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Universal Credit: the wait for a first payment Contents

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4Starter payments in Universal Credit

57.Our inquiry’s call for evidence invited views on the most effective ways of addressing the wait for a first payment in Universal Credit. We asked for views on a number of different options, including changing the monthly assessment period, extending run-on payments of legacy benefits and allowing more people to have the start of their claim backdated. Of the more than 90 written evidence submissions we received, some form of non-repayable initial payment to new claimants emerged as the most popular option.53

58.DWP has previously rejected calls to introduce non-repayable grants. In written evidence, the Department said that providing grants would “bring into question the fairness of the system and create a significant disparity of overall entitlement between claimants”.54 Will Quince had previously told us, during our inquiry into DWP’s response to the coronavirus outbreak, that introducing non-repayable grants would not be possible for operational reasons.55 More recently, the Minister reiterated that there are operational challenges involved in making changes to the system, explaining that:

The question is: are you willing to sacrifice the wait that people would have to make? Are you willing to take the risk on fraud? Are you willing to completely fundamentally redesign the system and knock back other things like, for example, the extension to 24 months that is already in the UC pipeline? These are all factors that I have to consider in assessing what changes we make and what we explore.56

The case for non-repayable initial payments

59.The National Association of Welfare Rights Advisers (NAWRA), which represents people who advise benefit claimants, surveyed its members on the different options for addressing the wait ahead of its submission to our inquiry. Members who responded were asked to rate each option on a scale of 1–10, with 1 representing ‘low effectiveness’ and 10 ‘high effectiveness’. The option of non-repayable grants was rated as high effectiveness by members (in comparison, the current system of Advances was rated as low).57 Emma Revie, Chief Executive of the Trussell Trust, said that offering grants would effectively remove the wait for a first payment entirely:

Our preference at this point would be non-repayable grants, because it takes away the issue of the five-week wait entirely. At the very least, we would want to identify those people who are most vulnerable, particularly those most vulnerable to ending up being forced to use a foodbank. We would want to identify a way of getting a non-repayable grant to them to provide that support.58

60.Nicholas Timmins of the Institute for Government has proposed the option of giving all claimants a payment equivalent to two weeks’ worth of their expected monthly award. He suggests that this should be available for first time claimants (that is, people who are not moving from legacy benefits), and people moving onto Universal Credit from tax credits, who are not entitled to run-on payments.59 Bright Blue, a think tank, recommended that all new claimants be offered a one-off “helping hand” payment equal to 25% of their estimated Universal Credit award. It suggested that:

This one-off ‘helping hand’ could alleviate the financial impact of the delay for the initial UC award, improve take-up of UC, generate goodwill when a claimant first accesses UC, and improve impressions of UC during this critical rollout period.60

61.The House of Lords Economic Affairs Committee recommended a similar approach in its recent report, Universal Credit isn’t working: proposals for reform:

The DWP should introduce a non-repayable, two-week initial grant to all claimants. For claimants moving from certain legacy benefits to Universal Credit, this grant could replace the existing system of run-ons. This would provide some security to claimants and would make repayments of advances more manageable. We were told that this would cost the DWP between £1 billion and £2 billion per year.61

Targeted grants

62.Our inquiry invited views on the option of offering targeted non-repayable grants for particular groups of claimants, based on need. The Joseph Rowntree Foundation (JRF) and the think tank Policy in Practice (PiP) have modelled a system where grants would be offered to new claimants who are facing one or more “serious issues” and are particularly in need of financial support. This assessment would be based on a household’s responses to seven “pressure points” or “challenge factors”:

a)The level of existing debts and savings that a household has;

b)The likelihood of the first payment being delayed;

c)The household’s income after costs;

d)Whether the household will receive any run-on support;

e)The level of deductions from the household’s Universal Credit award;

f)For households moving from legacy benefits, whether their Universal Credit payments will be lower than what they received under legacy benefits;

g)Whether the household is ‘work ready’. 44% of people on Universal Credit are not expected to look for work because of illness or caring responsibilities (pre-pandemic figures).62

PiP and JRF estimate that targeted grants of this kind could cost up to £2.7 billion over the course of the managed migration period.

