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Universal Credit: the wait for a first payment Contents

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13Improving the assessment system

209.While much of the evidence we heard proposed ways to mitigate the impact of the wait, we also heard from witnesses who presented a long-term objective for the Department to reshape how it assesses a Universal Credit claim. Gareth Morgan, CEO of Ferret Information Systems which specialises in benefits technology, told us that many criticisms of the five-week wait “are not to do with the assessment period”, but to do with “the consequences of the way in which the assessment period has been used”.253 Among others, he put forward assessment models which would change the structure of Universal Credit and, witnesses told us, reduce problems which are exacerbated by a wait for a first payment. The Joseph Rowntree Foundation said that, to restructure the assessment period, which would likely have consequential effects on the length of the five-week wait, would be to “fix the problem at source, fix the root cause” of problems associated with Universal Credit and the wait for first payment.254

210.In the Department’s view, the monthly assessment structure is core to the design of Universal Credit. DWP says that it is fundamental in “minimising the difference between paid employment and being on benefit effectively removes a key barrier to moving back into work by helping claimants to budget on a monthly basis”.255 The NAO says that the Department sees the monthly assessments as “inherent” to Universal Credit, “reflecting both its policy intent and practical operational considerations”.256

How the monthly assessment system works for claimants

211.Organisations have reported that the monthly assessment system has increased fluctuations in benefits payments for some claimants. In a 2018 report, Citizens Advice said that people in non-traditional or insecure work are likely to find their income variability exacerbated by Universal Credit because its assessment dates do not align with people’s payments from work.257 It lists people on zero-hours contracts, on temporary contracts, in agency work, people who are reliant on overtime, and people who have varying shift patterns as those who are likely to be disadvantaged by the way in which Universal Credit assesses a person’s income. The latest Office for National Statistics figures show that between April and June 2020 over 1 million people were on zero-hours contracts, and nearly 1.5 million employees said that their main job was temporary.258 The Joseph Rowntree Foundation told us that month-to-month fluctuations result in “unpredictability and anxiety for claimants, making budgeting difficult and lives more complicated to manage, even disincentivising people from taking on more work”.259

212.We learned that people with four-weekly incomes can see their payments affected by the monthly assessment system. Citizens Advice told us that, if a person’s four-weekly wages fall twice within a Universal Credit month, the Universal Credit system judges that they were paid twice. This assessment means that they can be left without benefits, or with a reduced award in the next month. Tom Loosemore, the co-founder of the Government Digital Service, described this as a “disastrous issue” in Universal Credit for “those who get paid twice in a month and not in the other”.260

213.The problem of double payments within one assessment block was examined in a Court of Appeal case which reached its judgment during our inquiry. Four claimants had taken DWP to the High Court in 2018 arguing that, even though they were paid monthly, the Universal Credit system incorrectly assessed that they earned double their wages in some months and nothing the next. The High Court ruled in January 2019 that the Secretary of State for Work and Pensions had wrongly construed regulation 54 of the Universal Credit Regulations (SI 2013/376).

214.When the Department took the case to appeal, the Court of Appeal concluded that the DWP’s interpretation of the Regulations was correct. It accepted DWP’s argument that it would be impossible to automate the Universal Credit system if the Department was required to examine in every case the relationship between work done and a payment received. However, the Court found against the Department on the grounds of irrationality. The judgment noted that:

The [Secretary of State for Work and Pensions] has put forward no reason why the date on which these Respondents submitted their claim for universal credit should result in them losing a considerable amount of money each year for however long their entitlement lasts. In my judgment this is the most egregious aspect of the way the system works.261

215.On 25 June 2020, our Chair asked an Urgent Question to the Minister for Welfare Delivery about the number of people who may be affected by this problem with the assessment system for Universal Credit. The Court of Appeal had been inconclusive on this, saying that “ various statistics were put forward [ … ] [but] it is clear that the numbers may be very substantial, possibly 85,000 claimants.262 The Minister for Welfare Delivery told the House that, to date, the Department believed that “the cohort is in the region of 1,500” but that he understood that “fewer than 1,000 UC claimants have notified [DWP] over the past 18 months that may be affected by this”.263

