Parliament has proposed a series of major changes to Universal Credit in a new report.
Fourteen key proposals have been put forward by the House of Lords Economic Affairs Committee which would see the benefits system radically changed.
Suggestions include making the coronavirus increase permanent, scrapping the two-child limit and a review of the benefit cap.
In a scathing assessment, the committee stated: “The Government is using Universal Credit to recover debt, mostly £6 billion of historic tax credit debt.
“Deductions of up to 30 per cent of the standard allowance, and in some cases more, can be taken from claimants.
“This has left many households with less money than they are entitled, often at no fault of their own.”
It admits Universal Credit is “failing millions of people” but says the controversial scheme should not be scrapped altogether.
The committee said: “We received overwhelming evidence that Universal Credit is not broken irredeemably and that replacing it with a new system would cause significant upheaval and disruption to claimants. However, it requires substantial reform.
“Based on the evidence we received, it is our view that the original aims and objectives of Universal Credit are broadly correct.
“However, there are substantial problems with its design and implementation that have undermined the security and wellbeing of the poorest in our society.”
The report makes the following key proposals according to Birmingham Live.
1) Fix payments for three months
At present, claimants receive their Universal Credit once a month, in arrears, after their finances have been assessed over the preceding one-month period. It can lead to payments going up and down.
The report said: “Claimants would have greater certainty and security of income if awards were fixed at the same level for at least three months.
“This may encourage claimants to increase the number of hours that they work as they would not face an immediate fall in benefit. We believe that this can be done using the current process of assessment but using it to reassess levels of award once every three months only.
“One downside of this proposal is that if income falls significantly during the award period, claimants may struggle financially until their payments are increased at the next assessment.
“This could be managed by allowing claimants to report falls in income or disadvantageous changes in circumstances and have an earlier reassessment.”
2) Give a two-week grant to all claimants
Universal Credit claimants have to wait five weeks for their first payment. If they know they won’t be able to manage financially, they can ask for an advance on their first expected payment but this has to be paid back in deductions from future UC payments.
The report said: “The five-week wait is the primary cause of insecurity in Universal Credit. It entrenches debt, increases poverty and harms vulnerable groups disproportionately. The DWP has introduced some measures to mitigate its worst effects but these fall short of what is needed.
“The DWP should introduce a non-repayable, two-week initial grant to all claimants. For claimants moving from certain legacy benefits to Universal Credit, this grant could replace the existing system of run-ons. This would provide some security to claimants and would make repayments of advances more manageable.
“We were told that this would cost the DWP between £1 billion and £2 billion per year.
“To reduce the risk of fraud, the DWP should initially administer the grant as an advance payment. The two-week payment should then be written off after two months once the DWP knows that the claim is genuine.”
3) Choice of once or twice a month payments
As it stands at the moment, recipients get their Universal Credit once a month.
But the report points out: “Many new claimants have no experience of monthly pay. The DWP’s desire to make Universal Credit ‘like work’ does not reflect the work that the majority of low-income workers experience.
“The monthly payment has caused unnecessary budget and cashflow problems for claimants who are used to receiving more frequent wages and those who are out of work.
“Paying Universal Credit awards on a monthly basis is a policy choice; it is not an integral part of the design. However, this approach is not working for many claimants who are forced to fit the rigid requirements of the system.
“We believe instead that the system should accommodate the circumstances of a wide range of people. At the beginning of their claim all claimants should be allowed to choose whether to have their Universal Credit awards paid monthly or twice monthly. It should be possible for claimants to review this decision on an ongoing basis with their work coach.”
4) Allow split payments to individuals
Universal Credit goes into one account per household but the committee says there should be options for separate payments per person.
The report says: “The design of the single household payment can, in certain circumstances, exacerbate the risk that financial coercion may take place and make it more difficult for people who have suffered from any form of abuse to escape.
“The current practice of paying Universal Credit into one account does not reflect reality for many families today, who are used to both partners having their own income.
“This is important both for reducing the risks of financial coercion and domestic abuse more widely and for encouraging more balanced and equal relationships. The Department should review the option of separate payments by default, drawing on the current review in Scotland.”