63.We also considered the option of offering grants to specific categories of claimants. Some organisations suggested that grants should be made available for people with particular characteristics; for example, the Disability Benefits Consortium, a coalition of over 100 charities, says that non-repayable grants should be available for disabled people.63 Our inquiry also sought views on whether grants should be targeted at people who are considered to be “vulnerable”, but some organisations highlighted the drawbacks of this approach. The Helen Bamber Foundation, a charity that works with asylum seekers, refugees and torture survivors, said that there are “significant gaps” in the way vulnerable people are identified, and that some people may not feel comfortable disclosing possible vulnerability to DWP.64

Non-repayable initial payments: possible drawbacks

64.Some witnesses identified an increased risk of fraud as a possible drawback to introducing non-repayable grants for all claimants. Mike Brewer, Chief Economist at the Resolution Foundation, said the risk of fraud could arise from people claiming Universal Credit “when they are clearly not entitled to it by virtue of their income”.65 A person in this scenario could make a claim for Universal Credit, knowing that they do not qualify, and receive a grant, which they would not have to repay, before the Department has had a chance to assess their income. Neil Couling said that, while it would be possible in theory to design a system of grants, it could risk “creating a honey pot for foreign criminals”.66 The House of Lords Economic Affairs Committee suggested that the risk of fraud could be mitigated by administering the grant as an Advance to begin with:

To reduce the risk of fraud, the DWP should initially administer the grant as an advance payment. The two-week payment should then be written off after two months once the DWP knows that the claim is genuine.67

65.Cost is another obvious challenge in introducing non-repayable grants. DWP estimates that the cost of converting Advances into grants to all claimants over the remaining implementation period (to 2024) would cost between £1.9 billion and £2.7 billion per year.68 A system of targeted grants would clearly cost less, with the precise cost depending on the method of targeting. We are, however, concerned about the risks of introducing new administrative burdens to the Universal Credit process. Targeted grants, while having the attraction of being potentially cheaper than a payment offered to all claimants, would be difficult to administer quickly and accurately. They would therefore carry a significant administrative cost: both in the changes needed to adapt the Universal Credit system, and the time spent by Work Coaches in making the necessary checks.

66.The evidence we received was overwhelmingly in favour of some form of initial, non-repayable payment for new Universal Credit claimants. That would give new claimants the money they need for basic living essentials like food and heating, without requiring them to repay a debt to the Department from their future Universal Credit payments. We agree that new claimants should receive a form of “starter payment” when they first apply for Universal Credit. But we heard a wide range of proposals for how such payments should work and the level at which they should be set.

67.We have considered the various options carefully. In recommending a course of action, we have chosen an approach which offers simplicity: a simple amount of money, so it is clear to claimants what they can expect, and a simple process, which does not require the Department to carry out any additional means-testing or assessment of a household’s needs. The benefits of simplicity seem to us to outweigh any possible cost savings offered by more targeted approaches. It would also address the Department’s concerns that targeted grants could risk creating an unfair system with significant disparities of entitlement between claimants.

68.We recommend that the Department pay all first time claimants of Universal Credit a “starter payment” equivalent to three weeks of the Standard Allowance of Universal Credit. This payment should be made two weeks after the initial claim, and only once the claimant’s identity has been verified, to mitigate the risk of fraud. The starter payment should also be given to people who move to Universal Credit by “natural” migration, in cases where it is not possible for them to be moved seamlessly to Universal Credit.

69.We recognise that this proposal will have a significant cost. We have made an initial assessment of what those costs might be, though this is subject to a great deal of uncertainty. The impact of the coronavirus pandemic means that past projections of the numbers of people expected to claim Universal Credit in future are likely to be significantly lower than the reality.

70.A three-week grant per person would be worth up to £287.18 in 2021/22 (based on the standard allowance for a single person over 25), and for a couple up to £416.20 (if at least one partner is over 25). For those under 25, the amounts would be lower. Our estimate also assumes that everyone moving through natural migration would receive a grant; in practice, we believe it should be possible for at least some of those claimants to move seamlessly to Universal Credit.

71.These costs would be offset, at least in part, by removing the need to pay run-ons of legacy benefits to people moving through natural migration, which is expected to cost £750 million between 2018–19 to 2023–24.69 The Department has said that around 58% of people moving from legacy benefits will migrate naturally.70 Not paying run-ons to this group could, on that basis, save the Department around £435 million.

