Universal Credit: the wait for a first payment Contents

2The impact of the wait

10.Our inquiry’s call for evidence invited submissions on people’s experiences during the wait for their first Universal Credit payment. We received evidence from both organisations and individuals, including claimants, which suggests that a significant proportion of people face financial difficulties during the wait. StepChange, a charity that supports people with problem debt, said that 92% of its clients affected by the wait said that they had experienced some form of hardship as a result.7 Citizens Advice said that half the people it helps during the initial wait are “unable to keep up with bills, rent or are forced to go without the essentials such as food and heating”.8

11.The National Audit Office (NAO), in its report Universal Credit: getting to first payment, said that, while the wait for a first payment is not the sole cause of the financial difficulties experienced by people claiming Universal Credit, it can exacerbate them.9 Minesh Patel of Citizens Advice acknowledged that there are multiple reasons why people may face hardship, but said that the wait is a contributing factor:

There will be a range of factors here, but we think the five-week wait for Universal Credit is often a contributing factor to people being unable to make ends meet, to meet essential costs. With people we support at Citizens Advice, often we are seeing people who are already facing financial difficulties. They may have lost their job, they may have had a relationship breakdown, and then having to go for five weeks without any money can be really challenging.10

Savings and financial resilience

12.Many people do not have any savings that they can fall back on during the wait for their first payment, though they can ask for an Advance payment if they need one (for more detail about Advances, see chapter 5). The Department’s own data, highlighted by the NAO in its report, revealed that 49% of households who claimed Universal Credit in the four year period to mid-2018 had no income in the three months before their date of claim.11 Citizens Advice found that 45% of UK adults either have no savings or savings of less than £2,000 that they can rely on in the event of an income shock or change in circumstances. Its 2019 report, Managing Money on Universal Credit, quoted one of its advisers:

“[UC] is fine for people who’ve recently been made redundant, who are used to being employed, who have savings and capital … The vast majority of clients don’t fit that model.”12

Since the beginning of the coronavirus pandemic, however, far more people have moved to Universal Credit from work than legacy benefits. This new group of claimants is substantially more likely to have recent income from work and better financial resilience.

13.In its report, Citizens Advice highlighted that, for many people, their claim for Universal Credit will have been triggered by a life event such as losing a job, falling ill or breaking up with a partner. Citizens Advice said that life events such as these, especially when unexpected, “often reduce people’s income and can be common triggers for unmanageable debt”.13

14.We heard evidence from representatives of housing associations: The Riverside Group, Community Housing Cymru, the Scottish Federation of Housing Associations and the National Housing Federation. When asked whether their tenants typically had savings to last them during the wait, all four witnesses were clear that the majority did not have sufficient savings that they could fall back on. Sue Ramsden of the National Housing Federation referred to a survey of 3,000 tenants in England which found that many people struggled during the wait:

84% of people said that they did not have the equivalent of a month’s wages to tide them over the five-week period. There were quite significant levels of hardship in terms of people reporting struggling to pay for essentials: 55% were struggling to pay for food, gas and electricity; 27% were accessing food banks. That is a very strong indication that people do not have anything to fall back on in terms of their ability to manage across those five weeks without borrowing, so very high instances of borrowing, particularly people borrowing from friends and family. Obviously, that has a wider impact across a community.14

Food banks

15.The question of whether there may be a link between the rollout of Universal Credit and increased food bank use is not a new one. The NAO’s report Rolling out Universal Credit, published in June 2018, found that there had been “an increase in the use of foodbanks in at least some areas where Universal Credit full service has been introduced”.15 The former Secretary of State for Work and Pensions, Amber Rudd, told the House in early 2019 that the reason for the rise in food bank use “could have been the fact that people had difficulty accessing their money early enough”, and said that DWP had introduced Advances and run-ons of legacy benefits to address this.16

16.The Department has since rejected the suggestion that there is a link between Universal Credit and rising use of food banks. In a letter to the Committee dated 31 March 2020, Will Quince, the Minister for Welfare Delivery, said that it was “unhelpful” to attribute food bank use to Universal Credit:

While Trussell Trust have claimed that there is a 52% growth in Food Bank demand in areas where Universal Credit has rolled out, their evidence also shows that in 2018/19 only a small minority of referrals were due to benefit delays caused by UC. This shows that Food Bank use cannot be linked to a single cause. It is unhelpful and an oversimplification however to attribute foodbank usage to UC and the first assessment period and fails to acknowledge the many reasons somebody may make use of a foodbank.17

