Universal Credit and fraud and error: progress review Contents

Conclusions and recommendations

1.The Department for Work & Pensions has announced yet another delay to completing the roll-out of Universal Credit, which it attributes to policy changes announced over a year ago. We reported in February 2016 that the Department had again delayed the programme and that it then expected Universal Credit to be fully operational by March 2021. However, on 20 July 2016, the day we took oral evidence on this inquiry, the Department released a written Ministerial Statement setting out further delays to the roll-out of Universal Credit. The Department now plans to continue to roll out its full service to around five jobcentres per month until July 2017 rather than February 2017. This delay means that the Department now expects to complete the roll-out of the programme in March 2022, a year later than when we last reported. The Department maintains that policies introduced in the summer Budget 2015 changed the scope of the programme and required additional time, but these changes were not reflected in the outline business case submitted to HM Treasury in September 2015. The Department denies that it is attributing wider operational problems to policy changes and claims that internal reviews found that without these changes the Department had been on track for scaling up the full service from February 2017. But a flexible system should be able to cope with a degree of policy change. The Department needs to be clearer about what policy change it can incorporate without delay. Given the length of time taken to implement the programme some policy change is likely and we need a clearer picture of the impact on timetable.

Recommendation: The Department should explain why its flexible approach to system development has been unable to accommodate policy changes announced in July 2015 and should set out clearly what impact these delays will have on operational costs, staff and claimants on both Universal Credit and legacy systems. This explanation should be provided to the Committee by March 2017.

2.The Department has not updated its assessment of the expected benefits of Universal Credit in the light of policy and operational changes. The Department has now spent £1.16 billion on implementing Universal Credit, which has a caseload of around 280,000, compared to the over 6 million claimants expected in the long term. Despite having previously estimated that a six month delay to the programme could reduce net benefits to the taxpayer by £2.3 billion, the Department now maintains that the net benefits of the programme have not changed significantly from the £20 billion quoted in its 2015 outline business case. The Department rejected the recommendation we made in February 2016 that it should explain how the business case has changed following changes in policy to Universal Credit and other working age benefits, on the grounds that revising a business case takes four months. However the Department told us that it does have ready-reckoners and is able to model the effect of changes quickly, suggesting that it should have been able to accept our recommendation without causing disproportionate extra work.

Recommendation: We reiterate our previous recommendation that the Department should set out clearly the changes to the business case for Universal Credit since its outline business case in 2015. It should include a brief summary of the policy changes and, using its ready-reckoners, a clear explanation of the impact on the programme’s costs and benefits.

3.Systems underpinning Universal Credit are still underdeveloped and there are signs of pressure on staff. We welcome the fact that the Department has changed its mind and has now accepted our recommendations and those made by the previous Committee concerning the need for better contingency planning. But the Department still has a long way to go before systems will be ready to scale up Universal Credit significantly; we heard, for example, that only 25% of claims in the new full service are paid automatically. We also received written evidence that staff are concerned about the lack of training and the pressures of work preventing adequate testing and learning within the new service.

Recommendation: Before the speed at which Universal Credit is rolled out is increased, the Department should ensure that there are sufficient opportunities for staff to engage in testing and learning processes, and set out for the Committee what it has done to address staff concerns. The Department should write to the Committee to inform it of action taken by May 2017.

4.Universal Credit’s rigid monthly assessment period causes difficulties for claimants whose pay or rent are based on four-weekly periods. Claimants whose pay or rent cycle does not match the monthly assessment period used for Universal Credit may experience difficulties, such as a drop in payment without warning. Similar issues arise when people are paid early for Christmas. The Department’s only solution appears to be to try and persuade employers and landlords to change their pay and rent practices, rather than seeking to make its own systems more flexible. With the number of employees and landlords the former is unlikely to be feasible.

Recommendation: The Department should ensure that claimants whose pay or rent cycles do not align with Universal Credit assessment periods are made aware of this issue and the potential consequences, and are informed of what support is available should this be needed. The Department should also examine what it can do to adapt its systems to cater for these circumstances or provide more information about what it is doing to secure change with employers and landlords.

