Universal Credit isn’t working: proposals for reform Contents

Summary of conclusions and recommendations

Below is a list of all of the Committee’s conclusions and recommendations (recommendations appear in italics).


1.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. (Paragraph 10)

2.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:

3.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. (Paragraph 15)

4.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. (Paragraph 16)

Universal Credit design

5.Simplification of the benefits system was a driving principle behind the design of Universal Credit. It has made it administratively easier for claimants to move in and out of work. There are also advantages to claimants to having a single point of contact for support. However, simplification has introduced inflexibilities which do not accommodate the reality of claimants’ lives, particularly those on low incomes who are often paid at more frequent intervals. For many, payments have become unpredictable, which undermines the security and stability of their lives. Error or interruptions caused by the DWP can have significant consequences for claimants who may have nothing on which to fall back. (Paragraph 25)

6.Far from simplifying the system for claimants, Universal Credit has created complexity. Claimants’ benefit awards should be predictable. They should know the support they will have from month to month, so that they can plan and budget accordingly. However, under Universal Credit the way that income is assessed does not provide predictability. It creates arbitrary fluctuations in income depending on the assessment date and the claimant’s pay date. This is unfair and impractical. (Paragraph 37)

7.The benefits system should not cause claimants significant shortfalls in income. The DWP’s whole-month approach to changes in circumstances does not reflect the lives of many low-income households, some of whom undergo frequent, short-term changes of circumstances. Universal Credit needs to be flexible enough to adapt to these circumstances. The DWP must adapt the design of the whole-month approach to changes in circumstances. (Paragraph 41)

8.Claimants would have greater certainty and security of income if awards were fixed at the same level for at least three months. This may encourage claimants to increase the number of hours that they work as they would not face an immediate fall in benefit. We believe that this can be done using the current process of assessment but using it to reassess levels of award once every three months only. (Paragraph 47)

9.One downside of this proposal is that if income falls significantly during the award period, claimants may struggle financially until their payments are increased at the next assessment. This could be managed by allowing claimants to report falls in income or disadvantageous changes in circumstances and have an earlier reassessment. (Paragraph 48)

10.We recommend that the DWP assess this proposal, taking account of how this would work for out-of-work claimants as well as those in work. (Paragraph 49)

11.Many new claimants have no experience of monthly pay. The DWP’s desire to make Universal Credit ‘like work’ does not reflect the work that the majority of low-income workers experience. The monthly payment has caused unnecessary budget and cashflow problems for claimants who are used to receiving more frequent wages and those who are out of work. (Paragraph 52)

12.Paying Universal Credit awards on a monthly basis is a policy choice; it is not an integral part of the design. However, this approach is not working for many claimants who are forced to fit the rigid requirements of the system. We believe instead that the system should accommodate the circumstances of a wide range of people. At the beginning of their claim all claimants should be allowed to choose whether to have their Universal Credit awards paid monthly or twice monthly. It should be possible for claimants to review this decision on an ongoing basis with their work coach. (Paragraph 54)

13.The accuracy of Universal Credit depends on timely and accurate real time information. Some claimants have been unfairly penalised because of reporting errors and mismatches in the data. This is beyond the control of claimants and often they will be unaware of the issue. Poor-quality real time information creates income insecurity for claimants, making it harder for them to budget and manage their income. While the error rate is low it has nevertheless affected tens of thousands of people. The DWP must work swiftly with HMRC to reduce the real time information error rate. (Paragraph 61)

14.The five-week wait is the primary cause of insecurity in Universal Credit. It entrenches debt, increases poverty and harms vulnerable groups disproportionately. The DWP has introduced some measures to mitigate its worst effects but these fall short of what is needed. (Paragraph 72)

15.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. (Paragraph 73)

16.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. (Paragraph 74)

17.The benefits system cannot be expected to provide solutions to domestic abuse. These acts are criminal and only the abuser is responsible for their actions. That said, the design of the single household payment can, in certain circumstances, exacerbate the risk that financial coercion may take place and make it more difficult for people who have suffered from any form of abuse to escape. (Paragraph 86)

18.The current practice of paying Universal Credit into one account does not reflect reality for many families today, who are used to both partners having their own income. This is important both for reducing the risks of financial coercion and domestic abuse more widely and for encouraging more balanced and equal relationships. The Department should review the option of separate payments by default, drawing on the current review in Scotland. (Paragraph 87)

19.The social security system should not support unproductive and unprofitable businesses in the long-term. However, treating disparate forms of self-employment similarly creates inequalities in the support that they receive. Self-employed claimants who have fluctuating earnings, seasonal patterns, and varying costs and expenses suffer disproportionately from the minimum income floor. The DWP must address this problem to ensure adequate and fair support for those in disparate forms of self-employment. When the temporary suspension of the minimum income floor is lifted these problems will be magnified by the arrival of many more self-employed claimants as a result of the COVID-19 pandemic. The DWP must address this problem to ensure adequate and fair support for those in disparate forms of self-employment. (Paragraph 94)