Evidence from stakeholders

17.During our inquiry, we heard evidence from organisations that support claimants about the link between Universal Credit and food bank use. The Disability Benefits Consortium, a network comprising charities that support disabled people and people with health conditions, surveyed claimants and found that 31% of people who responded said they had turned to a food bank.18 We also heard from Emma Revie, the Chief Executive of the Trussell Trust, which supports a network of over 1,250 food banks. She said that the Trussell Trust’s data shows that Universal Credit claimants are more likely to need to turn to food banks than people on legacy benefits, and that the wait for a first payment is likely to be a significant factor behind this:

Our most recent analysis at the end of last year showed that, in areas where Universal Credit had been rolled out for 12 months, we saw a 30% increase in foodbank use. [ … ]

We also commissioned a piece of research with Heriot-Watt University, which looked at our foodbank data over the last eight years and also collated data from DWP and ONS. Our analysis shows that those claiming Universal Credit rather than legacy benefits were far more likely to need to turn to a foodbank, with 27 more parcels distributed per 100 people on Universal Credit than on legacy benefits. Although, as Minesh said, we cannot say that that is entirely down to the five-week wait, we know that this is a significant contributing factor as to why people on Universal Credit are more likely to come to foodbanks than those on legacy benefits.19

18.The NAO referred to the Trussell Trust’s data on food bank use in its July 2020 report, Universal Credit: getting to first payment. It found that it is not possible to determine whether the rise in food bank use is directly caused by the wait for a first payment. The NAO, however, noted the Trussell Trust’s finding that, of the 1,000 people involved in its research, 27% said that they had turned to food banks because of “a long wait for Universal Credit”.20 Gareth Davies, the Comptroller and Auditor General, told us that the Trussell Trust’s work was “the best research we have seen on the link between UC first claims and use of food banks”, noting that “they establish an association—it doesn’t prove causation, but it establishes an association”.21 He said that, in the NAO’s view, “there is enough evidence to raise this as an issue for the Department to carry out further research on because it does need to understand better exactly what the link is and why it is cropping up in the research so far”.22 Joshua Reddaway, Director for Work and Pensions, Value for Money, at the NAO described the Trussell Trust’s research as “a fairly sophisticated and good piece of research showing correlation”.23

19.We asked the Minister again, when he gave evidence on 15 July, about the evidence suggesting that people on Universal Credit are more likely to need a food bank than people on legacy benefits. He said that the Department is taking steps to improve its understanding of food insecurity, including food bank use:

[ … ] We do not want to see anybody having to use a foodbank in this country. I certainly do not want to see that. We are taking huge strides to better understand food insecurity in this country. That is why we have put in place new questions on the Family Resources Survey as of April of last year and that will be hugely informative for our future work. It is also why we work very closely—and I have held numerous roundtables—and meet regularly with the Trussell Trust and the Independent Food Aid Network to better understand their issues. If we were to have better understanding of their data, Chair—and we have asked, for example, the Trussell Trust for that—we would be able to take a more evidence-based approach to them.24

20.It emerged in August 2018 that DWP had commissioned a review of the evidence on foodbank use, which was intended “to identify any areas of DWP policy or operational practice that may have contributed to a rise in demand for food bank services”.25 It was due to be published in October 2019. In answer to a recent written question, the Minister for Welfare Delivery did not give a date for publication of the review, but said that “the literature review on the drivers of food bank use will be published in due course”.26

Rent arrears

21.Universal Credit has also been linked to a rise in rent arrears. Citizens Advice said that, based on its research in 2019, around 40% of people on Universal Credit struggled with rent and mortgage costs compared to 23% of people on legacy benefits.27 During our inquiry, we heard evidence from representatives of London Councils (which represents the 32 London boroughs and the City of London), Harrogate Borough Council, Highland Council and Cornwall Council. All four witnesses told us that their tenants who receive Universal Credit are more likely to be in arrears than tenants on Housing Benefit. For example, Noel Duke of Harrogate Borough Council, the location of DWP’s pilot of the managed migration process, told us that 56% of its tenants on Universal Credit are in arrears, compared to around 30% of Housing Benefit claimants.28

22.The Department has cautioned against comparing statistics that are derived from local authority level data on levels of rent arrears held by people on Universal Credit and people on legacy benefits. This is because, in its view, “they do not compare groups with the same characteristics”; where a person has been on legacy benefits for some time, the Department says that their arrears are more likely to be under “long-term management”, and therefore will have been given time to clear. In contrast, a person claiming Universal Credit may have just experienced a destabilising life event, meaning that their arrears are less likely to be under management.29 When asked about the comparison between arrears in Universal Credit and the legacy system, Neil Couling, the Senior Responsible Owner for Universal Credit, said that it was not possible for him to create a counterfactual, and that comparing the two involves “looking at new claims after a potentially debt-creating event with claimants that have been on benefits for a long time”.30

NAO’s findings

23.For its report Universal Credit: getting to first payment, the NAO looked at data held by DWP on levels of rent arrears, which the Department obtained through research with eight housing associations. It tracked the average level of rent arrears for the period before and after a person lodges a claim for Universal Credit, and found that there is a rapid increase in the level of arrears after the date of claim, peaking at 13 weeks after that point.

