The opposition motion on whether to retain the £20 a week uplift to Universal Credit has highlighted the lack of a coherent set of policies or narrative to tackle poverty and inequality. The impact of the pandemic has been far from equal, and government policies need to focus on those most heavily affected.
In the House of Commons’ vote on whether to retain the £20 a week uplift to Universal Credit, the government is allowing its MPs to abstain, arguing that the opposition wants to score political points with this vote. However, there have been numerous opportunities for the government to take an early position on this issue to avoid this.
Following the vote, Deven Ghelani, director and founder of Policy in Practice, appeared on LBC to discuss why the government should keep the £20 uplift in Universal Credit.
One of the universal credit system's architects says the government is wrong not to commit now to extending the £20 top-up payments beyond April. Deven Ghelani also highlighted that low-paid workers have been hardest-hit by job cuts so far.@TomSwarbrick1 | @Deven_Ghelani pic.twitter.com/jRHRsmvuga
— LBC (@LBC) January 18, 2021
On Thursday 14 January 2021 Policy in Practice submitted evidence to the All Party Parliamentary Group (APPG) on Poverty regarding the removal of the £20 a week uplift to Universal Credit. This contained independent analysis carried out by Policy in Practice on the impact that a cut to Universal Credit would have on household finances.
The analysis modelled scenarios where the uplift was retained against scenarios where it was dropped, and compared income the the essential costs a household would face. This blog post summarises our analysis and argues that retaining the uplift is a no-brainer for policymakers.
Summary of Policy in Practice’s analysis into retaining the £20 uplift in Universal Credit
- If the £20 uplift to Universal Credit is removed in April, 683,000 households (824,000 children) will not be able to meet their essential costs
- This includes an additional 224,000 households, (229,000 children) who are currently able to make ends meet, and 458,000 households (595,000 children) who would otherwise be deeper in poverty
- Those already hit by other policies such as the two-child limit are most at risk. An extra 11% of families affected by the two-child limit will be unable to meet all of their essential costs if the uplift is dropped
- If the Minimum Income Floor is reinstated alongside the uplift being removed, the situation for self-employed households will be especially dire, with almost half unable to meet their essential costs
Maintaining the £20 uplift to Universal Credit will shield 224,000 households and 229,000 children from hardship
Our analysis shows an extra 224,000 households, with 229,000 children living in them, will be unable to meet all their essential costs in April 2021 if the £20 per week uplift to Universal Credit is taken away.
Overall, we estimate 683,000 households across Britain who receive UC (including 824,000 children) will be unable to meet all their essential costs in April 2021 if the uplift is dropped. If the uplift is retained, this total will remain much lower with 458,000 households unable to meet their essential costs. While this is still too high, the £20 uplift does shield a large proportion of households from extreme hardship.
The costs included in this analysis only represent essential outgoings such as rent, council tax, utility payments and estimates for essential groceries. They do not take into account other regular payments many households receiving UC may face, such as debts, advance repayments and payments for rent-to-own household goods. Therefore the actual figure of households that would struggle to meet all their actual outgoings is likely to be even higher than that presented here.
The impact of having this many households unable to cover all their essential costs is twofold; financial and social. The financial impact for these households is that they are likely to make the choice every person would make which is to ensure they have enough food for themselves and their children. An expert by experience witness at the APPG on Poverty said that she was making the choice between “heating and eating”.
Another expert by experience testimony detailed the practical impact, saying that she was relying on credit to cover all of the essential costs that she could not afford out-right. She was therefore paying interest on heating, electricity, food, clothing and other essential costs.
The social impact of being in a household that is continually unable to cover all their costs is less visible but equally, if not more, destructive. The damaging effects on children have been widely documented but poorly actioned. As our analysis reveals, if the uplift is dropped it will result in 229,000 more children in households that cannot meet all their expected costs.
The direct impact on these children’s life chances will be dire and result in increasing pressure and spending on child and adult social care services and the National Health Service.
Families already affected by the two-child limit will be hardest hit
Our analysis showed that an extra 11% of families, affected by the two-child limit, will be unable to meet all of their essential costs if the uplift is dropped. This will mean in total that 29% of families affected by the two-child limit unable to meet all their essential costs in April 2021. This further highlights the disproportionately negative impact of the Covid-19 crisis on larger, low-income, families, and shows how important the £20 uplift is to their financial stability.
