Universal Credit: Solving one problem by creating another

The changes announced in Wednesday’s budget are likely to improve the often awful first weeks of a Universal Credit claim. The problem is that, rather than address the core flaws in the benefit’s design, they patch it over. The announcement is not so much a step in the right direction as making the wrong direction more tolerable.

Universal Credit (UC) has many problems (our briefing outlines them here). A key problem is that there is a six-week delay between applying for the benefit and receiving the first payment. Families applying for Universal Credit often do not have enough savings to carry them through this 6 weeks leading to increased debt, rent arrears and foodbank use.

 A six-week wait becomes a five-week wait

The first week of the six weeks delay is due to “seven waiting days” where the application for benefit is simply parked for seven days. This policy was introduced as a crude cut in the 2013 Comprehensive Spending Review. Wednesday’s budget abolished these waiting days; we strongly opposed the introduction of waiting days in 2013 and welcome their demise today.

A five-week wait becomes a one-week wait and a large debt

This leaves 5-weeks delay between an application for UC and receiving a payment. The government is proposing to solve this problem by lending families 4 weeks benefit and taking repayments from their UC payments over the following year. The five-week wait is therefore effectively converted into a one-week wait and a large debt. The repayments of the debt will amount to 8% of the monthly UC payment for 12 months.

Solving one problem by creating a host of others

The result is that families will see an effective cut to their UC payments of around 8% for a year. We already know that UC provides less support than the benefits it replaces and that for many families it simply too little for them to make ends meet. The Government’s solution to the design problems within Universal Credit means that already inadequate payments will be reduced by 8% for a year.

There are other problems. Obviously some people will receive UC for less than a year. The Department of Work and Pensions (DWP) will need to chase them to collect the debt. Some families will be assessed as unable to repay the loan. Currently these families are denied support for the first 6 weeks and told to look elsewhere (often called signposting). Are these very poor families to continue to be excluded? We don’t know.

A solution that defies common sense

We have come to a strange situation. The DWP calculates how much benefit a family should receive. It then lends them the money. A month later it gives them the money, and then seeks repayment of the loan from money it gives to the family. This is then called simplification.

Anyone coming looking this fresh would be forgiven for asking what is the point of shuffling the money about in this way? Why not just pay the initial amount earlier and not bother with the stress and bureaucracy of a loan?^[1]The DWP’s argument is that a full month is needed to assess people’s income. This is at best deeply inconsistent – the DWP already bases it loans on the application form and it is able to … Continue reading

Universal Credit should not lead to debt

The long wait for the first Universal Credit payment is a design flaw created by the DWP. It is solving the problem of its own creation by loading debt onto the poorest people in the country. Repayments will mean that in effect families will experience an 8% cut to their UC payments for the first year.

While this is an improvement it is testament to how bad the initial policy was that lending money to the UK poorest people appears even rational. We do not believe putting families facing hardship into further debt is a sensible policy. It is baffling that anyone would.

There are better ways of solving the problem of the five-week wait. Ways that don’t put families into debt, and provide greater dignity and less stress. This would require more than a hurriedly constructed patch. It would require the DWP to do what churches and charities have been calling for since July. To pause UC, consult with the people affected, and be prepared to make real changes.