Universal Credit

Universal Credit is a United Kingdom social security payment. It is means-tested and is replacing and combining six benefits for working-age households with a low income: income-related Employment and Support Allowance, income-based Jobseeker's Allowance, and Income Support; Child Tax Credit and Working Tax Credit; and Housing Benefit. An award of UC is made up of different elements, which become payable to the claimant if relevant criteria apply: a standard allowance for singles or couples, child elements and disabled child elements for children in the household, housing cost element, childcare costs element, as well as elements for being a carer or having an illness or disability and therefore having limited capability to work.

The new policy was announced in 2010 at the Conservative Party annual conference by the Work and Pensions Secretary, Iain Duncan Smith, who said it would make the social security system fairer to claimants and taxpayers. At the same venue the Welfare Reform Minister, Lord Freud, emphasised the scale of their plan, saying it was a "once in many generations" reform. A government white paper was published in November 2010. A key feature of the proposed new benefit was that unemployment payments would taper off as the recipient moved into work, not suddenly stop, thus avoiding a 'cliff edge' that was said to 'trap' people in unemployment.

Universal Credit was legislated for in the Welfare Reform Act 2012. In 2013, the new benefit began to be rolled out gradually to Jobcentres, initially focusing on new claimants with the least complex circumstances: single people who were not claiming for the cost of their accommodation.

There were problems with the early strategic leadership of the project and with the IT system on which Universal Credit relies. Implementation costs, initially forecast to be around £2 billion, later grew to over £12 billion. More than three million recipients of the six older "legacy" benefits were expected to have transferred to the new system by 2017, but under current plans the full move will not be completed before 2024.

One specific concern is that payments are made monthly, with a waiting period of at least five weeks (originally six) before the first payment, which can particularly affect claimants of Housing Benefit and lead to rent arrears (although claimants can apply for emergency loans paid more promptly). In May 2019, one million people were receiving less than their entitlement, often due to the repayment of loans given during the initial five-week wait period.

In September 2019, a total of 2.5 million people were receiving the benefit; 65% of those recipients were out of work.

Background

The Universal Credit mechanism was itself first outlined as a concept in a 2009 report, ''Dynamic Benefits'', by Iain Duncan Smith's thinktank the Centre for Social Justice. It would go on to be described by Work and Pensions Secretary Iain Duncan Smith at the Conservative Party annual conference in 2010. The initial aim was for it to be implemented fully over four years and two parliaments, and to merge the six main existing benefits (income-based Jobseeker's Allowance, income-related Employment and Support Allowance, Income Support, Working Tax Credit, Child Tax Credit and Housing Benefit) into a single monthly payment, as well as cut the considerable cost of administering six independent benefits, with their associated computer systems.

Unlike existing benefits like Income Support, which had a 100% withdrawal rate, Universal Credit was designed to gradually taper away – like tax credits and Housing Benefit – allowing claimants to take part-time work without losing their entitlement altogether. In theory, it makes claimants better off taking on work, as they keep at least a proportion of the money they earn. But reductions in funding and changes to withdrawal rates left commentators on either side of the debate to question whether it would actually make work pay. The ''Daily Telegraph'' claimed "part-time work may no longer pay", and "some people would be better off refusing" part-time work and in the ''Guardian'' Polly Toynbee wrote "Universal credit is simple: work more and get paid less". Finally, the "Minimum Income Floor" used when calculating Universal Credit for self-employed claimants may make it much less worthwhile for large parts of the population to work for themselves.

Policy

The objectives of the policy included creating a more responsive system that would simplify and incentivise a return to work, pay benefits in a monthly cycle more akin to salaries, reduce the high marginal deduction rate that accumulates from the withdrawal of more than one means-tested benefit simultaneously to a single deduction rate improving incentives, ensure that taking on even a small or varying amount of work would be financially rewarding, and reduce the proportion of children growing up in homes where no one works. Universal Credit would merge out-of-work benefits and in-work support to improve return to work incentives.

The clearer financial incentives through Universal Credit would be strengthened by four types of conditionality for claimants depending on their circumstances, ranging from being required to look for full-time work to not being required to find work at all (people in the unconditional group include the severely disabled and carers).

