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Universal credit: why is it a problem and can the system be fixed? Universal credit: what is it and what exactly is wrong with it?
(4 months later)
What is universal credit?What is universal credit?
Universal credit is the supposed flagship reform of the benefits system, rolling together six benefits (including unemployment benefit, tax credits and housing benefit) into one, online-only system. The theoretical aim, for which there was general support across the political divide, was to simplify the benefits system and increase the incentives for people to work, rather than stay on benefits. Universal credit is the supposed flagship reform of the benefits system, rolling together six so-called “legacy” benefits (including unemployment benefit, tax credits and housing benefit) into one benefit paid monthly to claimants. The aim, for which there was general support across the political divide, was to simplify the benefits system, make it more efficient and increase the incentives for people to work rather than stay on benefits.
How long has it been around?How long has it been around?
The project was legislated for in 2011 under the auspices of its most vocal champion, the former secretary of state for work and pensions Iain Duncan Smith. The plan was to roll it out across the UK by 2017. However, a series of management failures, expensive IT blunders and design faults have seen it fall at least five years behind schedule. The project was legislated for in 2011 under the auspices of its most vocal champion, the former secretary of state for work and pensions Iain Duncan Smith. The plan was to roll it out across the UK by 2017. However, a series of management failures, expensive IT blunders and design faults mean it has fallen at least five years behind schedule. Under the current schedule it will be fully implemented to about 7 million claimants by 2022-23, when it will account for around £63bn of spending.
Why are critics calling for a pause in its rollout? Does it work?
The benefit has, in its latest iteration, been rolled out slowly – at a rate of about five jobcentre areas a month in selected areas since May 2016. About 600,000 people are currently on the benefit. But the government has decided to push ahead with an accelerated rollout of 50 jobcentre areas a month from October. Critics say ministers need to slow down to review and fix serious design flaws in the system. Strangely, given that it has been around for so long in one form or another, it is still far too early to tell. Certainly the “customer” experience of universal credit for too many claimants (and other stakeholders, such as landlords) has been dismal. Critics argue that cuts to the benefit mean it is now less likely to incentivise jobless people to move into work, or to work more hours. Ministers claim evidence from early official trials shows universal credit claimants were more likely to get a job. However, the Office for Budgetary Responsibility (OBR) said there was still insufficient evidence to judge.
What are the design flaws? Why is it so controversial?
There are manifold problems, but the political focus centres on the minimum 42-day wait for a first payment endured by new claimants when they move to universal credit (in practice this is often up to 60 days). For many low-income claimants, who lack savings, this in effect leaves them without cash for six weeks. The well-documented consequences for claimants of this are rent arrears (leading in some cases to eviction), hunger (food banks in universal credit areas report striking increases in referrals), use of expensive credit, and mental distress. For all its theoretical benefits, in practice universal credit has been hugely problematic, generating what some fear are “poll tax” levels of unpopularity. While it began life intending to be more generous to most claimants, it is now, as a result of cuts, significantly less generous, leaving many claimants worse off when they move on to it than they were under legacy benefits. Added to that are design flaws and administrative glitches that put poorer claimants especially at heightened risk of hunger, debt and rent arrears, ill-health and homelessness. Food banks, for example, have reported that demand for charity food goes up significantly when universal credit is introduced into the local area.
What have ministers proposed to do about the six-week wait? Hasn’t the government moved to address some of these flaws?
The work and pensions secretary, David Gauke, recognised the widely held concerns about the long payment wait (including 12 of his own party’s backbenchers) in his speech to the Tory party conference on Monday. He said he was overhauling the system of advance payments available to claimants to enable them to access cash up front to see them through the six-week waiting period. Payments would be available within five days, and in extreme cases within hours. Following massive pressure in the autumn from campaigners and many Conservative backbench MPs who were shocked by the hardship and destitution faced by many claimants, ministers introduced a number of changes, including shortening the built-in 42-day wait for a first payment to 35 days, making advance loans more readily available to claimants unable to wait long periods for financial assistance, and making the universal credit telephone helpline free. Critics say the changes don’t go far enough and have called for the rollout to be paused.
Will this solve the problem? What else is going wrong with universal credit?
