Analysis: The impact of Universal Credit in Wales

Just before the onset of COVID-19, Policy in Practice completed a major study of the impact of Universal Credit in Wales. Early in 2019, we were commissioned by the Welsh Government to look at how Universal Credit had affected the Welsh Council Tax Reduction Scheme. The Welsh Government also wanted to know whether the introduction of Universal Credit had led to any changes in the level of rent and council tax arrears.

Groundbreaking study

This study broke new ground for Policy in Practice:

• We made extensive use of administrative data from all 22 Welsh local authorities, tracking the benefit journeys of claimants in four waves over a period of 12 months, and matching with data on rent arrears and council tax arrears. It was the first time we have used data from so many authorities and housing associations in one national project. The matching and analysis was complex and very challenging, but well worth the effort.
• We also ran two large-scale surveys to get a better understanding of the personal experiences of Universal Credit that are not evident from administrative data. We invited people to take part in the survey in several ways, one of which was via a link in our award-winning Better Off Calculator. Nearly 500 actual and potential benefit claimants completed the claimant survey, and nearly 500 stakeholders such as social and private landlords, local authority officials and third sector organisations completed the stakeholder survey.

Five key findings from the 18 month data-led investigation into Universal Credit in Wales

There is a wealth of information in the two reports published by the Welsh Government, an interim report published in January 2020 and the final report published in July 2020. The key findings are: 

1. A generous Council Tax Reduction (CTR) Scheme pays off
2. Universal Credit has resulted in some council tax and rent arrears
3. Awareness of CTR, and take-up, are still too low
4. The impact of Universal Credit on CTR can be mitigated by changes to the scheme
5. More help should be given to those claiming Universal Credit 

1. A generous Council Tax Reduction Scheme pays off

The Welsh Government is responsible for designing a Council Tax Reduction (CTR) Scheme that covers all 22 authorities in Wales. There is some discretion in a few areas such as backdating but essentially CTR is uniform across Wales. The Welsh Government decided to fund the 10% budget cut in 2012-13 and subsequently, which means that all CTR awards since 2013 have been based on 100% of council tax liability.

This is significant because when examining council tax arrears in Wales we found that the council tax collection rates and the level of arrears (as a proportion of total council tax due) have remained fairly constant over the last 6 years or so. In England, on the other hand, there is evidence that arrears have increased overall, particularly where CTR recipients have been asked to pay council tax for the first time.

These findings are mirrored in other evidence. In a recent study for the Greater London Authority we found a clear relationship between the generosity of the CTR scheme in London and the level of arrears. In another study for a London borough we found that those receiving most support under the working-age CTR scheme had the lowest council tax arrears (and vice versa).

So we can conclude from this that the design of the CTR scheme should be an integral part of council tax collection policy.

2. Universal Credit has resulted in some council tax and rent arrears

Despite the constant overall level of council tax arrears in Wales, we did find emerging evidence of increased council tax arrears under Universal Credit. Most households who were not in council tax arrears under legacy benefits remained with no arrears when they moved to Universal Credit. But our study showed that council tax arrears were more common, and more severe, under Universal Credit than under legacy benefits and this appeared to be relatively consistent across different demographics and vulnerable groups.

In addition, council tax arrears were more likely to increase under Universal Credit.

• The administrative data showed that 28% of Universal Credit recipients were in council tax arrears as opposed to 12% of legacy benefit recipients.
• The average arrears for Universal Credit recipients was £89, £29 for those receiving legacy benefits.
• The level of increase in arrears whilst receiving Universal Credit was £65, £15 when receiving legacy benefits.

This research suggests that it is elements of transition (such as the five-week wait) and ongoing factors (monthly budgeting, award levels) that can contribute to arrears.

With rent arrears, we found that, whilst there were more claimants on legacy benefits in arrears than those receiving Universal Credit, the amount of arrears was higher amongst Universal Credit claimants.

• The administrative data showed that 13% of Universal Credit recipients were in rent arrears, as opposed to 20% of legacy benefit recipients.
• The average arrears for Universal Credit recipients was £495, £206 for those receiving legacy benefits.
• The level of increase in arrears whilst receiving Universal Credit was £55, £12 when receiving legacy benefits.

It is not always easy to pinpoint the reasons why some residents fall into council tax or rent arrears. But It is clear that Universal Credit is having an impact on the level of arrears in Wales and that some claimants have struggled to pay their bills after the transition.

3. Awareness and take-up of Council Tax Reduction is still too low

The Welsh Government has estimated that take-up of CTR is between 55% and 65%, roughly the same level as Council Tax Benefit before its abolition. The Welsh Government has been mounting an active campaign to encourage more applications. All the evidence shows that the sort of targeted interventions facilitated by the Policy in Practice LIFT Platform are likely to be the most effective way of improving take-up.

Lack of awareness is a concern, judging by some of the survey responses:

• 25% of respondents (83 out of 310) thought that council tax reduction was part of Universal Credit
• 29% of Universal Credit respondents (52 out of 182) did not know if they received council tax reduction (this compares to 14% of respondents in receipt of legacy benefits)
• 62% of respondents in receipt of legacy benefits (54 out of 87) said they would apply for council tax reduction if they moved to Universal Credit
• 16% of legacy benefit claimants (13 out of 80) did not apply for council tax reduction due to a fear of increased debt caused by overpayment recovery.