Figure 1: Four-week moving average: average tenant arrears across all tenants for three annual cohorts

Source: National Audit Office, Universal Credit: getting to first payment (Figure 7)

24.We asked the Minister and Neil Couling, the Senior Responsible Owner for Universal Credit at DWP, about the NAO’s findings. Neil Couling told us that, had the graph above continued beyond the 17-week point, it would show a decline in the level of rent arrears.31 The NAO’s report says that, after the 13-week peak, rent arrears begin to decline, and reach the level they were at the start of the claim after around one year.32 The following graph, provided by the NAO and based on the Department’s data, shows that while rent arrears do not quite reach the same level they were at the start of the claim for any of the three cohorts, there is a noticeable decline:

Figure 2: Four week moving average: the average rent balance across all tenants for three annual cohorts

Source: Letter from the Comptroller and Auditor General dated 5 August 2020

25.In a letter to the Committee of 5 August, Gareth Davies, the Comptroller and Auditor General, said that the decline in tenants’ rent arrears is likely down to the fact that many have an Alternative Payment Arrangement (APA) in place, where the housing element of their award is paid directly to the landlord:

[ … ] the Department’s research notes that the majority of people with rent arrears with social landlords put an Alternative Payment Arrangement in place whereby the social landlord is paid directly by the Department. This tends to lead to social renters’ rent arrears reducing while they are on Universal Credit.33

26.When we asked the Department about the evidence we heard which suggests that Universal Credit claimants are more likely to have rent arrears than people on legacy benefits, the Minister said that he had “not seen evidence in that regard”.34 Neil Couling said that, rather than Universal Credit itself being the cause of rising arrears, the life event or change in circumstances that could have triggered a Universal Credit claim may be the main factor:

You are looking at new claims after a potentially debt-creating event with claimants that have been on benefits for a long time. If you look at figure 7 [of the NAO’s report; figure 1 in this report] , you can see that there is an increase of four-week arrears to six-and-a-half-week arrears, but if they had continued that chart on you would see it coming down.35

Mental health and wellbeing

27.The impact of the wait is not purely financial. During our inquiry, we heard evidence suggesting that, while it is not possible to establish whether the wait for a first payment—or a change to a different benefits system per se—is the source of claimants’ mental health issues (in terms of levels of psychological distress), the introduction of Universal Credit can have an adverse effect on levels of psychological distress. Dr Sophie Wickham, a Wellcome Trust research fellow at the University of Liverpool’s Department for Public Health, Policy and Systems, works on a team that looks at the impact of welfare reform on health inequalities. This team conducted a study, the findings of which were published in The Lancet Public Health, a medical journal, which examined the impact of the introduction of Universal Credit on claimants’ mental health.36 Dr Wickham said:

We found that the introduction of Universal Credit led to an additional seven people experiencing worse mental health for every 100 people affected by the policy. When you put this back out into a population level, so back out at the national level, we estimate that the introduction of Universal Credit led to an additional 64,000 unemployed people experiencing psychological distress and of these individuals, we estimate that around 21,000 reached a diagnostic threshold for anxiety or depression.37

28.Dr Wickham told us that this study looked at Universal Credit as a whole, rather than focusing on the wait for a first payment. We heard from other organisations, however, that highlighted the specific role that the wait can play in affecting mental wellbeing. The Trussell Trust said that the wait for a payment itself can create anxiety for claimants:

The wait itself caused a high level of anxiety, as people did not know how much they would receive and when exactly they would receive it. Individuals also experienced intense anxiety related to accruing rent arrears and multiple debts. Many households reported receiving many debt notifications, threats of eviction, and court action.38

29.Anvar Sarygulov of Bright Blue told us that, based on its research, which included interviews with claimants and focus groups with charities that support them, people with pre-existing mental health problems are more likely to experience problems during the wait. He also told us that the wait can have a negative impact on overall mental wellbeing, which can arise not just from anxiety about rent arrears and bills, but from the stigma of having to borrow money from family and friends.39 Dr Mark Simpson of Ulster University and others looked at the experiences of a group of claimants in Northern Ireland, some of whom experienced feelings of “shame and inadequacy” after having to rely on food banks or charities for support. The same research highlighted that many people who are claiming Universal Credit for the first time are doing so following a traumatic life event, such as the loss of a job or death of a relative, and “having to deal with the five-week wait only [compounds] the impact of these events on wellbeing”.40

30.The wait for a first payment of Universal Credit is not the only source of the problems people face, but it can exacerbate them. For people who may already be going through a difficult time, enduring five weeks—or longer—without any income can push them into crisis.