Payments are made once a month directly into a bank or building society account, except in Scotland where claimants are given the option to have it paid fortnightly. Any help with rent granted as part of the overall benefit calculation is included in the monthly payment and claimants normally then pay landlords themselves. It is possible in some circumstances to get an Alternative Payment Arrangement (APA), which allows payment of housing benefit direct to the landlord.

Universal Credit claimants are also entitled to Personal Budgeting Support (PBS), which is aimed to help them adapt to some of the changes it brings, such as monthly payment.

Major amendments

In 2015 the Chancellor, George Osborne, announced a future £3.2 billion a year cut to the overall Universal Credit budget after an attempt to cut Tax Credits that year was thwarted by parliament. The Resolution Foundation has argued that this cut, which will be felt more keenly as millions more people transfer to Universal Credit, risks the new system failing to achieve its original purpose of incentivising work in low-income households. The amendments were:

*Reductions in the amount of "work allowances" before tapered deductions due to income are applied, from April 2016
*Limiting the per-child element to only two children for new claims and births after April 2017
*Removing the extra element for the first child for new claims from April 2017

In November 2016, in response to criticism that the previous changes had reduced incentives to work, the government announced a reduction in the Universal Credit post-tax taper rate, which controls the reduction of Universal Credit as employment income grows, from 65% to 63% of post-tax income, which will ultimately cost £600 million per year.

In the 2018 budget the Chancellor, Philip Hammond, announced an increase in the "work allowances" for households with children, and people with disabilities, with effect from April 2019, partially reversing the reductions announced in 2015. The post-tax work allowances will increase by £1,000 per year, representing an extra £630 of income for about 2.4 million households in employment, ultimately at a cost of about £1.7 billion per year. Extra transitional support for claimants being moved to Universal Credit was also announced.

In April 2020 as a one-year temporary response to the COVID-19 pandemic, the Universal Credit standard allowance was temporarily increased by £20 per week and housing benefit rent limits relaxed. The uplift was extended until 30 September 2021. Later analysis showed this lifted 400,000 children out of the government's relative poverty measure, reversing the previous years increasing trend.

The October 2021 budget increased in-work support by increasing the work allowances by £500 a year, and reducing the post-tax deduction taper rate from 63% to 55%. Iain Duncan Smith wrote that he was delighted that the taper rate would now be 55%, the level he wanted over a decade ago when he devised the scheme, but which had not been allowed by the Treasury. Analysis by the Resolution Foundation showed that three-quarters of families on UC would be worse off compared to the previous temporary £20 per week uplift during the Covid crisis.

Relationship to other proposed welfare policies

Universal Credit has some similarities to Lady Williams' idea of a negative income tax, but it should not be confused with the universal basic income policy idea. There is some debate as to whether Universal Credit should be described as "universal", given it is both subject to income cut-offs and requires some claimants to be available for work.

Implementation

Universal Credit is part of a package of measures in the Welfare Reform Act 2012, which received Royal Assent on 9 March 2012. The Act delegates its detailed workings to regulations, most of which were published as the Universal Credit Regulations 2013. Related regulations appeared in a range of other statutory instruments also.

The Department for Work and Pensions (DWP) announced in February 2012 that Universal Credit would be delivered by selected best-performing DWP and Tax Credit processing centres. Initially, the announcement made clear that local authorities (responsible for administering payment of Housing Benefit, a legacy benefit to be incorporated into the scheme) would not have a significant part in delivering Universal Credit. However, the Government subsequently recognised there may be a useful role for local authorities to play when helping people access services within Universal Credit.

Philip Langsdale, chief information officer at DWP, who had been leading the programme, died in December 2012, and in previous months there had also been significant personnel changes. Project Director Hillary Reynolds resigned in March 2013 after just four months, leaving the new Chief Executive of Universal Credit to take on her role. Writing in 2013, Emma Norris of the Institute for Government argued the original timetable for implementation of Universal Credit was "hugely overambitious", with delays due to IT problems and senior civil servants responsible for the policy changing six times.

A staff survey, reported in ''The Guardian'' on 2 August 2013, quoted highly critical comments from Universal Credit implementation staff. On 31 October 2013, in another article said to be based on leaked documents, the paper reported that only 25,000 people – about 0.2% of all benefit recipients – were projected to transfer to the new programme by the time of the next general election in May 2015. In the event, over 100,000 people had made a claim for Universal Credit by May 2015.