216.Witnesses who were experts in DWP’s digital systems informed us that the Department can access information on payment frequency and avoid problems with the monthly assessment. Representatives from Ferret Information Systems and MedConfidential, digital organisations that specialise in health and benefits systems, told us that HMRC shares with DWP “all of the data that DWP [ … ] asks for”, including information on a person’s payment frequency.264 In written evidence, MedConfidential questioned why DWP does not use this information to understand that a person’s circumstances have not changed: “if it [DWP] indeed receives this data - why does DWP not use it to help people avoid falling off UC due to the payment periods problem?”.265

Alternatives to the monthly assessment system

217.During our inquiry, we heard proposals for long-term changes to the assessment system to mitigate the fluctuations that claimants can experience. The Joseph Rowntree Foundation suggested a more frequent assessment period, such as weekly, and that DWP should build in “the ability to average earnings over multiple periods”.266 Alternatively, it proposed continuing assessments on a monthly basis but adding interim payments midway through each month based on estimated earnings. It said that, at the end of each month, the calculation could be reconciled using actual earnings with the month-end payment adjusted to account for any differences. This would allow claimants to receive twice-monthly payments on an ongoing basis, with the first payment two weeks after submitting the claim.267

218.Citizens Advice and London Councils said that a more flexible assessment system could tackle “ongoing issues with the five-week wait”. They said that, if assessment periods and payment cycles could match the cycles of pay for in-work claimants, payments could be made earlier and more frequently, and would not incur the problems associated with the monthly structure. It would also help individuals to budget more easily.268

219.We asked witnesses whether it would be viable for claimants to set their own assessment and payment dates according to their outgoing costs and income.269 Gareth Morgan, a specialist in benefits technology from Ferret Information Systems, told us that he had found it difficult to model this kind of system. He said this could work for single earners, but that for couples on different pay cycles who may have different cycles for paying housing costs, he has been “unable to find any way in which there is a right answer for the best date for an assessment period to start”.270 Instead, Gareth Morgan told us that the focus should not be on the assessment period of one month”, but with “how the calculations within that assessment period are carried out”.271

220.To overcome problems associated with the assessment model, Gareth Morgan proposed to us an “easily assessed day-rate” which would calculate a person’s daily earnings. The Department would then aggregate this figure to calculate their earnings over a month.272 He explained that this would work for people already in employment because DWP could pull a net income figure from the data that the employer passes to HMRC and from HMRC’s calculation of tax and National Insurance. DWP would then determine the number of days falling within the assessment period. With this, Gareth Morgan said that DWP could estimate fairly accurately a “Day-Pay Rate” which is the “daily net pay for that pay period”. If DWP over- or underestimates, it would have to reconcile with the claimant in the following month.273

221.Gareth Morgan said that the model of a ‘day rate’ would have a knock-on effect on the wait for the first payment. He said that a principle of future estimation, and subsequent reconciliation, would mean immediate assessment and rapid payment of Universal Credit, therefore the “five-week wait would no longer be required”.274

222.Other witnesses warned against major changes to the assessment system. Tom Loosemore, founder of the Government Digital Service, told us that the monthly assessment is the “very DNA of the whole welfare system” and that changing it would impact other bodies such as “local authorities, utility companies, HMRC, employers [who would] have to change their lingua franca to speak daily rather than monthly”.275 Dr Stephen Brien, former adviser at DWP, cautioned against adjusting the assessment period to another fixed system which denies people flexibility.276 He said that any change in the assessment system would, as a priority, require better information sharing from employers with HMRC.277 He advised that in the “medium to longer term” DWP could look into a “more flexible assessment period”.278

223.We were concerned to hear that a witness who had worked within the Government saw a barrier between policy officials and people who work in benefits operations and technology. Tom Loosemore, founder of the Government Digital Service, said “the frustration among the operational and technology people within DWP is that many times [ … ] policy people write their own cheques that they themselves do not have to cash”.279 He contrasted this with the earlier years of Universal Credit design at the “start of 2013–14”, where policy people were “embedded” with product managers and people who worked on technology and operations.280 Witnesses from external organisations which specialise in benefits technology said that they struggled to communicate with DWP policy officials. Phil Booth at MedConfidential described “deadlock points” where “civil society support organisations are simply stonewalled and told, “It is too difficult, the computer cannot do it””.281

How has the Department responded to proposals to change the assessment system?

