A replacement for Universal Credit

The introduction of Universal Credit is one of the most significant social security reforms in recent decades. Universal Credit combines six benefits and is expected to cover around 7 million people once rolled out, making it a huge means-tested scheme.

The benefit was brought in by the Conservative and Liberal Democrat coalition government via the Welfare Reform Act 2012 and introduced from 2013 onwards.  The government stated that in bringing together these benefits, Universal Credit would:

• Encourage people on benefits to start paid work or increase their hours by making sure work pays.
• Make it easier for people to manage the move into work.
• Simplify the system, making it easier for people to understand, and easier and cheaper for the government to administer.
• Reduce the number of people who are in work but still living in poverty.
• Reduce fraud and error.

As of June 2022, around 5.6 million people are on Universal Credit, an increase of around 90 per cent since the pandemic began.

At TUC Congress 2018, Congress passed a motion calling on the government to ‘Stop and Scrap Universal Credit’. 

The TUC believes the policy and design of Universal Credit are fundamentally flawed. In line with our motion, we believe we need a replacement for Universal Credit. The TUC set up an informal working group of union representatives and experts to examine what a replacement for the Universal Credit system could look like.

The working group agreed a set of principles that any reform of the benefits system should be trying to achieve: 

• A system that helps to prevent poverty and works together with efforts to create decent work for all.  
• A system that helps with additional costs, including childcare, housing, and the added living costs linked to disability. 
• A system that helps people work the number of hours that fits their family circumstances.   
• A system that is simple to understand and deliver and in which claimants and staff are treated with dignity.  
• A system that enables financial independence within families. 
• A system that promotes equality for everyone in society.  

Achieving these principles requires many more changes to our current social security system than simply replacing Universal Credit. In particular, it is difficult to fully achieve these aims within a predominantly means-tested system of social security. Means-tested benefits are a major part of the social security system in the UK. Around 60 per cent of all working-age benefits are now means tested.

In this report we look at the issues with Universal Credit which form our critical opinion of the new system. We also highlight potential solutions within each area.

Changes in making work pay

1. Issue: Universal Credit was sold as making work pay, however those on Universal Credit face very high marginal deduction rates.     

Solution:  The Universal Credit taper rate can be reduced further, and options of different taper rates for different groups of people should be examined. To ensure that work pays, work allowances also need to be increased, and extended to those not currently entitled to them. The second earner should have their own independent work allowance too. 

Changes to the amount

2. Issue: Claimants currently seeking financial support experience the inadequacy of social security payments.

Solution: To improve the adequacy of benefits, the TUC has called for the basic level of Universal Credit and legacy benefits, including jobseekers allowance and employment and support allowance, to be raised to at least 80 per cent of the national living wage (£260 per week).

3. Issue: Universal Credit fails to fully recognise the extra costs disabled people incur. Financial support for some groups of disabled people will be much lower in Universal Credit than current support available for people in the same circumstances.    

Solution: No one should lose out financially in Universal Credit; we need to look beyond transitional protection to ensure that disabled claimants are getting at least the amount they would have done in the legacy system.         

4. Issue: Previously the older partner of a mixed aged couple could claim pension credit when reaching state pension age. Now they have to wait till the younger partner does and have to claim the much lower value of Universal Credit compared to Pension Credit.     

Solution: The older partner of a mixed age couple when reaching State Pension Age (SPA) should entitle the couple to claim pension credit.

Changes to waiting and conditions of payment

5. Issue: Under the design of Universal Credit, claimants must wait at least five weeks for their first payment. This means that at the point when people may be at their most vulnerable, the system fails to support them.  

Solution: There is no justification for the five week wait for a first payment of Universal Credit. In the short term this can be replaced immediately with non-repayable grants. The amount can be estimated on the first monthly payment like the advance. 

6. Issue: The low- paid self- employed face an income penalty in Universal Credit, because of what is known as the Minimum Income Floor (MIF). The MIF only applies to the self-employed and assumes that self-employed people earn the equivalent of 35 hours a week at the national Minimum Wage when they access Universal Credit.   

Solution: The punitive MIF should be removed permanently, with self-employed people only subject to the ‘gainful self-employment test’ already used by the DWP to ensure that a business is genuine.

7. Issue: The current benefit sanctions regime is callous. There are structural and personal barriers to gaining employment. There are many reasons why the TUC is troubled by the current system. Any replacement of Universal Credit must replace this system.     

Solution: The punitive sanctions scheme must be scrapped. Employment support must be designed to genuinely help people into decent work.

8. Issue: Though not introduced yet Universal Credit proposes to extend and intensify conditionality in the benefits system to those in work.

Solution: Proposals to introduce in-work conditionality should be dropped. The TUC supports and encourages genuine progress in the workplace by investment in training and development, rather than wielding the stick of conditionality and sanctions.

Changes to process

9. Issue: Universal Credit is designed by default to be online; this can make the application process difficult for many claimants.

Solution: More options for claiming the benefit, including widely available access to Jobcentres for those not comfortable with IT or who do not have access to IT facilities.  