20.Given that the minimum income floor is currently suspended in response to the COVID-19 pandemic, the DWP should measure the impact of its suspension on self-employed claimants and publish the results. (Paragraph 95)

21.The design of the housing element has led to increased rent arrears and left many claimants feeling vulnerable and at risk of eviction from their home. All claimants should be given the choice, at the beginning of their claim and not when significant arrears have accrued, of having an Alternative Payment Arrangement. If implemented alongside our recommendation to introduce a two-week non-repayable grant at the beginning of a claim, this would help prevent unmanageable rent arrears and provide greater security of housing for all claimants. (Paragraph 101)

22.While the childcare element of Universal Credit is designed to be more generous than the previous system its inclusion in a single benefit was a mistake. Including childcare support in Universal Credit speaks to our central concern with the drive for simplification: it has benefited administrators at the expense of making claimants’ lives more complicated. (Paragraph 106)

23.Including childcare support in Universal Credit has also created further complexity for claimants. Paying costs in arrears has been a barrier to in-work progression. In some cases, it has been a disincentive to work. (Paragraph 107)

24.We recommend that the Department remove childcare support from Universal Credit entirely. This would require exploring options for a separate benefit and for a range of measures to support the supply side–more free hours of care, subsidies for providers, and reduced fees for parents with low incomes. This new benefit could still be delivered via a digital platform. (Paragraph 108)

Managing on Universal Credit

25.The Government undertook the most significant social security reform for a generation at the same time as making substantial cuts to public spending, including wide ranging cuts to the social security system, in order to reduce the deficit. Cuts to Universal Credit have been partially restored but they, along with problems of design and implementation, have had lasting consequences by increasing poverty and hardship among many claimants. Universal Credit’s promise of increased generosity now rests on higher take-up by claimants. The reputation of Universal Credit is poor and higher take-up is not guaranteed. The DWP should start publishing take-up estimates in order to assess how successful Universal Credit has been in achieving the increased take-up that is assumed to flow from simplification. (Paragraph 116)

26.The significant cuts to the social security system over the last decade mean that a catch-up increase in funding is needed urgently to ensure that Universal Credit is fit for purpose. Even when the recent increases in Universal Credit are taken into account, it is a less generous benefit than intended by its original proponents. Without the Government putting more money into the system, Universal Credit will continue to be beset by the problems that we have set out in this report. The recommendations below set out a pathway for making Universal Credit an adequate and fairer system which would provide greater security for claimants. (Paragraph 117)

27.The recent increase in the standard allowance is welcome considering the evidence we have received about the adequacy of Universal Credit, which said that it was often not enough income to live on. Universal Credit must provide claimants with an adequate income and act as a safety net for avoiding extreme poverty and hardship. We believe that the increase shows the original rate was not adequate. The Department has, to date, said that this is only a temporary measure. The Government should commit to making the increase in the standard allowance permanent. The Government should commit to making the increase in the standard allowance permanent. To avoid undue hardship and poverty it should also examine the relative levels of benefits for couples and those with children and investigate whether there are other claimant groups who do not receive adequate income. (Paragraph 129)

28.The DWP should introduce an equivalent to the Severe Disability Premium. This should be a self-care element for any disabled person who does not have someone assisting them and claiming the carer element of Universal Credit. We were told that this would cost the DWP around £1 billion per year. (Paragraph 140)

29.Universal Credit was designed as a working-age benefit; it was not designed with pensioners in mind. While we understand the trade-off which the DWP has had to consider in relation to mixed-age couples, we feel that on balance it has opted for the wrong approach. (Paragraph 146)

30.Including mixed-age couples in Universal Credit has meant that they may lose out financially. The partner who is eligible for a state-age pension is treated unfairly compared with single pensioners and couples of state-pension age. The DWP should revert to the previous system in which mixed-age couples were treated as state-pension age couples for means-tested benefits. (Paragraph 147)

31.As more people migrate to Universal Credit, its role in recovering historical debt will become more prominent. The DWP should ensure that deductions taken from Universal Credit awards are first subjected to an affordability assessment. They should only made in accordance with what a claimant can afford to repay. (Paragraph 158)

32.Many people are unaware that they have tax credit debts and often the overpayments they have received were not their fault. Using Universal Credit to recover historic debts has left many households with an income well below that to which they are entitled. (Paragraph 159)