A pilot in four local authority areas was due to precede national launch of the scheme for new claimants (excluding more complex cases such as families with children), in October 2013, with full implementation to be completed by 2017. Due to persistent computer system failures and delays in implementation, only one pilot, in Ashton-under-Lyne, went ahead by the expected date. The other three pilots went ahead later in the summer, and were met by staff protests.

The roll-out of Universal Credit in the Northwest of England was limited to new, single, healthy claimants, later extended to couples, then families, in the same area, reflecting the gradual maturing of different aspects of the computer system. Once the Northwest roll-out was largely complete, the government gradually extended Universal Credit to new single healthy claimants in the rest of the British mainland, nearly completing this roll-out . It was expected that this would gradually be extended to couples and families outside the Northwest once the roll-out to UK mainland single claimants was completed. In Northern Ireland, implementation was held up by disputes over policy and funding between feuding parties in the Northern Ireland assembly; the roll-out of Universal Credit in Northern Ireland began in September 2017.

As of 2018 one third of claimants have their benefit reduced to pay rent, council tax and utility bill arrears. This pushed people who already have little further into poverty. Abby Jitendra of the Trussell Trust said this can lead to "the tipping point into crisis. (...) Repaying an advance payment, for example, can be an unaffordable expense when taken from a payment that wasn't enough to start with, pushing people further into debt at the time when support is most needed." Gillian Guy of Citizens Advice said, "Deductions from universal credit can make it harder for people to get by. People receiving universal credit are unlikely to have much slack in their budgets, so even small amounts can put a huge strain on their finances. Building on last year's improvements to universal credit, the government now needs to ensure deductions are made at a manageable rate and take a person's ability to cover their expenses into account." Charlotte Hughes who advises benefit recipients, said deductions were impossible to predict and often done with no warning. "The first time somebody knows that money's been taken out of their account is when they go to the bank. It's just a minefield. Living with that stress that you don't know what money you're going to get from week to week, from month to month, that makes you ill – and that's before you can't eat, and before you can't look after your kids properly. It's rampant."

Pilots

The scheme was originally planned to begin in April 2013, in four local authorities – Tameside (containing Ashton-under-Lyne), Oldham, Wigan and Warrington, with payments being handled by the DWP Bolton Benefit Centre – but was later reduced to a single area (Ashton) with the others due to join in July. In Wales, it is known the UC pilot covered new claimants in Brecon in early 2013. The pilot would initially cover only about 300 claims per month for the simplest cases of single people with no dependent children, and was to extend nationally for new claimants with the same circumstances by October, with a gradual transition to be complete by 2017. (One tester of the new system in April noted that the online forms took around 45 minutes to complete, and there was no save function.)

In March 2013 it was reported that final Universal Credit calculations would be made manually on spreadsheets during the pilot, with the IT system being limited to booking appointments and storing personal details. It was separately reported that no claimants turned up in person at the town hall on the first day of the scheme.

The ''Financial Times'' reported that the October national roll-out of Universal Credit would now begin in a single Jobcentre (or possibly a "cluster" of them) in each region and that in December 2012 Hilary Reynolds, who had recently been appointed programme director but had moved shortly thereafter, stated in a letter to local authorities: "For the majority of local authorities the impact of niversal Creditduring the year 2013–14 will be limited."

On 3 December 2013, the DWP issued a report containing statistics which showed that, between April and 30 September, only 2,150 people had been signed up to Universal Credit in the four pilot areas. This report confirmed that Universal Credit had been rolled out to Hammersmith on 28 October, followed by Rugby and Inverness on 25 November, and was to expand to Harrogate, Bath, and Shotton by spring 2014.

Implementation costs

While the DWP had estimated administration costs for the roll-out of Universal Credit to be £2.2 billion, by August 2014 this estimate had risen to £12.8 billion over its "lifetime" and was later increased again to £15.8 billion. Much of the increased cost was linked with software problems and duplication of systems needed to pay out new and legacy benefits. The initial roll-out proceeded much more slowly than had been originally planned, and led to the early departure of several senior leadership figures. In 2018 the National Audit Office maintained Universal Credit could incur higher administrative costs than the systems it replaces.Universal Credit 'could cost more than current benefits system'
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