10. Issue: There are also serious concerns about the process of managed migration to Universal Credit. Claimants will be contacted to migrate; the process requires claimants to end an existing claim and make a completely new claim. It is not automatic, and the responsibility is transferred to the claimant, resulting in stress and anxiety for them.    

The process of “managed migration” to universal credit has also just begun, without a full trial and evaluation.

Solution: Responsibility for the process of managed migration should be on the Secretary of State (rather than claimants), who should ensure that the termination of existing benefits will not cause undue or unnecessary hardship. 

And the managed migration process needs to be trialled first and then evaluated.

11. Issue: Transitional protection is another complex feature of Universal Credit. We are concerned how claimants will understand the calculation of this, and the protection is not available to all claimants. We are also concerned that over time the payment will lose its value, as transitional protection freezes entitlement at point of migration.

Solution: No one should lose out when moving over to a new benefits system. The process of migration needs more thought. Along with ensuring the uprating of transitional protection.    

12. Issue: Despite the increase in staff at the beginning of the pandemic, the DWP announced in March 2022 they planned to close 41 sites, putting thousands of jobs at risk.

Solution: Large scale employment drive in jobcentres and service centres to reduce workloads for work coaches in order to achieve better outcomes for claimants. And reduced reliance on digital only services and expansion of jobcentre network: Flexibility in delivery that empowers the claimant.

Changes to assessing income ('assessment periods')

13. Issue: Monthly assessment periods in Universal Credit and the timing of benefit payments can be complex to understand and can be the cause of fluctuating incomes. Universal Credit is better suited to those with stable hours and income; but even they can find their incomes fluctuating, due to pay cycles not coinciding with assessment periods

Solution: Short Term - introduce earnings disregard into Universal Credit so that income can increase a certain amount without affecting the award.

The legal challenge win on the assessment period which caused fluctuating incomes for those in work only applies to claimants who are paid on a regular monthly basis, and not those who are paid on a four-weekly, weekly or fortnightly basis. This needs to be extended to these workers too.  

Long Term - A three -to-six-month assessment period to reduce fluctuations and provide stability for claimants. If circumstances change then claimants should be able to report this and request for their circumstances to be reassessed.

14. Issue: Universal Credit relies on the competence and compliance of employers. Real Time Information pay data, is the system which employers submit PAYE data to HMRC. If employers submit late or incorrectly, there are serious consequences for the benefit.  

Solution: Employees should be compensated for any errors by employers to do with Real Time Information that affects their Universal Credit award adversely.

15. Issue: The fluctuating incomes in Universal Credit can cause problems with passported benefits. Claimants who receive passported support with health costs, for example, will be found not eligible in some assessment periods. With free school meals there is an earnings threshold in Universal Credit of £7,400 per year, creating an earnings ‘cliff edge’ for entitlement which Universal Credit was expressly supposed to avoid.

Solution: Short term - Free school meals should be available to all those on Universal Credit, there should be no cliff edge. For other support, a longer assessment period could be used, to smooth out fluctuating incomes.

Long term - In the long term every child in compulsory education should be provided with free school meals.

Changes to how payments are made

16. Issue: Budgeting on monthly payments in Universal Credit is more challenging than the fortnightly or weekly payments in legacy benefits. And the support for housing costs is now part of the single payment made to claimants who are now responsible for paying their landlord directly. Claimants find this difficult on their tight budget.

Solution: Claimants should have options to be paid Universal Credit twice or four times per month to allow them to budget to suit their circumstances, rather than these being exceptional temporary discretionary arrangements as in most of the UK. And to have a similar option of the housing costs element of Universal Credit being paid directly to the landlord more automatically in the whole of the UK.

17. Issue: The way in which Universal Credit works means that it is claimed and assessed on a household basis; couples must claim jointly, and they receive their benefit as a single payment. This has huge implications for financial independence, especially for women.  

Solution: Short term – examine further the best way (s) in which to respond to calls for ensuring access to some universal credit for both partners and the prevention of financial coercion.

Long term - beyond this there is a need to look further into the individualisation of social security payments.

18. Issue: In Universal Credit, with childcare costs the claimant must make the initial payment directly to provider and then get this reimbursed. The issue of fluctuating incomes on Universal Credit also causes havoc with having to budget for childcare costs.   

Solution: Short term - The childcare payment system needs to be redesigned to allow the childcare payment to be made upfront and paid directly to the provider.

Long term - Universal childcare needs to be free at the point of use.

19. Issue: The integration of benefits and tax credits into one system, in the form of Universal Credit, may simplify the design. However, a system designed to deliver entitlement in one benefit can result in hardship if there are any problems with the claim. 

Solution: Support with childcare costs to be taken out of Universal Credit. And look into which other elements can be taken out of Universal Credit.  

This report recognises that some solutions are far more complex than others. Changes to the monthly assessment periods, payments to partners in couples, and integration of benefits are seen as the most complicated areas and would be considered as fundamental reforms to Universal Credit.  

We also wanted claimant involvement in our report by hearing directly from those receiving Universal Credit. From the small number of in-depth conversations, adequacy of income was the key issue which came out for claimants, even though the study was not focussing on adequacy but instead the design and structure of Universal Credit.   

Download full report (pdf)