Table 1: Estimated costs of Universal Credit starter payments

	2021/22	2022/23	2023/24	2024/25
Estimate of pure new claims71	2.7 million	1.9 million	1.7 million	1.5 million
Estimate of natural migration claims72	550,000	550,000	550,000	550,000
Max three week grant: single adult (80% of claims)73	£287.18	£292.64	£298.49	£304.46
Max three week grant: couple (20% of claims)74	£416.20	£424.11	£432.59	£441.24
Total amount: single adults	£747m	£574m	£537m	£499m
Total amount: couple	£271m	£208m	£195m	£181m
Total annual cost	£1,018m	£782m	£732m	£680m

72.There might be ways to reduce these costs further, by operating a form of targeting using the Department’s existing systems. At present, the Government’s guidance for claimants explains that they may be refused an Advance of their Universal Credit in certain circumstances, namely if they:

• have not had their identity checked at the Jobcentre;
• have enough money to last until their payment of Universal Credit;
• live with parents, relatives or friends;
• have any final earnings or redundancy payments;
• have any accessible savings.

73.If the Department were to apply the same criteria to starter payments, using the systems it currently operates, then the costs could reduce substantially. Before the pandemic, about 60% of claimants took an Advance. Since the pandemic, that figure has fallen to about 32%. It is not yet clear how this will change in the coming years. This approach could therefore reduce the cost of this proposal by between 40% and 68%. We are, however, conscious that the level of verification required to check eligibility for making a payment may be quite different from that which is needed before paying a loan that the Department expects to recoup.

Special Rules for Terminal Illness

74.One particularly vulnerable group that came to our attention during the inquiry was people who live with terminal illness. If someone is living with a terminal illness, and their doctor or another medical professional has provided medical evidence, including a prognosis, which states that they are likely to live six months or less, their claim for certain benefits might be fast-tracked and paid at the highest rate. This is known as claiming under the Special Rules for Terminal Illness (SRTI). The special rules apply to Personal Independence Payment, Disability Living Allowance, Attendance Allowance, Employment and Support Allowance and to Universal Credit.

75.For Universal Credit claimants, the Special Rules mean they do not have to meet work-related requirements, such as attending work-focused interviews, to keep getting Universal Credit in full. The Department will also pay their Universal Credit at a higher rate, as a “work capability amount” is included in the award. However, they must still wait a minimum five weeks for their first payment. Terminally ill people who are expected to live longer than six months must apply under the normal rules and attend work-focused interviews with a work coach.

76.Marie Curie, a charity that supports terminally ill people, told us that exclusion from the fast-track access for Universal Credit claimants can exacerbate already difficult financial circumstances for terminally ill people. It said that, through income loss or the added out-of-pocket costs created by illness, families living with terminal illness can pay between £12,000 and £16,000 per year to cover additional costs.75 In evidence, Marie Curie referred to a 2007 study which found that, for more than two-thirds of families facing terminal illness, delays to benefits had resulted in financial strain. The problem is further compounded when other schemes and benefits rely on receipt of Universal Credit. Marie Curie said that the five-week wait delays people’s eligibility for Carer’s Allowance, for non-financial schemes, such as Blue Badge and Motability, and for increased rates of means-tested benefits, such as Housing Benefit, Council Tax reduction or tax credits.76

77.Marie Curie told us that Advances are not a practical solution for terminally ill people. It said that they represent another bureaucratic hurdle for people to face and “exactly the kind of process that the Special Rules are intended to avoid for people for whom every moment matters”. It told us that “such delays and processes take up time that many terminally ill people simply do not have”.77

78.Our Chair asked the Minister for Welfare Delivery how much it would cost the Department to give people with a terminal illness a non-repayable advance. The Minister said that the Department would not pay advances automatically “because not everyone needs them”. He explained that “some new claimants do require that upfront support, whereas others have been recently paid or are due to receive wages”. The Minister said that the Department’s review of how the benefits system treats terminally ill people, launched in July 2019, “remains a priority for the Department”. He said DWP has made “good progress” and he expects to be able to “provide an update on the outcome of the evaluation shortly”.78

79.Terminally ill people already face thousands of pounds of additional costs because of their illness, and the money provided by Universal Credit counts more than ever. We welcome the fact that the Department has been reviewing how the Special Rules are working, but that review has now lasted for more than a year. We urge the Government to publish its review without further delay, no later than 30 November 2020.

80.The starter payments we have recommended would also be available to people making claims under the Special Rules for Terminal Illness. We recommend that the Department consider what further support it could offer to people making claims for Universal Credit under the Special Rules for Terminal Illness. That might include paying the starter payment more quickly on receipt of a DS1500 form; offering a larger starter payment to people making claims under the Special Rules; or proactively offering backdating (beyond the current limit of a month) of claims to people diagnosed with a terminal illness who have, understandably, not made a claim immediately on becoming eligible.

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