Universal Credit

Background

The proposed Universal Credit was outlined by Work and Pensions Secretary Iain Duncan Smith at the Conservative Party annual conference in 2010. The initial aim was for Universal Credit to be implemented fully over four years and two parliaments, and for it to merge the six main existing means tested benefits and tax credits into a single monthly payment, as well as to cut costs (the administration of six independent benefits, and associated computer systems, having considerable expense). Those six benefits are: income-based Jobseeker’s Allowance, income-related Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit and Housing Benefit.

Unlike some existing benefits, such as Income Support, that have a 100% withdrawal rate, Universal Credit is gradually tapered away, like tax credits and Housing Benefit - so that, in theory, people can take a part-time job and still be allowed to keep some of the money they receive. Opinion on the effects of the benefit is divided. In theory, Universal Credit claimants should be better off taking on work, as the benefit will ensure they keep at least a proportion of the money they earn (as discussed here http://www.telegraph.co.uk/news/politics/conservative/11414408/With-Universal-Credit-work-might-finally-pay.html). However, reductions in funding and changes to the withdrawal rate meant that commentators on both sides of the political divide have questioned whether it will make work pay. The Daily Telegraph claimed "part-time work may no longer pay", and "some people would be better off refusing" part-time work and in the Guardian, Polly Toynbee wrote "Universal credit is simple: work more and get paid less". Universal Credit may also ensure that self-employment is no longer a worthwhile option for vast swathes of the population due to the "Minimum Income Floor" provision.

Relationship to other proposed welfare policies

Universal Credit has some similarities to Lady Williams' idea of a negative income tax, but it should not be confused with the universal basic income policy idea. There is some debate as to whether Universal Credit should be considered "universal", given that it is both subject to income cut-offs and requires some claimants to be availabile for work.

Implementation

Universal Credit is part of a package of measures in the Welfare Reform Act 2012, which received Royal Assent on 9 March 2012. The Welfare Reform Act delegates the detailed workings of Universal Credit to regulations, most of which were published in February 2013 as the Universal Credit Regulations 2013. Related regulations appear in a range of other statutory instruments from 2013.

The Department for Work and Pensions (DWP) announced that Universal Credit will be delivered by the best-performing DWP and Tax Credit processing centres. An announcement about the selection of these sites was made by the DWP on 28 February 2012. From this it is clear that local authorities, who currently deliver Housing Benefit (one of the key legacy benefits which will be incorporated into Universal Credit), will not have a core role in delivering Universal Credit. However, the Government has subsequently recognised that there may be useful roles for local authorities in helping people to access the services within Universal Credit.

Philip Langsdale, Chief Information Officer at the Department for Work and Pensions, who had been leading the programme, died on 22 December 2012, and in the previous few months there had been other significant personnel changes. Subsequently, project director Hillary Reynolds resigned in March 2013 after just four months in the role. The new chief executive of Universal Credit took on the role of project director. Emma Norris of the Institute for Government argued in 2013 that the original timetable for the implementation of Universal Credit was "hugely overambitious". She also argued that two reasons for delays are IT problems and the senior civil servants responsible for the policy changing some six times.

A staff survey reported by The Guardian on 2 August 2013 under the headline "Universal Credit staff describe chaos behind scenes of flagship Tory reform" that the comments from Universal Credit implementation staff were highly critical. Comments included: "After 29 years of service this has been the most soul-destroying work I have done", and: "There is too much dishonesty and no one ever admits to making a mistake." Another said: "This is the third review in 16 months, no rollout plans, no confidence in going forward and stakeholders losing confidence in our ability to deliver." The Guardian on 31 October 2013, in an article said to be based on leaked documents, entitled "Universal credit: £120m could be written off to rescue welfare reform" reported that a maximum of 25,000 people – just 0.2% of all benefit recipients – were projected to be transferred on to the programme by the next general election in May 2015. However, by May 2015 over 100,000 people had made a claim for Universal Credit.

A pilot in four local authorities was scheduled to precede the national launch of the scheme in October 2013 for new claimants (excluding more complex cases such as families with children), with a gradual transition to be complete by 2017. However, due to persistent computer system failures and delays in implementation, only one of the original pilots went ahead at the expected date, in Ashton-under-Lyne, The other three pilots went ahead later in the summer, and were met by staff protests.

The roll-out of Universal Credit was limited to new, single, healthy claimants in the North West of England. It was later extended to couples, then families, in the same area, reflecting the gradual maturing of different aspects of the computer system. Once the North West roll-out was largely completed, the government gradually extended Universal Credit to new single healthy claimants in the rest of the British mainland, nearly completing this rollout as of 13 March 2016. It is expected that this will gradually be extended to couples and families outside the North West once the rollout to mainland single claimants has been completed.

As of 2015, implementation in Northern Ireland has been held up by disputes over policy and funding between feuding parties in the Stormont Assembly, and there is still no published date for rollout to begin.

