Summary
When the Government announced plans to introduce Universal Credit in 2010 the scale of its ambition was greeted largely with approval in Parliament and amongst stakeholder groups. However, support is seeping away as Universal Credit is rolled out to more people.
The way that Universal Credit has been designed and implemented appears to be based around an idealised claimant and it has features that are harming many, particularly the most vulnerable. Universal Credit can disadvantage women, disabled people and BAME people. It is also linked to soaring food bank usage. Housing providers have reported dramatic increases in rent arrears. Many claimants report finding the system incomprehensible. Universal Credit’s reputation has nosedived.
Nevertheless, we received overwhelming evidence that Universal Credit should not be replaced with a new system, not least because of the severe disruption that this would cause for millions of people. Instead, substantial reform of the benefit is needed to make it fit for purpose. Change cannot come soon enough. The economic effects of the COVID-19 pandemic have resulted in many more people claiming Universal Credit and millions more are expected in the months ahead.
In our inquiry, we identified three main aspects of Universal Credit that require substantial reform: its design and implementation, the adequacy of its awards, and how it supports claimants to navigate the system and find work. We believe the original aims and objectives of Universal Credit remain broadly correct but without reform it will fail to deliver upon its promise. Moreover, without reform, we are concerned that it will fail to meet the basic requirement of a social security system: the provision of a dependable safety net.
Universal Credit design
The five-week wait for the first Universal Credit payment is the main cause of insecurity for claimants. Many people have nothing to fall back on during this period when their needs are most acute. The wait entrenches debt, increases extreme poverty and harms vulnerable groups disproportionately. The Department for Work and Pensions (DWP) has introduced some measures to mitigate the most harmful effects but these fall far short of what is needed. The DWP should introduce a non-repayable, two-week initial grant for all claimants. This would provide some security to claimants, mitigate the timing problems in relation to housing costs and would make repayments of advances more manageable.
The way that Universal Credit payments are calculated is based on a ‘monthly assessment period’1 and is designed to mimic the world of work. However, it can result in substantial fluctuations in income month-to-month, which makes it extremely difficult for claimants to budget. This is impractical, fundamentally unfair and must be resolved. We recommend that the DWP fix the level of awards at the same level for three months. If claimants experience significant falls in income or experience disadvantageous changes in circumstances during this time, then a mechanism should be introduced to enable them to have an early reassessment.
Paying awards on a monthly basis does not reflect the lived experiences of many claimants. It forces them to fit the rigid requirements of the system and causes unnecessary budget and cashflow problems both for those out of work and for those who are used to receiving wages more frequently. All claimants should be able to choose whether to have Universal Credit paid monthly or twice monthly. Moreover, the way in which Universal Credit is paid as a single household payment should be revisited. For many, the current practice does not reflect the reality of family life. Access to an individual income is important for maintaining balanced and equal relationships and, in more distressing cases, for reducing the risk of financial coercion and domestic abuse. The DWP should review the option of a separate payment by default, drawing on the current review in Scotland.
Adequacy of awards
A catch-up increase in the funding of Universal Credit is needed urgently following the substantial cuts to social security over the last decade.
The temporary increase in the standard allowance in response to the COVID-19 pandemic is welcome, considering the evidence that we received which set out the inadequacy of Universal Credit and its impacts on poverty levels. The Government should commit immediately to making the increase in the standard allowance permanent. Universal Credit should be set at a level that provides claimants with dignity and security.
Deductions from Universal Credit awards have left some claimants with an income that is substantially lower than their essential needs. The DWP should conduct affordability assessments before making deductions from awards.
Universal Credit is being used by the Government as a vehicle through which to recover debt. Most of this is comprised of around £6 billion of historic tax credit debt. Many people who owe this money are unaware of it and the original receipt of an overpayment may have been outside of their control. The recovery of this money is leaving many households with an income well below what is needed to get by on. We call upon the Government to write off historic tax credit debt that is owed by Universal Credit claimants. It should be treated as a sunk cost as it is highly unlikely to ever be repaid in full. The Government should not jeopardise the financial security of claimants by seeking its recovery.
Given the potential level of unemployment that may result from the COVID-19 pandemic, the DWP must prioritise helping people into work. All claimants should have a work allowance, set at a higher rate than now, to allow them to keep more of their award as they move into work, including short-term or low-hours employment. Furthermore, the DWP should also consider a reduction in the taper rate to reduce the unfairness that is inherent in a situation in which the poorest in society are paying significantly higher marginal effective tax rates than the richest in society.
Support
The conditionality requirements on claimants who can look for, or prepare for work should be rebalanced. The extent of conditionality has been increased significantly over recent years and too often to the detriment of claimants. Less emphasis should be placed on obligations and sanctions. Instead, there should be more support to help coach and train claimants to find jobs or to progress in their current roles. We believe that a more balanced combination of responsibilities and entitlements would better reflect the relationship between employer and employee that the DWP wishes to emulate. In addition, conditionality should be adapted so that it is able to accommodate dynamically changing labour market conditions, including at the local level, particularly in the light of the economic impact of the COVID-19 pandemic.
The UK has some of the most punitive sanctions in the world, but there is limited evidence that they have a positive effect. Removing people’s main source of support for extended periods risks pushing them into extreme poverty, indebtedness and reliance on foodbanks. Furthermore, there is a great deal of evidence that sanctions, and the threat of sanctions, are harmful to claimants’ mental health. We recommend that the Government publish an evaluation of the impact of conditionality and sanctions on mental health and wellbeing. Furthermore, we recommend that the DWP evaluate how the current length and level of sanctions facilitate positive behaviour change and how they lead to sustainable work outcomes. The DWP should also expedite its work on introducing a written warning system before the application of a sanction. Sanctions must be a last resort.
We note that conditionality and sanctions were suspended briefly in response to the COVID-19 pandemic. We regret that the suspension was lifted so soon. Threatening claimants with long and severe sanctions at this stage, so far from a labour market recovery, is unfair and counterproductive.
The Government has said that it will double the number of work coaches in response to potential levels of high unemployment. We are concerned that this will not be enough to support people to find work in what may be a stagnant labour market with high levels of competition for jobs. We recommend that the DWP introduce a cap on the number of cases for which each work coach can be responsible.
We are particularly concerned that the coming jobs crisis will disproportionally affect young people at the start of their careers. The Government will have to continue to act quickly and boldly to protect their employment prospects. The DWP should build stronger links with employers, local authorities and local education providers to match claimants who can work with jobs.
While the DWP has provided funding for support through the Help to Claim service, this stops after the first successful claim. Some Universal Credit claimants require support on an ongoing basis. This is particularly true for helping claimants to manage the predominantly digital approach to making and managing claims with which many people struggle. It is essential that trusted organisations are funded to guide people through the process. An impressive array of local networks are performing vital work in helping the hardest to reach claimants, but this is conducted at great expense to the organisations involved, draining already limited budgets. The Government should do more to recognise and fund the support networks that are ensuring vulnerable people are able to receive the help that is needed to navigate the Universal Credit system.
1 For a definition of this term and others, see Appendix 3: Glossary.