Universal Credit: the wait for a first payment Contents

6Increased financial support

Universal Credit standard allowance and Local Housing Allowance increases

116.In response to the coronavirus pandemic, the Government has increased the standard allowance of Universal Credit by £20 per week for a one-year period which expires in April 2021. It has also increased Local Housing Allowance (LHA) rates, which are used to determine how much Universal Credit or Housing Benefit somebody can get if they rent from a private landlord.123

117.LHA rates, used to help calculate Universal Credit entitlement, reflect the market rents in the area a claimant lives in and the number of bedrooms needed by a household. The rates have been increased to the 30th percentile, meaning that the cost of the bottom 30% of suitably sized properties in each local rental market will be covered by the LHA. LHA rates were last benchmarked against the 30th percentile in 2011–12.124 The House of Commons Library calculated that that before the increase, LHA rates were on average 9.6% below the local rental cost needed to meet the 30th percentile.125

118.Shelter, a housing and homelessness charity, said that the number of cuts and freezes applied to LHA rates since 2011 means that, prior to the increase in response to coronavirus, the rates of LHA trailed far behind the true cost of renting across the country. In written evidence to the Committee, Shelter said that LHA rates had fallen so far below rents across England that in a third of areas they did not cover the cheapest 10% of the rental market for a two-bedroom home, and that families found it “incredibly difficult” to find suitable accommodation without having to take on a shortfall.126 Shelter recommends that, beyond the current pandemic, “there needs to be a robust mechanism to keep LHA rates in line with at least the 30th percentile of local rents, regardless of fluctuations in private rents”.127

119.In addition to these changes, the Government uprated benefits by 1.7% in April 2020, including the Universal Credit standard allowance, to account for the impact of inflation. The 1.7% uprating was the first such increase since the beginning of the benefits freeze which was announced in the 2015 Budget. In the three years before the benefit freeze, inflation-related increases to benefits were limited to 1%.128 The House of Commons Library has calculated that, had benefits increased in line with inflation throughout the benefit freeze and the limited uprating before it, then Universal Credit standard allowance rates would be 9% higher than they are following the April 2020 1.7% increase, when measures taken in response to the pandemic are excluded.129 The Library also found, however, that the temporary £20 a week rise in Universal Credit standard allowances in response to the pandemic means that, for the period from April 2020 to April 2021 only, the amounts people receive in Universal Credit payments are in excess of what they would have been with inflation-based increases during the period of limited or frozen uprating.130

120.Patrick Spencer of the Centre for Social Justice (CSJ), a think-tank founded and chaired by Sir Iain Duncan Smith that was involved in the design of Universal Credit, suggested to us that DWP could focus on increasing the standard allowance and maintaining the new LHA rates, and that this might be a good way to tackle the problem debt that some Universal Credit claimants face:

A good use of that money would be increasing the general generosity of the standard allowance. If you increase the overall entitlement, make sure that housing entitlements are actually at the 30th percentile of rents in a market, if you reduce the risk that debt just corrodes your housing entitlement, you begin to tackle the problem.131

121.The Joseph Rowntree Foundation has called for the £20 per week uplift to Universal Credit to be made permanent. Modelling by the Foundation has found that withdrawing the uplift “will risk sweeping 700,000 more people, including 300,000 more children, into poverty”. It also says that “around 16 million people live in families that will face an overnight loss in April 2021 equivalent to £1,040 per year”, and that “Losses will be heavily felt by lower-income families, with almost 60% of people losing out being in the bottom three income deciles”.132

122.DWP was right to increase the standard allowance for Universal Credit and support for housing costs as part of its response to the pandemic. Benefit rates, and in particular support for housing costs, had become detached from the actual cost of living—in particular from the cost of private rents—and people were struggling to find a home for their family and to meet the costs of basic essentials. The Department should commit to maintaining the increases in support that have been provided during the pandemic. This should include keeping Local Housing Allowance at the 30th percentile and conducting an annual review of rates to ensure they remain appropriate for each area. It should maintain the £20 a week increase in standard allowance for Universal Credit and Working Tax Credit, with annual inflation-based increases thereafter.

123 Made SIs: The Social Security (Coronavirus) (Further Measures) Regulations 2020, (SI 2020/371).

124 Coronavirus: Support for household finances, Standard Note SN08893, House of Commons Library, 22 June 2020, p 30

125 Benefits Uprating 2020, Standard Note SN08806, House of Commons Library, 2 April 2020, p 11

126 Shelter [UCW0070]

127 Ibid

128 Benefits Uprating 2020, Standard Note SN08806, House of Commons Library, 2 April 2020, p 8

129 Ibid.

130 Coronavirus: Support for household finances, Standard Note SN08893, House of Commons Library, 22 June 2020, p 30

Published: 19 October 2020