31.DWP has previously adopted a sceptical attitude towards the evidence linking food bank use with Universal Credit. The Minister has now recognised that the Department needs to do more to improve its understanding of the what causes food bank use to increase. This is a welcome step. The Department has still not published its own analysis of the drivers of foodbank use, which it commissioned in 2018 and which it originally planned to publish in October 2019. We recommend that the Department publish this work without delay.

32.The Trussell Trust’s data, described by the National Audit Office as the best research it has seen, establishes an association between Universal Credit and food bank use. We share the National Audit Office’s view that the Department should conduct further research to understand these findings better. We would also encourage the Trussell Trust to contribute to this work by sharing its data with the Department.

33.We also heard evidence which suggests that people on Universal Credit are more likely to have rent arrears than people still claiming legacy benefits. The Department’s own data show that, while some people who come onto Universal Credit have pre-existing rent arrears, the level of these arrears rises much more sharply after they make their claim. Even after a year, they have not fully returned to their pre-claim levels. That too is a worrying finding which deserves investigation by DWP.

34.There is also research which found evidence of an increased prevalence of psychological distress, following the introduction of Universal Credit, among people affected by the policy. The research was not able to delineate whether a change of benefit system in itself—such as moving to Universal Credit—was a driver of the rise in psychological distress in the sample of people studied. Further research and evaluation would be needed to understand the drivers behind this rise and its clinical impact. In addition to this, there are wider reports of the impact of the wait for a first payment on claimants’ mental wellbeing. Again, the connection between these findings and the wait for a first payment is not yet clear. But the Department ought to seek to understand this evidence.

35.DWP should conduct or commission research, before the end of this financial year, to develop its understanding of the impact of Universal Credit, particularly the wait for the first payment, on the rising use of food banks; on claimants’ levels of rent arrears; and on claimants’ mental health and mental wellbeing. While the evidence we heard falls short of establishing a causal link between the wait and these experiences, that is no reason for the Department not to take these findings seriously. It should use them as a starting point for a concerted effort to understand the full impact of the wait for the first payment, and how this may differ for claimants who are moving to Universal Credit from legacy benefits and for those who are making entirely new claims. DWP should more thoroughly consider the evidence linking Universal Credit to increased use of food banks, rent arrears and psychological distress and should use this in its overall strategy for protecting claimants’ safety and wellbeing.

36.DWP should publish details of the meetings that it holds with stakeholders, like the Trussell Trust, to ensure that the public and Parliament know that important and well-regarded research, such as that produced by the Trussell Trust, is considered when policy and operational decisions are made. The publication should include the topics that were discussed and any actions that the Department decided to take following the meeting.

7 StepChange (UCW0047)

8 Citizens Advice (UCW0060)

9 National Audit Office, Universal Credit: getting to first payment, July 2020, p13

10 Q2

11 National Audit Office, Universal Credit: getting to first payment, July 2020, p8

12 Citizens Advice, Managing Money on Universal Credit, February 2019, p16

13 Citizens Advice, Managing Money on Universal Credit, February 2019, p22

14 Q130 (Sue Ramsden; see also Hugh Owen, Laura Courtney and Jeremy Hewer)

15 National Audit Office, Rolling Out Universal Credit, 15 June 2018, p8

16 HC Deb, 11 February 2019, col 593 [Commons Chamber]

17 Letter from the Minister for Welfare Delivery dated 31 March 2020

18 Disability Benefits Consortium (UCW0061)

19 Q4

20 National Audit Office, Universal Credit: getting to first payment, July 2020, p9

26 PQ 9079, answered 5 February 2020

27 Q2 (Minesh Patel)

28 Q98 (Noel Duke, see also Councillor Muhammed Butt and Sheila McKandie) and Q100 (Jacqueline Hickmore)

29 Letter from the Minister for Welfare Delivery dated 27 August 2020

31 Q213 (Neil Couling)

32 National Audit Office, Universal Credit: getting to first payment, July 2020, p25

33 Letter from the Comptroller & Auditor General dated 5 August 2020

36 Dr Sophie Wickham and others, Effects on mental health of a UK welfare reform, Universal Credit: a longitudinal controlled study, The Lancet Public Health, 1 March 2020

38 Trussell Trust (UCW0093)

40 Dr Mark Simpson, Dr Ruth Patrick, Dr C Fitzpatrick, K Logan and UC:Us members (UCW0040)

Published: 19 October 2020