5) Immediate choice of direct rent payment to landlord
Universal Credit includes an amount to cover rent. It means claimants must pay rent themselves and budget for accommodation costs in their benefit.
If they find this difficult, they are able to ask for an Alternative Payment Arrangement – this means rent is paid directly to their landlord before they get the remainder of their Universal Credit payment in their account.
The report said: “The design of the housing element has led to increased rent arrears and left many claimants feeling vulnerable and at risk of eviction from their home.
“All claimants should be given the choice, at the beginning of their claim and not when significant arrears have accrued, of having an Alternative Payment Arrangement.
“If implemented alongside our recommendation to introduce a two-week non-repayable grant at the beginning of a claim, this would help prevent unmanageable rent arrears and provide greater security of housing for all claimants.”
6) Remove childcare element and make it a standalone benefit
The report explains: “While the childcare element of Universal Credit is designed to be more generous than the previous system its inclusion in a single benefit was a mistake.
“Including childcare support in Universal Credit speaks to our central concern with the drive for simplification: it has benefited administrators at the expense of making claimants’ lives more complicated.
“Including childcare support in Universal Credit has also created further complexity for claimants. Paying costs in arrears has been a barrier to in-work progression. In some cases, it has been a disincentive to work.
“We recommend that the Department remove childcare support from Universal Credit entirely. This would require exploring options for a separate benefit and for a range of measures to support the supply side – more free hours of care, subsidies for providers, and reduced fees for parents with low incomes. This new benefit could still be delivered via a digital platform.”
7) Make the coronavirus increase permanent
During the coronavirus pandemic, Universal Credit payments have been increased for one year by around £80 a month.
The committee says this boost should be made permanent rather than being scrapped next April.
Its report said: “The significant cuts to the social security system over the last decade mean that a catch-up increase in funding is needed urgently to ensure that Universal Credit is fit for purpose.
“Even when the recent increases in Universal Credit are taken into account, it is a less generous benefit than intended by its original proponents.
“We believe that the increase shows the original rate was not adequate. The Department has, to date, said that this is only a temporary measure.
“The Government should commit to making the increase in the standard allowance permanent. It should also examine the relative levels of benefits for couples and those with children and investigate whether there are other claimant groups who do not receive adequate income.”
8) Replace the Severe Disability Premium
The report says: “The DWP should introduce an equivalent to the Severe Disability Premium.
“This should be a self-care element for any disabled person who does not have someone assisting them and claiming the carer element of Universal Credit. We were told that this would cost the DWP around £1 billion per year.”
9) Remove mixed-age couples from Universal Credit
The report explains: “Universal Credit was designed as a working-age benefit; it was not designed with pensioners in mind. While we understand the trade-off which the DWP has had to consider in relation to mixed-age couples, we feel that on balance it has opted for the wrong approach.
“Including mixed-age couples in Universal Credit has meant that they may lose out financially.
“The partner who is eligible for a state-age pension is treated unfairly compared with single pensioners and couples of state-pension age. The DWP should revert to the previous system in which mixed-age couples were treated as state-pension age couples for means-tested benefits.”
10) Write off tax credit debts
People moving to Universal Credit from Working Tax Credits may later be told they owe tax credits debts which will be taken out of their Universal Credit.
But the committee says this is wrong.
In its report, it explains: “As more people migrate to Universal Credit, its role in recovering historical debt will become more prominent. The DWP should ensure that deductions taken from Universal Credit awards are first subjected to an affordability assessment. They should only made in accordance with what a claimant can afford to repay.
“Many people are unaware that they have tax credit debts and often the overpayments they have received were not their fault. Using Universal Credit to recover historic debts has left many households with an income well below that to which they are entitled.
“The Government should write off historical tax credit debt owed by Universal Credit claimants. We believe that the £6 billion of tax credit debt should be treated as a sunk cost – it is highly unlikely to be repaid in full, and the Government should not jeopardise the financial security of claimants in pursuit of it.”
11) Review the benefit cap
The benefit cap is a limit on the amount of welfare help a person can receive, in an effort to encourage them to get a job.