The payments are loans that must be repaid. Claimants can only get an advance for a proportion of the amount they are owed as a first payment, and must repay it within six months. Normally, claimants must prove to officials that an advance is needed to pay bills, afford food or prevent illness. Official figures show about half of new universal credit claimants apply for an advance payment. Ministers say this is good news as it shows they are getting help. Critics say the high demand proves the wait is too onerous for too many people. Plenty. Landlords (private, council and housing association) are worried about the level of rent arrears racked up by tenants on universal credit. Unchecked, this will lead to a spike in evictions and homelessness. Many private landlords say they will no longer rent to universal credit claimants because the risk of arrears is too high, and the bureaucracy involved in tackling arrears problems once they arise too soul-destroying. Housing associations have warned that the accumulated bad debts run up by tenants as a result of universal credit could affect their housebuilding plans. Claimants complain that universal credit is bafflingly complex, unreliable and difficult to manage, particularly if you are without internet access, and that universal credit staff are often poorly trained.
What other options do ministers have? So ironing out a few more technical glitches will fix it?
Charities and landlords could reduce the long wait marginally by cutting the seven-day “waiting period” introduced in 2013 (an arbitrary period during which new claimants are prevented from lodging a claim after being made redundant). They could introduce more flexible repayment terms for advance loans. And they could speed up the payment process (currently slower than the supposedly cumbersome “legacy” benefits they replace). Nope. Huge underlying problems remain. Multibillion-pound cuts to work allowances imposed by the former chancellor George Osborne have left it hollowed out. According to the Resolution Foundation thinktank, universal credit will leave about 2.5 million low-income working households more than £1,000 a year worse off. Reversing those cuts requires a political decision, not more technical fixes.
Are there other design problems with universal credit? Can we expect further changes to universal credit?
Plenty. Landlords (private, council and housing association) are worried about the level of rent arrears racked up by tenants on universal credit. Unchecked, this will lead to a spike in evictions. Private landlords have said they will no longer take on universal credit claimants as tenants because the risk of arrears is too high, and the bureaucracy involved in tackling problems too soul-destroying. Housing associations have warned that the accumulated bad debts run up by tenants as a result of universal credit could affect their housebuilding plans. Claimants complain that universal credit is bafflingly complex, unreliable, and difficult to manage, particularly if you are without internet access. The key policy question facing each of the four work and pensions secretaries (and myriad policy wonk round tables) since 2015 has been: do we scrap universal credit? So far, politicians have not wanted to pull the plug – the billions pumped into universal credit and the huge amount of political capital and credibility invested in it have been hugely persuasive. So is it too big to fail? The recently departed permanent secretary at the Department for Work and Pensions (DWP), Robert Devereux, who oversaw universal credit between 2011 and 2018, suggested it was too well-established to reverse. Yet it has influential enemies, from the Treasury (which has always opposed the project) to the chair of the works and pensions select committee, Frank Field. The DWP has to present a renewed business case to the Treasury later this year. If it cannot prove universal credit is working or delivering savings (and the OBR suggests this is currently far from clear), this may be problematic. It may not sink universal credit, but more changes are likely.
So it is all about ironing out a few technical glitches? What might trigger further changes?
Not quite. Multibillion-pound cuts to work allowances imposed by the former chancellor George Osborne mean universal credit is far less generous than originally envisaged. According to the Resolution Foundation thinktank, about 2.5m low-income working households will be more than £1,000 a year worse off when they move on to universal credit. Reversing those cuts requires a political decision, not a technical fix. The OBR assessment of universal credit this week pointed out that the project remained fundamentally volatile, not least because – without changes – relatively large numbers of claimants are likely to lose out as the system rolls out across the country. These include: working families claiming tax credits; disabled claimants who stand to lose disability premiums when they move from legacy benefits; and self-employed workers. All three groups have been affected negatively by budget changes that have subsequently been reversed after public outcry. The intention under universal credit to force up to a million low-paid workers to seek more hours or move to higher-paid jobs, under threat of financial sanctions (“in-work conditionality”), is another unexploded bomb. Big changes, however, will require substantial investment.
What is the future for universal credit?
Gauke confirmed today that the current rollout will continue to the planned timetable (which will see, in theory, universal credit extended to about 7 million people by 2022). However, the problems of universal credit are unlikely to go away, and it has some powerful critics, including the Treasury, which has always opposed the project. It would be possible to cancel the project, or overhaul it substantially. However, some argue the billions pumped into universal credit – and the huge amount of political capital and credibility invested in it – mean it is too big to fail.
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