Our experience is that better use of administrative data can help identify where households are not receiving all the income they are entitled to.

4. The impact of Universal Credit on Council Tax Reduction can be mitigated

Most of the interim report and a good part of the final report are devoted to the impact of Universal Credit on CTR schemes. The move to Universal Credit has a significant impact on some council tax reduction awards. This is primarily due to differences in the way CTR applications are assessed under Universal Credit compared with legacy benefits.

For example, the Welsh Council Tax Reduction Scheme for households in receipt of legacy benefits does not include recent welfare reform measures, such as the introduction of the two-child limit or the removal of the family premium. These measures are, however, included in the assessment of council tax reduction for households in receipt of Universal Credit.

The result is that many of those who lose out under Universal Credit also receive lower CTR awards. We show in our study that the average CTR award for Universal Credit households in Wales is currently £2.60 less per week than for households in receipt of legacy benefits.

The Welsh Government is considering amendments to the Council Tax Reduction Scheme that will increase awards for Universal Credit claimants and so restore parity with legacy benefits. We have modelled several options including:

• Reduce the rate at which benefit is withdrawn as earnings increase (the taper rate) from 20% to 10%
• Change the way the Minimum Income Floor is calculated in CTR
• Don’t apply the two-child limit in CTR

Clearly such measures carry a cost as some CTR awards will increase, but we have shown that it is possible to alter the CTR scheme for working-age people to make it more generous for those losing out under Universal Credit.

5. More help should be given to those claiming Universal Credit in Wales

Universal Credit is designed to mimic the world of work. Payments are made monthly in arrears into a nominated bank account. If a housing element is included, the claimant is normally expected to pay the rent to the landlord. Claims are made online, so a certain level of computer literacy is expected. The first payment is normally paid within 5 weeks of the date of claim.

Although a significant minority of surveyed claimants accept and value the additional responsibility that these arrangements involve, many Universal Credit recipients in Wales have found it difficult to come to terms with some of the design features of Universal Credit (such as the five-week wait, monthly payments, and having to budget for and pay the rent). These difficulties are compounded where the Universal Credit entitlement is less than entitlement under legacy benefits.

Improve awareness of advance payments

Advance payments of Universal Credit are available but they are a mixed blessing. They are invaluable in helping people cope with the five-week wait (70% of our survey respondents had taken an advance) but the monthly recovery of the advance can cause its own problems. For example, this survey indicates that a significant minority of claimants (around 20% of survey respondents) do not understand that the advance is recovered from subsequent payments.

Policy in Practice has done separate analysis showing the impact of advances and other debt recoveries on financial resilience.

Make Alternative Payment Arrangements more readily available

Universal Credit is usually paid monthly in arrears to one member of a household directly into a bank account. Other arrangements can be made (Alternative Payment Arrangements) to make payments more frequently, split payments to different members of the household, or pay the housing element directly to the landlord. But our study shows that awareness of these arrangements is very low,

Moreover, DWP takes the view that they should be reviewed regularly and removed if possible.
Whilst it is important to encourage personal responsibility it is also necessary to protect vulnerable people from indebtedness and homelessness.

Our study indicates that more people could benefit from Alternative Payment Arrangements if they were more readily available, alongside more support with budgeting. The results of our survey show that they would be valued highly by more Universal Credit recipients, and could be instrumental in preventing people from getting into crisis.

Conclusion

Universal Credit is a significant change in welfare support for low-income households. Our report for the Welsh Government provides evidence that the move to Universal Credit is having an impact on household resilience and debt levels of low-income residents in Wales.

There is evidence of lower council tax reduction awards, higher council tax arrears, and higher rent arrears, as households move to Universal Credit. There is also evidence that all forms of arrears could accumulate once households have moved to Universal Credit. Aspects of Universal Credit, such as the five-week wait, monthly payments and levels of support, risk causing financial difficulty and debt for some claimants. At the same time, other claimants preferred the control of their claim offered by Universal Credit.

The Welsh Government is looking to support low-income residents in Wales as they move to Universal Credit. The findings from our research will be used by the Welsh Government to further understand the impact of Universal Credit and decide where more support could be usefully provided.

Further analysis commissioned to understand the impact of COVID-19

Our research for the Welsh Government was carried out before the COVID-19 pandemic and therefore does not take account of the increase in Universal Credit claims that has resulted. We are delighted that the Welsh Government has asked us to do some follow-up analysis of the impact of the pandemic on CTR caseloads. We will look at the economic impact, demographic changes and likely impact on future CTR caseloads and council tax collection rates.

Find out more

• Pooling administrative data can help other areas plan for and track recovery from COVID-19. Policy in Practice has secured funding to help with this. Find out more here or contact us to discuss.
• Published in January 2020, the interim report focuses on the impact of Universal Credit on the Council Tax Reduction Scheme (CTRS) and possible amendments to the scheme. Download the interim report.
• Published in July 2020, the final report focuses on the impact of Universal Credit on the Council Tax Reduction Scheme, council tax reduction awards, council tax arrears and rent arrears in Wales. The report also considers the experience of Universal Credit claimants and stakeholders. Download the final report.

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