The budget didn’t fix the problems of Universal Credit. Here’s what the Chancellor should have said

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Published date
23 Nov 2017
The 2017 Budget announcements on Universal Credit (UC) are of little help to people claiming the new benefit. Cutting the waiting period from six weeks to five will have little impact and the Chancellor did nothing to address the huge cuts set to hit families in the coming years.
Philip Hammond
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Reducing the six-week wait to five in UC, by removing the seven-day waiting period at beginning of the claim, will do little to reduce the pressure on claimants’ household incomes.

Despite the cut, that's still a huge wait for support when you most need it, and the idea that the four-week payment made in arrears reflects the world of work is not accurate. 

Analysis by the Resolution Foundation shows that the majority of new claimants starting UC as a result of moving from employment were previously paid either fortnightly or weekly in their previous job.  

Shorter waiting periods for payments are essential. The Chancellor said: “We have looked at reducing the delay at the end of the first month assessment period. But to do so would mean compromising the principle of payments being made on the same day of the month. A key feature of the system which is very important for claimants in managing their budgets.”

Really? A claimant simply cannot budget without money. Surely the speed of receiving the payment should take priority over a neat monthly payment schedule.

The Chancellor also announced that from April 2018 those already on housing benefit will continue to receive their award for the first two weeks of their UC claim.  Landlords have become increasingly concerned about letting to UC claimants.  Speedy payments (within two weeks) for housing support can stop claimants falling in to arrears with rent, while reassuring landlords that payment will be received. 

Also announced was that that claimants can apply for an advanced payment, of a month’s worth of UC, within five days. While this is a welcome improvement on the previous loan system it is still not an adequate response. It has to be repaid from UC payments, meaning claimants start their claim in debt. Analysis by Citizens advice shows UC clients are more likely to have debt problems than those on legacy benefits, and that they also struggle to pay off their debt.

It is not just about the waiting time in UC 

Media coverage has focused on waiting times for initial UC payments. But the seven-day waiting period was just one misguided policy choice among many made on UC. For instance, measures in the Summer Budget 2015 included:

  • Reductions in the “work allowances” for most UC claimants, from April 2016.
  • Limiting the child element of tax credits and UC to two children for new claims and births after April 2017.
  • Removing the family element in tax credits (and the corresponding first child premium in UC) for new claims from April 2017.

These elements, plus frozen benefit rates, mean a real cut in support for claimants.

The accumulation of cuts to UC has meant it will be less generous than the previous system.  The Chancellor’s announcement of a small cut in the UC taper rate in the 2016 Autumn statement from 65 to 63 per cent doesn’t compensate for the cuts announced in the July 2015 Summer Budget.

The Chancellor is expected to save £0.12 billion in 2016-17 from changes to UC work allowances alone, rising to £2.85 billion in 2019-20 and £3.19 billion in 2020-21. 

The cuts in the work allowances will have a huge impact on families. Lone parents without housing costs experienced the largest reduction in their work allowance, from £8,808 to £4,764. Gingerbread estimates the cut to the UC work allowance means the average single parent loses £800 a year, and some will lose over £2,000 compared to current benefits. And CPAG highlight the cuts to UC, which originally promised to lift 350,000 children out of poverty, will now mean a million more children in poverty than under its original design.

There was no mention of revisiting these cuts. The TUC is concerned that Universal Credit has become primarily a cost-cutting exercise, rather than a mechanism for supporting low-income households.

Making Work Pay

One of the original aims of UC was to ensure people were always better off in work than on benefits. However, as the work allowances have become less generous, and there is a high taper rate of 63 percent (75 when you start paying taxes and national insurance), this can reduce incentives to work especially for single parents. Early designs of UC suggested a taper rate of 55 percent.

Second earners have no work allowance so all their initial earnings are immediately subject to the taper. They keep just 37p in the pound of their pay. Again, this reduces incentives to work. In most couples, the second earner is more likely to be a woman, so this will disproportionately impact on women’s employment rates and incomes.

The Government needs to ensure that the taper rate in UC is effective and ensures the aim of ‘making work pay’.

The self-employed on UC 

And let’s not forget about the fate of the self-employed on UC who were not mentioned by the Chancellor yesterday. Families with a self-employed earner will face reductions in the level of support they receive in UC if they do not meet the ‘Minimum Income Floor’ (MIF) requiring them to earn the equivalent of 35 hours a week at the National Minimum Wage. With the introduction of this expected to lead to a £1 billion-plus saving for the Exchequer, this is in effect coming out of the pockets of the low-paid self-employed.

The self-employed are more likely to have fluctuating earnings. As UC is assessed on the previous month’s income, you can have a case of a self-employed claimant (above the level of current minimum income floor) receiving substantially less UC than an employed claimant earning a similar annual income. In one example modelled by the independent Low Incomes Tax Reform Group (LITRG), the self-employed person received £2,600 less UC than their employed counterpart.

The Work and Pensions Select Committee recently recommended that: “The incoming government should commission an independent review of the MIF with a view to improving its sensitivity to the realities of self-employment. Until this is complete, the MIF should not apply to self-employed UC claimants.” The TUC endorses this recommendation.

Currently, those moving on to UC are relatively straightforward cases. More complex cases will start or migrate on to UC soon. Before they do, a pause in UC would be ideal to allow time for reflection in how UC works.