33.The Government should write off historical tax credit debt owed by Universal Credit claimants. We believe that the £6 billion of tax credit debt should be treated as a sunk cost—it is highly unlikely to be repaid in full, and the Government should not jeopardise the financial security of claimants in pursuit of it. (Paragraph 160)

34.We recognise that the benefit cap was intended to increase the financial incentive to move into paid work. This is more likely to be effective if there is a buoyant labour market than if there is high unemployment and few job vacancies. In light of the unfolding economic crisis we recommend that the Government review the level of the benefit cap and its effect on hardship and poverty. (Paragraph 167)

35.The two-child limit is unfair. It penalises large families and can put the health and wellbeing of children in jeopardy. We heard that ending the limit could protect up to 300,000 children from poverty. We urge the Government to remove the two-child limit and consider introducing tapered awards for families with more than two children. (Paragraph 173)

36.The principle of always making work pay has been undermined by cuts to work allowances even after taking into account the partial reinstatement in 2019. (Paragraph 188)

37.Given the depth of the recession that is anticipated following the COVID-19 pandemic, getting people into work should be the DWP’s priority. We therefore recommend revisiting both the structure and the level of the work allowances. All claimants should have a work allowance, at a higher rate than currently, to allow them to keep more of their award as they move into work, including short-term or low-hours employment. Figures from the Institute for Fiscal Studies suggest that reintroducing a work allowance for all groups, and increasing it by £50 per month, would cost the DWP £1.3 billion per year. (Paragraph 189)

38.The DWP should also consider a reduction in the taper rate to reduce the unfairness that is inherent in the very high marginal effective tax rates that some of the poorest in our society face. (Paragraph 190)

Employment, sanctions and support

39.Conditionality must be adapted so that it is able to accommodate dynamically changing labour market conditions, including at the local level. The DWP should, with HM Treasury, the Department for Business, Energy and Industrial Strategy and other relevant departments, review how conditionality should be reconstructed to support millions of people back into work in an environment in which there are far fewer vacancies and in which large sectors of the economy such as non-food retail, hospitality and tourism—which are most likely to employ young people—remain depressed or do not recover fully. The DWP should ramp up and improve the provision of training that is available to claimants. (Paragraph 202)

40.We regret that the DWP has resumed the monitoring of conditionality requirements so soon and that it will begin imposing sanctions on claimants after a brief suspension when each day is bringing announcements of a significant reduction in total jobs. The DWP faces the prospect of several million more unemployed but threatening claimants with long and severe sanctions at this stage is unfair and counterproductive. (Paragraph 203)

41.The social security system must be flexible enough to adapt to a labour market that has changed substantially. Conditionality and sanctions as they are set currently are inappropriate while we are still so far from an economic recovery. (Paragraph 204)

42.Conditionality must be rebalanced. The preoccupation with sanctions-backed compliance needs to be reconsidered, with more emphasis on and resources for personalised employment support for those who can work. (Paragraph 212)

43.The Claimant Commitment can be a useful means of setting out the responsibilities and entitlements which are part of benefit entitlement. However, Claimant Commitments over-emphasise obligations and penalties. Claimant Commitments should be rebalanced, with greater emphasis on the level and type of support that claimants can expect to receive in order to help them to find work or to progress. In most cases claimants will know what support they would benefit from; therefore, they should have an equal role in setting expectations. A more balanced combination of responsibilities and entitlements would better reflect the relationship between employer and employee that the DWP wishes to emulate and would demonstrate to claimants that they are an active participant in their claimant journey. (Paragraph 213)

44.Claimants can be at their most vulnerable and desperate when making their first benefit claim. This is not an appropriate time for people to make important commitments or to decide exactly what support they will require. Claimants should be able to agree to a Claimant Commitment in two stages in order to provide time to consider what support, coaching, training or other intervention from the DWP would be of use, and to consider whether obligations discussed in the first meeting are appropriate. (Paragraph 214)

45.We were concerned to hear that such harsh sanctions can be applied to claimants so easily, particularly when a claimant may already be subject to high deductions to pay back advances and other debts. Any reasonable system, such as the justice system, would not impose fines which can result in extreme poverty for such minor offences. A fairer system should take far greater care to assess the effect of sanctions on those to which they apply. Before imposing a sanction, we recommend that the DWP conduct a hardship assessment before deciding on the level of sanction. (Paragraph 222)

46.The UK has some of the most punitive sanctions in the world but the evidence that sanctions achieve positive behavioural change and lead to better employment and earnings outcomes is mixed. Removing people’s main source of support for extended periods risks pushing them further into extreme poverty, indebtedness and reliance on foodbanks. We welcome the reduction in the DWP’s use of sanctions since 2017 and reducing the maximum sanctions length from six months to three. The DWP should expedite its work on introducing a written warning system before applying a sanction. This would ensure sanctions are a last resort. (Paragraph 223)

