10Universal Credit
Policy changes in budget
146.The Budget announced that:
- from January 2018 those who need it, and who have an underlying entitlement to Universal Credit, will be able to access up to a month’s worth of Universal Credit within five days via an interest-free advance,
- the Government will extend the period of recovery [of advances] from six months to twelve months,
- from February 2018, the Government will remove the seven-day waiting period so that entitlement to Universal Credit starts on the first day of application, and
- from April 2018, those already on Housing Benefit will continue to receive their award for the first two weeks of their Universal Credit claim.131
Frequency of payments
147.Paul Johnson told the Committee that of the changes to Universal Credit (UC) announced, the removal of the seven-day waiting period was the “significant spending change”,132 but that at its peak it only costs £205 million per year, which in the context of the total changes brought about by Universal Credit was “a pretty small number”.133
148.Universal Credit is paid monthly, replacing several other benefits, among which Employment and Support Allowance and Jobseeker’s Allowance are paid every two weeks.134 The Chancellor told the Committee that paying UC monthly was intended to replicate patterns of payment in the world of work. He described this as part of the “fundamental design” of Universal Credit, pointing out that:
People are accruing an entitlement but being paid at the end of the monthly period, as is normal for 70 per cent of people in work.135
The Chancellor went on to say:
When somebody moves into monthly-paid work, they will have the challenge of working for four or five weeks, sometimes a little longer, before they get their first pay cheque. Most employers will make an advance available to someone coming into work against their first month’s pay136 […] What we have tried to do here is replicate what I believe is normal, good practice among many employers.137
149.Kayley Hignell, Head of Policy for welfare, work and family, Citizens Advice, told the Work and Pensions Committee that “Our own evidence shows that most of our clients are not paid monthly; they are paid fortnightly or weekly”.138 The Resolution Foundation’s assessment of the Budget stated that “The design of UC will still fail to reflect the reality of people’s lives, with issues such as its treatment of the self-employed or parents claiming support with childcare costs remaining problematic”.139
Taper rate
150.Within UC, a taper rate is set, which calculates the rate at which UC is removed as an individual’s income increases. The current rate of 63 per cent means that once a claimant’s earnings increase above the work allowances threshold to which they are entitled as set out under the UC framework, their income will be withdrawn at a rate of 63 pence for every extra £1 earned.
151.The taper rate was reduced from its initial rate of 65 per cent to 63 per cent at the Autumn Statement 2016, applying from April 2017 onwards. The Autumn Budget stated that “more people are moving into work within six months under Universal Credit than in the legacy system” but that “the taper rate will be kept under review and the Government will continue to consider the case for further changes”.140
152.In practice, the effect of the taper rate for UC recipients is much the same as that of a marginal rate of income tax on earnings. The Committee has previously taken evidence from Professor Philip Booth of the Institute of Economic Affairs on the taper rate who stated that the high rate could have an impact on “incentives to train, incentives to upskill, incentives to take more responsibility”141 but that these were unknown. However, he cautioned that “the only way you could reduce it [the rate] is either by having a longer taper, so that many more people are brought into the universal credit net, or by having a lower level of basic benefit to start with”.142
153.The Autumn Budget announced some welcome measures to address some of the problems encountered in the roll-out of Universal Credit. The removal of the seven-day waiting period ensures there is no period of time in which recipients are not accruing entitlement to payments. The ability to access up to one month’s worth of Universal Credit within five days via an interest-free advance should help to mitigate some of the delays in payment that have been experienced.
154.The purpose of Universal Credit is to help people into work, and to stay in work. The Government should ease the cashflow challenges around Universal Credit by giving recipients the option of fortnightly payments, should this be more consistent with household needs.
155.The Budget committed to keep the Universal Credit taper rate under review. Given that the taper rate may act as a disincentive to individuals taking on more work, or seeking promotion, the Government should explain why a high taper rate of 63 per cent is optimal.
132 Q141
133 Q141
134 HM Government, ‘How and when your benefits are paid’, accessed 17 January 2018
135 Q351
136 Q353
137 Q352
138 Oral evidence taken before the Work and Pensions Committee on 13 September 2013, HC (2017–19) 336, Q67
139 Resolution Foundation, Freshly Squeezed Autumn Budget 2017 response, November 2017
141 Oral evidence taken 6 December 2016, HC (2017–19) 837, Q273
142 Oral evidence taken 6 December 2016, HC (2017–19) 837, Q273
19 January 2018