224.In oral evidence, the Minister for Welfare Delivery cautioned against structural changes to Universal Credit because of the impact on other DWP operations. He said that a change to the monthly principle of Universal Credit “would mean literally starting again” and that this change would come with “enormous build costs”, putting a strain on staff capacity during a time when the priority is to make sure that people “are getting their claims in full and on time”.282 The Senior Responsible Owner for Universal Credit summarised that “you have to have some unifying principles” [in the design of Universal Credit]: “you have to have some architecture on which to build a scheme, and we have chosen a month to do that”.283

225.The Department provided feedback on different assessment models. On the question of twice-monthly assessments, as proposed by the Joseph Rowntree Foundation, the Senior Responsible Owner for Universal Credit told us that this model would not work for people who move in and out of jobs with different pay cycles or for couples who claim together.284 He said that shortening the initial assessment to two weeks (for people who are paid twice-monthly) would increase the risk of error.285

226.We asked the Department whether a person could be assessed each calendar month, in line with most people’s pay dates, rather than on the date on which they started their claim. The Senior Responsible Owner, Neil Couling, told us that it would be “theoretically” possible to do this, however it would put an “incredible strain on the system” because most payments would be made at the same point each month.286 He said that, “if you get to a completely automated system”, DWP might be able to administer assessments and payments on a calendar month schedule.287

227.In written correspondence, the Minister for Welfare Delivery told us that the ‘day rate’ would be difficult to operationalise. He said that it is “possible to conceive of a daily-based system”, but it would rely on “accurate recording of start and end dates, as well as people working regularly within that period”. He told the Chair that the operational obstacle to a day rate would be running it at volume, “particularly as this increases the number of possible changes to bring to account when determining entitlement”.288

228.The Minister said that a weekly assessment system would work only for the “minority of weekly-paid people”. He said that, for anyone with different payment frequencies, such a system could result in “significant fluctuations which would undermine the ability of claimants to budget. He reiterated that “around 75% of people are paid monthly, a proportion that has been growing steadily over time as the economy shifts away from typical weekly or fortnightly paid jobs”.289

229.The Minister for Welfare Delivery confirmed that DWP receives information on a person’s earnings frequency from HMRC. However, he said the Department “would not necessarily want to align UC and earnings” because of the risk that earnings could be reported late. He said that “the minority of weekly earners would theoretically receive more fluctuation and uncertainty” if assessments were aligned with their payment dates. He maintained that there are aspects of Universal Credit “which are fundamental to it and deliberately designed to achieve its original objectives”, of which a monthly assessment is one.290

230.It is disappointing that suggestions to improve Universal Credit have apparently been thwarted by an IT system which was supposed to be developed in an agile fashion, yet seems to be anything but. It is unfortunate that such a rigid, clunky IT structure was adopted for UC which makes improvements required by Ministers and needed by claimants harder to implement, adding greater costs to benefit administration.

231.The monthly assessment is a core part of design of Universal Credit for the Department and is the guiding reason behind the five-week wait and payment in arrears. Although the Department says that most people in the wider economy are paid monthly, there is evidence that a significant proportion of people moving onto Universal Credit were paid weekly or fortnightly in their previous job. Even for people who are paid monthly, the recent High Court and Court of Appeal cases which found against DWP show that a rigid assessment still causes fluctuations for claimants, financially disadvantages people and, in some cases, puts people off applying for more stable work. But changing the monthly assessment period would entail a fundamental rebuilding of the entire Universal Credit system. That is not likely to be feasible in the short or even medium term. In the longer term, we would encourage the Department to consider in detail the proposals that have been made for systems that could more flexibly meet claimants’ needs—especially for people who are not paid monthly.

232.We recommend that the Department assesses a model in which it estimates people’s daily pay rate from data it already receives from HMRC, as suggested by Ferret Information Systems, and in which it would make payments from day one of the claim with reconciliation in month two. We request that the Department share information on what data that it receives from HMRC, including whether it knows how frequently people are paid, and makes clear what parts of its system are and can be automated.

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