Pilot

The scheme was originally planned to be piloted in April 2013 in four local authorities – Tameside, Wigan, Warrington, and Oldham, with the credit being paid by the DWP's Bolton Benefit Centre. The pilot project was reduced to one (Tameside), with the other three to join the pilot in July. In April 2013 it was made clear that the pilot in Tameside would cover only around 300 people per month, and be limited to the very simplest cases, such as single people with no children.

The whole scheme was planned to begin nationally in October 2013 for new claimants (excluding more complex cases such as families with children), with a gradual transition to be completed by 2017. One tester of the system in April 2013 noted that the online forms took around 45 minutes to complete, and that there was no save function.

In March 2013 it was reported that during the pilot, all final Universal Credit calculations would be done manually using spreadsheets, with the new IT system being used primarily to book appointments and store some personal details. The Guardian reported that at the town hall in Tameside, the first place to pilot the scheme, no claimants turned up in person on day one, leaving it unable to comment in detail on claimants' experiences with the new system (however, it did note a spelling mistake on the first page of the online process).

The Financial Times reported on 29 April 2013 that the October national rollout would now start with a single Jobcentre, or possibly a "cluster" of them in each region, and that in a letter to local authority chief executives in December 2012, seen by the Financial Times, Hilary Reynolds, who had been appointed programme director for the Universal Credit project but moved on after four months in the role, stated: "For the majority of local authorities the impact of [Universal Credit] during the financial year 2013–14 will be limited."

Since the original planned implementation date of 28 October 2013 it has been acknowledged by the DWP that there has been considerable slippage.

On 3 December 2013 the DWP issued statistics showing that between April 2013 and 30 September 2013, only 2,150 people had been signed up to Universal Credit in the four Pathfinder (i.e. pilot) areas of Ashton-under-Lyne, Oldham, Warrington, and Wigan. The report confirmed that Universal Credit had been rolled out to Hammersmith on 28 October, followed by Rugby and Inverness on 25 November, and was to expand to Harrogate, Bath, and Shotton by Spring 2014.

Current status

With the completion of the pilot phase, and the initially languid roll-out to the North West of England, the pace of implementation was increased drastically. As of September 2015, Universal Credit was available in over half of job centres across Great Britain and was scheduled to be available in all Jobcentres by early 2016.

As of 22 February 2016, 364,000 people have made a claim on Universal Credit. Research by the government claims that "Universal Credit claimants find work quicker, stay in work longer and earn more than the Jobseekers' Allowance claimants".

Policy

There are four types of conditionality for claimants, depending on their circumstances, ranging from their being required to look for full-time work, to their not being required to find work at all (people in the unconditional group include the severely disabled and carers).

Payments for Universal Credit are made once a month directly into a bank or building society account. Any help with rent granted as part of the overall universal credit calculated for a claimant is included with the monthly payment and the claimants then pay their landlord themselves. However it is possible to get an Alternative Payment Arrangement (APA) which allows payment of housing benefit direct to the landlord in some circumstances.

Universal Credit claimants are also entitled to Personal Budgeting Support (PBS) which is aimed to help claimants adapt to some of the changes Universal Credit brings such as monthly payments.

Costs

Whilst the DWP had estimated the administration costs for the rollout of Universal Credit to be £2.2 billion, by August 2014 this estimate was revised to £12.8 billion over its "lifetime". At that date only 7,000 claimants were receiving UC. The estimated lifetime cost has since increased to £15.8 billion. Much of the increased costs are associated with requiring to use both systems to continue paying out the legacy benefits, and the software problems. The initial rate of rollout was much slower than had been originally planned. This led to the departure of several senior leadership figures in the program.

Criticism

Universal Credit has been subject to a number of criticisms relating to its design.

Reduced incomes

Notably families with children find their income falling. When universal credit becomes fully operational the Institute for Fiscal Studies estimates 2.1 million families will lose money while 1.8 million will gain. Single parents will lose on average £2,380 annually and families with three children lose £2,540 according to analysis by the Child Poverty Action Group and the Institute for Public Policy Research. Alison Garnham of the Child Poverty Action Group urged ministers to reverse cuts to work allowances and get Universal Credit, "fit for families" Garnham said, “Universal credit was meant to improve incentives for taking a job while helping working families get better off. But cuts have shredded it. And families with kids will see the biggest income drops.” Since 2013 Universal Credit was changed nine times, most changes making it less generous. Changes include cuts in work allowances and a freeze in credit rates for four years, from April 2017 child credit will be limited to two children per family.

Online applications

Professor John Seddon, who is an author and occupational psychologist, started a campaign for an alternative way to deliver Universal Credit in January 2011. He argued that you can't deliver high-variety services through "cheaper" transaction channels, and argued that in fact this would drive costs up. John Seddon wrote an open letter to Iain Duncan Smith and Lord Freud as the start of a campaign to call a halt to the current plans and, instead, to embark on a "systems approach" which he thought would be better. Seddon started a petition in 2011 calling for Iain Duncan Smith to "rethink the centralised, IT-dominated service design for the delivery of Universal Credit". His petition went on: "Evidence from a significant number of housing benefit offices demonstrates that local, face-to-face processing of benefits is cheaper and faster than distant automated telephone and online processing. Processing claims face-to-face is not only cheaper and faster but an excellent way of ensuring that vulnerable people understand both their entitlement and their obligations. Feedback from claimants is overwhelmingly positive when their claim is dealt with face-to-face by an expert."