5.Neither the Department for Work & Pensions nor HMRC has set meaningful targets for tackling fraud and error. HMRC has set a target for overpayments of tax credits due to fraud and error for 2016–17 of “no more than 5%” of expenditure, which is higher than the 4.8% it is estimated to have achieved in 2014–15. HMRC tells us it is doing everything it can to reduce fraud and error further, so it is disappointing that it is unwilling to back that up with a more stretching target. The Department for Work & Pensions has disaggregated its overall fraud and error figure to set projections in four major areas of benefit expenditure of what it expects to achieve in 2017–18 compared to 2013–14. However, it has not set a proper target for each of these areas. The two departments’ unwillingness to set demanding targets that require improvement on current performance levels seems to imply a lack of confidence in and commitment to their own efforts to improve.

Recommendation: The Department for Work & Pensions and HMRC should set stretching targets for fraud and error across all benefits and tax credits to secure better performance, review these targets annually, and report progress to the Committee.

6.The Department for Work & Pensions’ understanding of the level and causes of fraud and error in Universal Credit and some other benefits is incomplete, potentially undermining efforts to reduce losses. While the Department expects Universal Credit to reduce fraud and error overpayments by £1 billion a year when it is fully rolled out, initial estimates indicate that the level is currently higher than the Jobseeker’s Allowance that it is replacing. The Department attribute this to the difficulty of developing a suitable methodology to measure fraud and error in Universal Credit, as the new benefit is designed to support both those in work as well as those out of work, and to cases where the Department was unable to contact claimants to verify the payment made. The Department does not regularly measure fraud and error across all its other benefits; for example, fraud and error in the payment of Carer’s Allowance has not been measured for 20 years.

Recommendation: The Department for Work & Pensions should: establish and agree with the National Audit Office a robust method for estimating Universal Credit fraud and error; and undertake regular risk assessments to improve its understanding of the causes of fraud and error in those benefits where it has not been measured for some time or at all.

7.The Department for Work & Pensions estimates that inaccuracies in its information on income and earnings resulted in almost £1 billion of losses in 2015–16. We recognise that both departments now have a better understanding of the major causes of losses and are improving their understanding of the root causes of fraud and error. Both departments have developed initiatives for income and earnings, which is the Department for Work & Pensions’ largest cause of loss, based on the use of Real-Time Information (RTI), where employers with PAYE schemes send details to HMRC every time they pay employees. The Department for Work & Pensions now has a real opportunity to fully exploit RTI data to adjust benefits before they are paid to achieve a meaningful reduction in income and earnings losses. Both departments told us that they were developing initiatives in other areas also, such as working with banks to identify undeclared capital. They also both noted that some areas of loss remained more difficult to tackle, including cohabitation (living together), abroad fraud (where claimants pretend to live in the UK to claim benefits, but are actually living overseas) and earnings not covered by RTI (such as for the self-employed).

Recommendation: The Department for Work & Pensions should update the Committee, following the publication in November 2016 of the 2015–16 final fraud and error estimates, on its progress in tackling the largest areas of loss. It should include details of the impact of making full use of RTI in reducing over and underpayments due to errors in income and earnings.

8.Too many claimants are unclear about the rules and obligations that apply when claiming benefits or tax credits, leading to high levels of claimant error. Both HMRC and the Department for Work & Pensions referred to the actions they undertake to engage with claimants to make them more aware of their obligations to report changes that may affect their benefits, and cited the opaque definition of “living together” as an example of where claimants may struggle to interpret rules and reporting obligations. We recognise the difficulties claimants face in understanding what changes to report and when to report them. Improving claimants’ understanding of the relevant rules and obligations is essential to reducing claimant error. Work to enhance accuracy of payments and so prevent overpayments from occurring in the first place will also reduce the worrying burden on claimants who later face recovery of erroneous payments. The departments did not accept two of our October 2015 recommendations: to set targets for reducing underpayments and for HMRC to review claimants’ experiences of the tax credits process. We are pleased that the departments have changed their views and now accept these recommendations.

Recommendation: The Department for Work & Pensions and HMRC should: report back to the Committee by the end of the year on what has been set for their new underpayments and accuracy targets, and the rationale behind those targets; and undertake research to understand the issues that confuse claimants and take appropriate action to better inform claimants of the rules and their obligations in order to reduce the level of claimant error.

© Parliamentary copyright 2015

3 November 2016