Universal Credit at some time.

However, in order to meet one of the objectives of the Universal Credit—that recipients should be encouraged to exercise more control over their own financial affairs, and be able to move more easily into eg part-time work (for which they are highly likely to be paid via a bank account) rather than being trapped on benefits—it is vital that those claiming Universal Credit should have access to a wider range of bank account functions than those available in a BBA or POCA. Ideally, they should be able to:

Receive Universal Credit, payroll and other bank credits.

Have a branded debit card for retail purchases.

Have access to ATM networks.

Be able to set up Direct Debits or Standing Orders to pay utility bills (and therefore benefit from better deals).

Have access to account management facilities online, via ATMs and in-branch.

Once a basic level of functionality has been made available, it would then also be important to consider other features which might particularly benefit UC claimants who have hitherto been financially excluded. These might include:

The development of so-called “Jam Jar Accounts”, which subdivide an account balance into spending, saving and bill payment portions (and replicate the way in which many people who do not have a bank account budget for expenditure in cash terms).

Introducing a linked direct credit/direct debit to an account held by the benefit claimant, which would both allow the claimant to “see” the element of UC which represented Housing Benefit and ensure that the landlord is paid (ie the rent payment would be directly “ported” through the claimant’s account to the landlord).

It is understood that DWP is to procure the provision of a new kind of account which will sit between a BBA and POCA. In VocaLink’s view, it is important that this new type of account should not only have the range of features outlined above but should also be designed and operated so as to support financial inclusion in its widest sense, and not be limited only to meeting the criteria needed to make Universal Credit work. This would be to miss an opportunity to broaden financial inclusion across the piece.

In order to facilitate this, VocaLink would invite the Committee to consider whether such a new account should be administered independently, rather than being operated under the auspices of DWP. This is likely to ensure that the new type of account will have the widest appeal, the greatest utility and the maximum degree of flexibility and scalability. This would ultimately help to achieve the underlying objective of Universal Credit, namely encouraging greater responsibility and self-reliance in claimants and in those who have to date largely been excluded from mainstream financial products and services.

Technology Underpinning Universal Credit

8. In this section, VocaLink considers:

The progress made to date in implementing RTI.

How well RTI, as it is being implemented, will support the introduction of Universal Credit.

Ensuring that the administration of Universal Credit will be integrated with the banking and payments infrastructure.

9. RTI and the Introduction of Universal Credit

The strategic policy goal for Universal Credit is to enable the accurate tapering of payments in order to fully support individuals as they move into and out of work. In addition, the use of Real Time Information (RTI) to underpin determination of Universal Credit claims will greatly reduce both fraud and error (in the form of under- and overpayments—see below). To achieve this strategic goal, the UC payment needs accurate and Real Time Circumstance and earnings information to be available at the point of Universal Credit calculation—ie if the payment is calculated at 4am on a Tuesday it needs to use circumstance and earnings information from up to midnight on Monday. This is especially true where the Universal Credit payment will be made via Bacs—payments calculated at 4am on a Tuesday would not be paid until 6am on Thursday.

10. RTI Progress to Date

In relation to Universal Credit the ultimate (strategic) objective of RTI is to enable employers to input earnings information in an accurate and real-time way by linking it to an employee’s payroll data. This link, if implemented correctly, will support greater validation and compliance, within payment infrastructures, in the same timeframe as the payroll payment is paid into the employee’s bank account.

However, in order to meet an April 2012 RTI Pilot date HMRC decided to introduce an “Interim” RTI solution based upon employers sending their RTI earnings information with unique hash tags (based on data from each payroll payment plus a four-digit seed number) through existing HMRC EDI and Government Gateway channels, followed by a post-payroll payment compliance check against the hash tag to validate if RTI earnings information for an employee was received at the same time as the employee was paid.

As the “Interim” solution is currently the only declared way for employers to submit RTI, it is crucial for DWP that RTI is able to meet the Department’s ultimate (strategic) objective for RTI in relation to Universal Credit.

If the results from the RTI Pilot show the “Interim” solution to be delivering slower and less accurate earnings data than required for Universal Credit calculations then the absence of any plans to progress what has been called the “Strategic” RTI solution will impact the error rate and hence roll-out of Universal Credit.

11. Integrating Universal Credit with the Banking Infrastructure

In order for Universal Credit to be truly responsive to an individual’s change of circumstances, UC, once calculated, must be able to be credited immediately to an individual’s chosen bank account.

It will be important therefore for the Department both to ensure that there are no internal delays in the time it takes it to process and make payments, and also for it to continue to push for unfettered access to the Bacs and Faster Payments systems.

This latter point, pushing for direct unfettered access to the payments infrastructure, will be particularly important if the Department wants to use the Faster Payments Service to credit an individual’s account immediately. This is something that the Department and the Select Committee might want to progress with HM Treasury and the newly-formed Parliamentary Commission on Banking Standards, in order to ensure that a consistent approach to payments infrastructure access, supportive of DWP’s Universal Credit needs, is progressed by Government.

14 August 2012

Prepared 21st November 2012