But the report says it should be reviewed because of the current economic climate.
It says: “We recognise that the benefit cap was intended to increase the financial incentive to move into paid work. This is more likely to be effective if there is a buoyant labour market than if there is high unemployment and few job vacancies.
“In light of the unfolding economic crisis we recommend that the Government review the level of the benefit cap and its effect on hardship and poverty.”
12) Remove the two-child limit
Universal Credit offers extra payments for parents with kids but only for the first two children. No extra money is given for a third child or any subsequent offspring.
The report says this limit should be abolished.
It says: “The two-child limit is unfair. It penalises large families and can put the health and wellbeing of children in jeopardy.
“We heard that ending the limit could protect up to 300,000 children from poverty.
“We urge the Government to remove the two-child limit and consider introducing tapered awards for families with more than two children.”
13) Increase the work allowance
Universal Credit claimants are allowed to keep a certain amount of income before any deductions are applied.
This is called a work allowance. The committee wants it set at a higher level so those who are in work can keep more of their wages.
It also wants changes to the deductions. At present, 63p is deducted for every £1 of income above the work allowance.
The report said: “Given the depth of the recession that is anticipated following the Covid-19 pandemic, getting people into work should be the DWP’s priority.
“We therefore recommend revisiting both the structure and the level of the work allowances.
“All claimants should have a work allowance, at a higher rate than currently, to allow them to keep more of their award as they move into work, including short-term or low-hours employment.
“Figures from the Institute for Fiscal Studies suggest that reintroducing a work allowance for all groups, and increasing it by £50 per month, would cost the DWP £1.3 billion per year.
“The DWP should also consider a reduction in the taper rate to reduce the unfairness that is inherent in the very high marginal effective tax rates that some of the poorest in our society face.”
14) Reduce sanctions
The DWP has reintroduced sanctions – financial penalties for not sticking to the conditions of a benefit claim, such as failing to prove you’re looking for work or not showing up at jobcentre appointments and job interviews.
It means payments are cut as a punishment, and in some cases stopped altogether.
These penalties were temporarily suspended during lockdown but have now resumed.
The committee says the emphasis should instead be on helping people find work if they’re unemployed, or to make progress and earn more money if they already have a job.
Its report said: “We regret that the DWP has resumed the monitoring of conditionality requirements so soon and that it will begin imposing sanctions on claimants after a brief suspension when each day is bringing announcements of a significant reduction in total jobs.
“The DWP faces the prospect of several million more unemployed but threatening claimants with long and severe sanctions at this stage is unfair and counterproductive.
“Conditionality and sanctions as they are set currently are inappropriate while we are still so far from an economic recovery.
“We were concerned to hear that such harsh sanctions can be applied to claimants so easily, particularly when a claimant may already be subject to high deductions to pay back advances and other debts.
“Any reasonable system, such as the justice system, would not impose fines which can result in extreme poverty for such minor offences. A fairer system should take far greater care to assess the effect of sanctions on those to which they apply. Before imposing a sanction, we recommend that the DWP conduct a hardship assessment before deciding on the level of sanction.
“The UK has some of the most punitive sanctions in the world but the evidence that sanctions achieve positive behavioural change and lead to better employment and earnings outcomes is mixed.
“Removing people’s main source of support for extended periods risks pushing them further into extreme poverty, indebtedness and reliance on foodbanks. We welcome the reduction in the DWP’s use of sanctions since 2017 and reducing the maximum sanctions length from six months to three.
“The DWP should expedite its work on introducing a written warning system before applying a sanction. This would ensure sanctions are a last resort.
“There is a great deal of evidence to show that sanctions and the threat of sanctions affect people’s mental health. The DWP’s refusal to examine the extent of these effects endangers claimants. The DWP must meet the commitment it made in 2013 to evaluate the impact of conditionality and sanctions on claimants’ mental health and wellbeing.
“We recommend that the DWP offer future in-work claimants enhanced coaching and training on a voluntary basis. It should end in-work conditionality requirements and the threat of sanctions from existing in-work claimants.”