The two-child limit was introduced with the aim of encouraging low-income families to consider the financial implications of having more children. However, with unemployment predicted to continue rising until at least June 2021, even on its own logic, this aim can no longer be met.
Many of the families now being impacted by the limit may have had children while in employment, and therefore correctly assessed they had no problem meeting costs for three or more children. Unexpected circumstances beyond their control, not least the pandemic’s impact on the economy, has resulted in a fall in earnings for many, and upended their previous financial sustainability.
Policy in Practice has previously submitted evidence to the Work and Pensions Select Committee on the impact of the two child limit and has joined calls for it to be scrapped or temporarily lifted whilst Covid-19 measures are in place.
Removing the uplift and reinstating the Minimum Income Floor (MIF) would leave almost half of self-employed households unable to meet essential costs
For low-income self-employed households, the suspension of the MIF is even more important than the uplift, and how the two combine must be a crucial consideration for the government.
If the Minimum Income Floor is re-introduced, the Universal Credit entitlement of self-employed households will be calculated using higher earnings than many will actually have. The notional amount is set at the national minimum wage for the number of hours the household is expected to work.
The policy objective of the MIF was that UC should not support unsustainable business and instead encourage these self-employed households to seek alternative, more economically sustainable, employment. Consequently, by definition, all households with earnings below the MIF through self-employed work will struggle to cover all of their essential costs.
While the MIF remains suspended (our main assumption when modelling), the increase in self-employed households who cannot meet their essential costs is similar to other groups, rising from 8% to 12%. However, if the MIF is reinstated in April 2021, our analysis shows the proportion who cannot meet their essential costs rises more steeply, and from a much higher baseline level.
With the uplift and MIF reinstated, 40% of self-employed households are unable to meet their essential costs, while without the uplift almost half (47%) of self-employed households would be unable to meet their essential costs.
Arguments for and against ending the £20 uplift to Universal Credit
“Families in work have not seen an uplift so why should those out of work?”
Universal Credit is a working benefit. Recipients of Universal Credit are both in work and out of work. The Social Mobility Commission found that 72% of children living in poverty were in households where at least one parent was in work. Retaining this uplift would benefit both in work and out of work families amidst the rising cost of living associated with the pandemic.
“It is better to invest in employment than unemployment benefits”
It does not have to be one or the other. There would be little argument that there will need to be a large investment in order to stimulate the labour market once Covid measures are lifted. Even with the vaccine rollout, this is likely to take months, if not years, for the economy to adjust. Protecting low-income households from falling into arrears, debt or destitution will be essential to the rebuilding process.
It has been reported that a £500 one-off payment for those in receipt of Universal Credit could replace the uplift in April. This only serves to highlight the lack of any coherent approach to social security. The £20 uplift serves to boost the economy by giving people more money to spend on goods and services. If this support is withdrawn it will create a problem for people in rent, council tax or utility arrears, and their creditors. It will slow down the rebuilding process for everyone across all income levels.
Three reasons why we need to keep the £20 uplift to Universal Credit
- If the Universal Credit uplift is not retained we estimate that 1 in 8 (683,000) households in receipt of Universal Credit, across Britain, will be unable to meet all their essential costs. It is important to remember that these are not lifestyle costs but the very minimum that a household needs in order to avoid crisis, costs that are likely to be considerably higher when taking into account other common outgoings that people face
- The decision on the £20 uplift to Universal Credit should be looked at in conjunction with other welfare measures such as the two-child limit and the minimum income floor for self-employed households, and a four-year benefit freeze. Families that are already affected by the two-child limit are already losing vital support, cutting their Universal Credit will compound this effect. For self-employed households, the suspension of the minimum income floor has been vital while they are unable to work due to the pandemic. If the MIF is reinstated and the uplift to UC is not retained, almost half of these households will be in crisis
- The uplift serves as a financial and social investment in the UK’s economic recovery from the pandemic, boosting personal finances and people’s ability to put money back into their local economy. It focuses support on those most heavily hit, the unemployed and lowest paid and should be retained until the economy returns to normal levels
