Universal Credit isn’t working: proposals for reform Contents

Universal Credit isn’t working: proposals for reform

Chapter 1: Introduction

Universal Credit and social security

1.The introduction of Universal Credit was the most significant reform to the social security system for a generation. It integrates six means-tested, working-age benefits into a single monthly payment, which tapers off as claimants move into work or increase their income.2

2.Its objectives are highly ambitious. It aims to simplify the benefits system, make any amount of work ‘pay’, and to “combat worklessness and poverty”.3 It is also designed with money-saving objectives. These include reducing fraud and error and bringing down administrative costs through automation. Behind these objectives sit the principles that the experience of claiming Universal Credit should be as much ‘like work’ as possible, that most claimants must fulfil work requirements and that claimants should exercise greater personal responsibility.

3.Universal Credit was rolled out from 2013, after the recession that followed the 2007–08 financial crisis. The fiscal and economic context at that time included substantial reductions in public spending, weak GDP growth and rising unemployment. Some of Universal Credit’s original proponents told us that spending constraints on the Department for Work and Pensions (‘the DWP’) curtailed the policy’s effectiveness from the start.

4.During our inquiry we heard of sadness and anger over how the benefit has harmed many claimants who rely on it most. We were told that problems with Universal Credit’s design and implementation have damaged its reputation and have contributed to a failure to meet its objectives. These problems can be divided into three main categories.

5.First, Universal Credit does not provide adequate security to claimants. We heard evidence that the level of support is simply not enough to live on. We were told that the five-week wait for the first payment, which is a consequence of the monthly assessment period, drives many people into rent arrears, reliance on foodbanks and debt. The operation of the monthly assessment period itself, combined with the consolidation of multiple benefits into a means-tested single award, can result in large variations in payments, making it nearly impossible for some claimants to budget reliably. We also heard that the rate at which Universal Credit is withdrawn from claimants can act as a disincentive to working or earning more.

6.Second, Universal Credit fails to accommodate the reality of claimants’ lives. It is designed around the idealised claimant; someone with one job who is paid monthly, has stable personal circumstances and can budget intuitively. However, the requirements that are placed on individuals when making and managing claims are often too rigid for those with different personal circumstances or more complex needs. More flexibility in the system is needed to ensure that Universal Credit can support all claimants sufficiently. The claimant experience is also designed to reflect a one-dimensional vision of the world of work, in which people are paid monthly in arrears for a 35-hour week. This ignores the significant minority who work part time or who are paid at intervals other than monthly and are used to budgeting accordingly. Those out of work also tend to budget on a shorter-term basis. In addition, the predominantly digital nature of Universal Credit requires most claimants to have access to, and be able to use, technology. This is least likely to be true for those in the lowest income groups.

7.Third, Universal Credit takes an overly punitive approach to enforcing simplistic behavioural requirements rather than providing holistic and lasting support. Benefit payments are conditional on claimants fulfilling work-related tasks that are sometimes poorly suited to their personal circumstances. Although their use has declined in recent years, financial sanctions for non-compliance are some of the most punitive in the world but evidence of their efficacy is mixed. Work coaches are largely responsible for helping and coaching claimants, but their time is too stretched for the lasting and tailored support that we heard is necessary to help people navigate the system and find work.

Our approach to reform

8.When Universal Credit was introduced, its principles were met broadly with approval in Parliament and by stakeholder groups. We found that support remains, including among organisations dedicated to eradicating poverty and campaigning on behalf of the most vulnerable and marginalised people. We were told that simplifying the system, making work always pay and ensuring that the benefits system is cost effective remain laudable goals. We heard that the DWP is now listening more to valid criticism and is learning from its mistakes.

9.The social security system is integral to the UK’s social fabric. Any change to it must be considered carefully or risk creating more harm than good. The risks of radical change have been revealed in the roll out of Universal Credit, which has caused significant disruption to claimants’ lives. At the time that this report was published, the latest figures showed that nearly 5.5 million people were claiming Universal Credit.4 The impact of the COVID-19 pandemic on the labour market means that this number will increase in the coming months. In addition, more people will move from legacy benefits to Universal Credit over the coming years under the ‘managed migration’ programme. Any change to the system will inevitably create complex trade-offs, affecting large numbers of people in different and unpredictable ways.

10.We launched this inquiry with the intention of examining how well Universal Credit’s original aims and objectives were being achieved. We started with no preconceptions on whether Universal Credit was working as it should, whether it required reform or whether it should be replaced with something new. We received overwhelming evidence that Universal Credit is not broken irredeemably and that replacing it with a new system would cause significant upheaval and disruption to claimants. However, it requires substantial reform. Based on the evidence we received, it is our view that the original aims and objectives of Universal Credit are broadly correct. However, there are substantial problems with its design and implementation that have undermined the security and wellbeing of the poorest in our society.