47.We are disappointed that the DWP did not publish its evaluation of the efficacy of sanctions before it lifted the suspension on the use of sanctions. The evaluation should be published with urgency and should set out the DWP’s understanding of how the current length and level of sanctions facilitate positive behaviour change from claimants and how sanctions lead to sustainable work outcomes. (Paragraph 224)

48.There is a great deal of evidence to show that sanctions and the threat of sanctions affect people’s mental health. The DWP’s refusal to examine the extent of these effects endangers claimants. The DWP must meet the commitment it made in 2013 to evaluate the impact of conditionality and sanctions on claimants’ mental health and wellbeing. (Paragraph 230)

49.The introduction of an in-work conditionality regime is radical and unprecedented. It will, for the first time, extend conditionality to a significant number of people who may face sanctioning even though they are already working. Millions of working people should not be compelled to prove their motivation to progress in work. We heard that claimants’ personal circumstances, constraints in the local labour market and employer preferences are far more significant reasons for why people struggle to earn more compared with low motivation. (Paragraph 241)

50.We agree with the DWP’s aim to help people become independent of means-tested social security benefits. We welcome the DWP’s acknowledgment that additional support for claimants and working with employers is a better way to achieve it than expanding conditionality. We recommend that the DWP offer future in-work claimants enhanced coaching and training on a voluntary basis. It should end in-work conditionality requirements and the threat of sanctions from existing in-work claimants. (Paragraph 242)

51.We welcome the DWP’s decision to increase the recruitment of new work coaches over the coming months in response to the COVID-19 pandemic. Caseloads for work coaches have risen in recent years and are already too high to expect the level of sustained, personalised support that best helps claimants into work. (Paragraph 250)

52.The Secretary of State indicated that the number of work coaches may double. We are concerned that this may not be enough to support claimants to find work in what may be a stagnant labour market with high levels of competition for many vacancies. The DWP should cap the number of cases for which each work coach can be responsible. Local jobcentres will have to decide how best to ensure that the cap reflects the composition of work coaches’ caseloads, as some claimants will require more intensive support than others. (Paragraph 251)

53.The coming jobs crisis will not affect everyone equally; young people will disproportionally experience job losses. We know that long-term unemployment reduces people’s employment and earnings potential in perpetuity and entrenches existing inequalities. (Paragraph 260)

54.The DWP’s successful management of large numbers of new claims by frontline staff involved a rapid reorganisation of priorities and resources. The DWP should already be reorganising to meet the unfolding jobs crisis. It must build stronger links with employers, local authorities and local education providers to harness their skills, expertise and resources to train and match claimants who can work with available jobs in a difficult and transformed labour market. (Paragraph 261)

55.We welcome the Government’s announcement on providing more money to businesses in return for creating apprenticeships. The promotion of high-quality and well-funded apprenticeships should continue to be prioritised to support the training of the current generation of school leavers and for ensuring that other people can reskill, particularly those from employment sectors that may not see same level of demand for certain roles. The Government should also take steps to reform the apprenticeship levy. (Paragraph 262)

56.We welcome the Government’s consideration of new active labour market policies. We urge it to act quickly and boldly. (Paragraph 263)

57.The Government has provided funding for limited support to claimants, notably via the Help to Claim service. However, this stops after the first successful claim. The Government expects work coaches to be the main agents of support thereafter, but their time is already stretched. (Paragraph 268)

58.It should not be necessary for claimants to require specialist help to navigate the system. As this is necessary under Universal Credit, claimants have a right to informed, independent and free advice. The benefit has had a dramatic impact on the provision of support services by local authorities, housing providers and community-based advice bodies, as helping claimants to navigate the system has become one of the main functions of such services. Claimants have a right to such support; but this has had a significant impact on the budgets of such organisations. The Government should devise a fund for supporting this work, work alongside local authorities to identify best practice for providing ongoing and accessible advice, and publish the results. (Paragraph 269)

59.The original proponents of Universal Credit envisaged a comprehensive system of support for the most vulnerable people and those with the most complex needs. However, we were told that this work was never undertaken as a result of the cuts to public spending that took place under the Coalition Government. The Government must do more to recognise and fund the impressive networks of local support and advice that are doing the vital work of supporting the hardest to reach claimants at great expense. This would ensure that vulnerable people are able to receive the help that they need and are able to navigate the social security system. (Paragraph 274)

60.Most people do not struggle with a predominantly digital service, but a significant minority do. The need to provide digital support does not end at the first claim. Claimants are expected to manage their Universal Credit accounts and work journals online for the duration of their claim. It is essential that trusted organisations are funded to guide people through the process. (Paragraph 283)

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