Fluctuating earnings and Universal Credit: Rough Justice?

The Child Poverty Action Group recently released their Rough Justice report which focuses on the monthly assessment period in Universal Credit and the challenges this can create for people with fluctuating earnings

In essence, earnings made within a given monthly assessment period will affect how much Universal Credit you receive the following month. People who have fluctuating earnings, typically because they’re paid weekly, fortnightly, or four weekly, or are on zero-hours contracts, will see their Universal Credit payments also fluctuate from month to month.

Policy in Practice agrees with many of the issues raised in the report and we have voiced similar concerns and given constructive solutions via briefing notes to DWP. Before we get to these issues there are some important points to remember about how Universal Credit works and the impact of fluctuating earnings on the Universal Credit award.

People are still better off, even with fluctuating earnings

Overall, people are still better off overall on Universal Credit when their earnings are averaged out across the two months. This is because, under Universal Credit, for every £1 earned your Universal Credit falls by 63p. This means that you are around 37p better off in take home terms for every £1 you earn. There are advantages to the way Universal Credit responds to fluctuating incomes. When earnings fall it can be helpful to know that your Universal Credit will rise correspondingly next month.

Fluctuating incomes, and how to deal with them, are not a new feature of government policy. A similar issue with fluctuating income occurs under the current benefit system with Tax Credits, where earnings are averaged out over the year. This can lead to much larger overpayments (debts) than would occur under Universal Credit. Whilst CPAG’s report says there are advantages to this, in effect you get the cash up front, it is also widely acknowledged that large and unexpected overpayments can create problems for people too. The government had overpaid £6bn in the first three years following the introduction of Tax Credits. Whilst £2.3bn of this was written off and £2bn collected from claimants, there was evidence that:

Some regret ever getting involved with the scheme.

The CPAG report argues that compared to people receiving a regular monthly wage, people who are paid weekly, fortnightly, four weekly or those who have fluctuating earnings face an uncertainty over their Universal Credit award, making it difficult for people to plan ahead. The report points out that this can impact negatively on eligibility for support and lead to people in-work being impacted by the Benefit Cap. The report also compares income for self-employed people and those with fluctuating earnings and comments on how the Universal Credit award is calculated.

CPAG: people need tools to help budget and plan

The core issue raised in the report is that people need tools that help them to understand their Universal Credit award, and plan ahead.

“People need to be actively informed and supported to calculate their own likely awards for given months, and to plan accordingly… a calculator tool might be useful for both work coaches and claimants to make these calculations, particularly for people who have more than one job, or where partners have different pay cycles.”

Policy in Practice has developed a tool that helps advisors show people of the impact of fluctuating earnings on their Universal Credit award up to twelve months in advance, shown in the video below.

https://cl.ly/1f3P0y1u1d1P

Around half of all Universal Credit claimants said that their award was not what they expected, according to DWP research. Around one in ten didn’t know how much money they would get, and one in ten didn’t understand the deductions made. Tools like our Universal Credit calendar give claimants the information they need and an ability to plan because it gives a forward looking claim estimate based on expected earnings.

One former service centre employee said:

“The thing is with Universal Credit, we are telling people to plan ahead and budget, yet nobody is able to tell the claimant how much money they are going to receive until the payment is made, and by then it is just too late when they don’t get the amount that they should have.”

As well as giving people the ability to plan and budget better, a clearly explained estimate of a future Universal Credit award would allow people to notify DWP of any errors resulting from their initial claim in a timely way.

Avoid potential loss of support for people caught unawares

The report highlights the potential loss of eligibility for passported benefits by claimants due to fluctuating Universal Credit, for example when higher earnings in one period mean correspondingly lower Universal Credit that, crucially, falls below a certain threshold, in the next period.

For people with regular monthly earnings, this is how Universal Credit is intended to work. The report argues that these conditions are triggered unfairly when people are paid weekly because multiple paydays can fall into a single assessment period. This can mean that people lose eligibility for free prescriptions, free school meals, or discretionary housing payments. In the most extreme cases, it says people who are working could be affected by the Benefit Cap which can cap their Universal Credit award by a considerable sum.

Policy in Practice agrees with these findings. We argue that extending eligibility or limiting the impact of the cap for one additional month, if eligibility were to change, is a simpler solution than averaging earnings to determine eligibility – CPAG’s favoured solution. Either way, the potential loss of passported benefits as a result of fluctuating Universal Credit awards must be avoided if the policy intent of Universal Credit, to be simple to understand and to make work pay, is to be achieved. 

Make assessments on the right dates

Oddly, the Universal Credit award is based on people’s circumstances on the last day of their assessment period, and isn’t adjusted on a pro-rata basis to take into account when their circumstances changed. This leads to underpayments which can affect claimants ability to make ends meet and considerable overpayments and opportunities to ‘game the system’, which the DWP ought to oppose. Housing Associations, concerned about a loss in rental income as a result of Universal Credit, have been known to take this quirk of the system into account when setting start dates for tenancies. Policy in Practice is largely aligned with the recommendations in the CPAG report. In our briefing note last year, Policy in Practice argued that:

The DWP should take account of a change in circumstances from the date it occurs, to deliver savings alongside more accurate and fairer awards of benefit.

Policy in Practice helps people understand and plan for Universal Credit

Policy in Practice continues to work with DWP to develop and implement solutions to these and other challenges faced by users. Tools like our Better Off Calculator, shown above, are designed to help people to understand their Universal Credit award, and to plan ahead.

A free version of our Benefit Calculator is available via Gov.uk. To access our advisor’s Better Off Calculator, which includes the Universal Credit calendar and other functionality to help manage fluctuating earnings, email hello@policyinpractice.co.uk.