11.We are sensitive to the impact of change on a large group of very diverse people. We therefore formulated the conclusions and recommendations in this report against a set of principles. We believe that these should be used to protect claimants, guide the reforms proposed in this report and shape the design of Universal Credit in future. They are derived from the evidence received in this inquiry.

Universal Credit must:

COVID-19 pandemic

12.Public health ‘lockdown’ measures to suppress COVID-19 were introduced in March 2020. These measures inevitably affected the labour market and led to record numbers of new applications for Universal Credit. Between 16 March 2020, when the lockdown came into effect, and 16 June 2020, the DWP received 3.2 million new applications for Universal Credit.5 In May 2020 the Chancellor of the Exchequer told us, “No doubt there will be more hardship to come. This lockdown is having a very significant impact on our economy. We are likely to face a severe recession, the likes of which we have not seen, and that will have an impact on employment.”6

13.The DWP acted quickly to prioritise processing new claims. It redeployed 10,000 staff.7 It turned all local jobcentres into ‘virtual processing teams’ focused on the payment of new claims. The IT system that supports Universal Credit remained operational during the unprecedented demand, although some claimants experienced long waiting times. The DWP achieved all this while taking steps to safeguard the health of claimants and staff by ending the routine requirement on claimants to attend jobcentres and facilitating huge numbers of staff to work from home.8

14.The hardest challenges for the DWP lie ahead. Unemployment could increase substantially over the coming months. The shape of the labour market may change forever. Business and labour groups have warned that young people in particular are vulnerable.9 The social security system alone should not be expected to solve these systemic problems, which we were told would require large-scale and cross-Whitehall intervention. Nevertheless, Universal Credit will be an important part of a wide-ranging policy response to the crisis and the Government has already changed how the benefit operates to strengthen the safety net. This report sets out how Universal Credit must change further.

15.We congratulate the Department for Work and Pensions on its response to the spike in claims for Universal Credit since lockdown measures were introduced. The efficient management of an unprecedented number of new claims over such a short period would not have been possible without the digitalisation of the Universal Credit application process. Furthermore, the DWP was able to process the large number of applications using automation, a rapid reorganisation of resources and by changing policies and processes. It also took steps to safeguard claimants and staff. We commend the DWP, and particularly frontline staff, for responding with decisiveness and dedication.

16.However, longstanding problems with Universal Credit remain. The problems identified in this report will affect many more people within a more difficult economic context if they are not addressed urgently.

Witnesses and advisers

17.We thank everyone who provided us with written and oral evidence. We express our gratitude especially to those witnesses with direct experience of claiming Universal Credit, who were willing to answer our questions in person, albeit virtually; and to those who wrote to us to explain how Universal Credit had affected them and their families. We also thank our Specialist Advisers for this inquiry, Professor Jane Millar from the University of Bath and Fran Bennett from the University of Oxford.

2 The six benefits are income-related Employment and Support Allowance, income-based Jobseeker’s Allowance, and Income Support; Child Tax Credit and Working Tax Credit; and Housing Benefit.

4 DWP, ‘Stat-Xplore: people on Universal Credit’: available at: https://stat-xplore.dwp.gov.uk/webapi/jsf/login.xhtml [accessed 20 July 2020]

5 DWP, ‘Universal Credit declarations (claims) and advances: management information’ (23 June 2020): available at: https://www.gov.uk/government/publications/universal-credit-declarations-claims-and-advances-management-information [accessed 20 July 2020]

6 Oral evidence taken on 19 May 2020, Q 1 (Rishi Sunak MP)

7 DWP, ‘Claimants are asked to apply online as jobcentres limit access’ (23 March 2020): https://www.gov.uk/government/news/claimants-are-asked-to-apply-online-as-jobcentres-limit-access [accessed 16 July 2020]

8 HC Deb, 4 May 2020, col 421

9 TUC, ‘A new plan for jobs: Why we need a jobs guarantee’: https://www.tuc.org.uk/research-analysis/reports/new-plan-jobs-why-we-need-new-jobs-guarantee [accessed 16 July 2020] and letter from CBI to the Prime Minster (11 June 2020): https://www.cbi.org.uk/media/4860/11-june-2020-letter-to-the-prime-minister-from-carolyn-fairbairn.pdf [accessed 16 July 2020]

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