2019: Review of our take on Universal Credit

A key development in 2019 has been the rapid roll-out of Universal Credit – with the numbers of people receiving the new benefit almost doubling from 1.5 million in December 2018 to an estimated 2.8 million today. This is because almost all new benefit claims made, including Housing Benefit, Jobseeker’s Allowance and Employment and Support Allowance, are now for UC, excluding recipients of the Severe Disability Premium.

Migration to Universal Credit, natural or managed

Simple changes in status, such as certain increases in working hours, unemployment, or single-earner households gaining the responsibility of a dependent are among a list of triggers that move claimants from legacy benefits to UC. This process is often referred to as natural migration.

Managed migration is essentially imposed migration from legacy benefits to UC regardless of whether or not one’s situation changes. Managed migration to Universal Credit is not due to begin in earnest until at least November 2020, after the evaluation of a pilot exercise in Harrogate which began in July. Households migrating naturally onto UC will not be given transitional protection, whereas households worse off under Universal Credit, but moving on through managed migration, will get transitional protection.

In February 2019, our Head of Policy, Zoe Charlesworth, gave evidence to the Work and Pensions Select Committee on how different households are affected by Universal Credit and testified to the differences between ‘natural’ and ‘managed’ migration for vulnerable households. Our case studies, using our Better Off Calculator, indicated the specific categories of households most likely to be worse off as a result of the move to UC.

In June 2019, we submitted evidence to the DWP on the impacts of the delayed rollout of managed migration to UC. As a result of the delay, our research indicated that half a million more households will migrate ‘naturally’ onto UC, meaning that they will not be given any transitional protection as their circumstances and benefit amounts change. We found that 40% of these households (around 200,000) who move onto Universal Credit without transitional protection will be worse off, by an average of £59.45 per week.

Policy changes and budget announcements in 2019: our analysis and recommendations

2019 also saw the announcement or implementation of some welcome policy changes:

• January 2019: People receiving the Severe Disability Premium would remain on legacy benefits until managed migration
• February 2019: The two-child limit to the child element of UC would not apply retrospectively
• April 2019: Work allowances under Universal Credit were increased in line with provisions from the 2018 Autumn Budget
• July 2019: The 12-month grace period before the minimum income floor affects self-employed people claiming Universal Credit
• October 2019: In order to help ease the financial hardship experienced by some Universal Credit recipients, the maximum rate for deductions from UC was reduced from 40% to 30% of the UC standard allowance

However, our analysis of the Autumn Budget shows that the overall impact on UC winners and losers was not very great. And although there was more welcome news in the September Spending Review (with spending increases of £13.4 billion announced for areas such as health and education, together with increases in departmental admin budgets) we found that this was by no means the end of austerity for everyone.

Given that many vulnerable households lose out we continued our vital work to advise councils on how to best support their residents who were at risk of financial vulnerability.

Improving take-up and targeting the most impacted households through data analysis

We work to enable local councils, utilities and housing associations to gain greater insights from the data available to them, and as a result, better support and target those most in-need and impacted by reforms. Using the LIFT Dashboard, we have helped local authorities track households over time and make moves to mitigate the impacts of these reforms.

When policy changes enacted in May pushed mixed-age couples (where one party of the couple is over Pension Credit age and the other under that age) to claim Universal Credit instead of Pension Credit, we worked with local authorities to identify and target households that would be impacted by this policy change in order to encourage them to claim Pension Credit before the deadline. This enabled councils to increase take-up of benefits and ensure that fewer households would be worse off following the change. This one campaign benefited the residents of Haringey by ~£1m.

We are currently doing similar work with local authorities to identify households eligible for the Severe Disability Premium to increase take-up of this significant addition to legacy benefits before managed migration occurs, in order to ensure transitional protection for this vulnerable population.

Looking forward to policy changes in 2020

A few policy changes relating to UC are due to be rolled out over the coming year, including:

• April 2020: the benefit freeze will end and UC will be uprated by 1.7%
• July 2020: A 2 week run-on for JSA, IS, & ESA is expected to start
• September 2020: The start of a 1-year exemption from the minimum wage floor for all new self-employed claims as well as for those who migrate naturally
• October 2020: The repayment of advance payments will be extended to 16 months

In the post-election and pre-Brexit uncertainty, there is a lot to plan and prepare for. Earlier this year, we modelled the impact of different Brexit scenarios on low-income families, concluding that any form of Brexit will push more low-income households into income shortfall. Some of our local authoritie clients have asked us to analyse the impact of Brexit on their local residents so they can proactively plan support, a service we are now offering wider to all local authorities (contact us for details).

Much work to be done to make Universal Credit work for the most vulnerable

While some of the policy changes due to happen in 2020 will ease the transition to UC for some vulnerable households, there are further changes that can be made to improve Universal Credit.

Ending the benefits freeze doesn’t address the benefits gap

The end of the benefits freeze in April does not mean that households ‘catch-up’ – working-age benefits and tax credits will not be adjusted to pre-freeze levels. This means that regardless of benefits once again increasing at pace with inflation, the 6% cut in real income that low-income families face due to years of benefit stagnation is not addressed. As a result, those impacted will not see any real increase in income, and their benefits will only keep up with future inflation.

Too little too late: The 5-week wait and advance payments

Introducing a two-week run-on means reducing the five-week wait for UC payments by rolling over legacy payments for the first two weeks of the wait. The introduction of two-week run-ons for JSA, ESA, and IS benefits in July 2020 (alongside already existing two-week run-ons for housing benefit) is a welcome change. However, these run-ons only apply to recipients of legacy benefits, not new applicants, and could have been introduced earlier to better assist in the initial transition to UC. Furthermore, this does little to help families receiving tax credits only in the transition to UC. Policy in Practice have argued that a two-week run-on of Child Tax Credit will help larger families that face higher costs.

For Universal Credit claimants a 5-week wait for a first payment is a substantial amount of time. Recent research by Policy in Practice shows that both the five-week wait itself and the recovery of advance payments can increase financial vulnerability for many households. The repayment of advance payments will be extended to 16 months later next year- but this is a long-awaited change that should have been implemented earlier, as it doesn’t impact households who have already naturally migrated to UC and received these loans. In our report we recommend that DWP consider the introduction of targeted grants (instead of loans) to help some of these households.

Increasing child poverty under the two-child limit for the Child Tax Credit

The two-child limit for UC recipients is projected to increase child poverty by 10% by the end of this decade, affecting 1.8 million children by 2023. While the two-child limit was intended to make the benefits system fairer and limit costs, 59% of affected families are working, and 58% of affected families have just three children. We believe the incoming Government should review this policy, taking account of the detailed analysis we have provided.

Looking forward

The result of the recent election gives some certainty.

The new government is committed to the roll-out of Universal Credit and has also pledged to give more help to vulnerable households. Four policies that would really make a difference would be:

• Secure a Brexit that includes a trade deal with the EU, our analysis shows that this will do least to low income households.
• Re-align the housing and rental market. Better off households have had lower like-for-like housing costs than the poorest, driving up poverty and homelessness in the last decade.
• Target spending to poorer households via UC, and support low income voters by investing in local areas. Central government can leave interventions to councils, and use data to see what is working and why.

Our analysis and research, carried out with the support of our clients and partners, identifies practical steps government can take to identify vulnerable households, and provide more effective support.