Echoing these concerns, Ronnie Campbell, MP for Blyth Valley, sponsored an Early Day Motion on 13 June 2011 on the topic of the delivery of Universal Credit which was signed by thirty MPs. It proposed "That this House notes that since only fifteen per cent of people in deprived areas have used a Government website in the last year, the Department for Work and Pensions (DWP) may find that more Universal Credit customers than expected will turn to face-to-face and telephone help from their local authority, DWP helplines, Government-funded welfare organisations, councillors and their Hon. Member as they find that the automated system is not able to deal with their individual questions, particular concerns and unique set of circumstances".

Wait for payments and payment frequency

The Trades Union Congress has raised concerns about the delay – which is at least six weeks – between making a claim and receiving money.

Thousands of claimants get into debt, get behind with their rent and risk eviction due to flaws in universal credit, landlords and politicians want the system overhauled. The tendency of many low-paid people to live on a hand to mouth basis, and not save money for a rainy day (either due to not having any disposable income to save, or due to choosing not to), means that there is often still a residual problem of only having one or two weeks of income from their previous job to cover the costs of their first month of unemployment. This means many end up going without basic essentials while waiting for their first Universal Credit payment to arrive. Many tenants are at risk of eviction, and some turn to loan sharks. Landlords and politicians, claim tenants are getting into debt, rent areas and facing eviction beecausee of flaws in Universal credit and are demanding an overhaul of the system. Ministers are strongly advised to slow things down and to give more support to vulnerable claimants who struggle with monthly payments and the online system. Guardian research found:

An official inquiry has been launched due to problems with universal credit.

Direct payments to tenants

Direct payment of the housing component of Universal Credit (i.e. what used to be Housing Benefit) to tenants has been the subject of controversy. Although housing benefit has long been paid to most private sector tenants directly, for social housing tenants it has historically been paid directly to their landlords. As a result, the implementation of a social housing equivalent to the Local Housing Allowance policy, which has been present in the private sector without comment for over a decade, has widely been perceived as a tax on having extra bedrooms, rather than the tenant making up a shortfall in the rent arising from a standardisation of their level of benefit.

The Social Security Advisory Committee have argued that the policy of direct payments requires "close monitoring" so as to make sure that Universal Credit does not further discourage landlords from renting to people on benefits.

Disincentive to save

The Institute for Fiscal Studies has argued that Universal Credit is a disincentive for people to save money.

Impact on the self-employed

The Resolution Foundation has warned that Universal Credit hurts self-employed people with dramatic changes in their income from month to month.

According to pressure group the Child Poverty Action Group, Universal Credit may affect the low-paid self-employed and anyone who makes a tax loss (i.e. spends more on tax-deductible expenses than they receive in taxable income in a given tax year).

Impact on disabled people

Citizens Advice research argued that 450,000 disabled people and their families would be worse off under universal credit.

Impact on passported benefits

The Daily Mirror, a tabloid newspaper, reported an example of a claimant who was moved over to Universal Credit from a "legacy benefit" and whose passported benefits, such as free school meals, were withdrawn in error.

Domestic abuse

The campaigns group Women's Aid have argued that Universal Credit could have negative consequences for victims of domestic abuse, as under Universal Credit, benefit payments are paid as one payment per household – something that could risk the financial independence of victims of domestic abuse.

Impact on families

In the report Pop Goes the Payslip the advice organisation Citizens Advice highlighted examples of people in work who are worse off under Universal Credit than under the 'legacy' benefits Universal Credit is replacing. Similarly, a report from 2012 by Save the Children highlights how "a single parent with two children, working full-time on or around the minimum wage, could be as much as £2,500 a year worse off under the new [Universal Credit] system".

Work disincentives

A House of Commons Library briefing note raised the concern that changes to Universal Credit that were scheduled to take effect in April 2016 might make people reluctant to take more hours at work:

There is concern that families transferring to Universal Credit as part of the managed migration whose entitlement to UC is substantially lower than their existing benefits and tax credits might be reluctant to move into work or increase their hours if this would trigger a loss of transitional protection, thereby undermining the UC incentives structure.

Internal criticisms

A freedom of information request was made by Tony Collins and John Slater in 2012. They sought the publication of documents detailing envisioned problems, problems that arose with implementation, and a high-level review.

In March 2016, a third judicial case ordered the DWP to release the documents. The government's argument against releasing the documents was the possibility of a chilling effect for the DWP and other government departments.

IT problems

Universal Credit has been dogged by IT problems. A DWP whistleblower told Channel 4's Dispatches in 2014 that the computer system was "completely unworkable", "badly designed" and "out of date". A 2015 survey of Universal Credit staff found that 90% considered the IT system inadequate.