Universal Credit: If the government want to create a welfare system that works for all then we need a radical redesign

Date Posted: Thursday 31st January 2019

If the government is committed to ending austerity and reforming the welfare system to support the most vulnerable, then they must seek to understand the barriers that people in poverty face and why the welfare system is crucial in creating a more equal society.

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After 8 years of austerity there were some signs of a change of policy on society security when Amber Rudd promised a series of reforms to Universal Credit (UC). This may be a sign that the government is starting to understand the major flaws in UC, but addressing these flaws will require far more substantive changes.

Amber Rudd announced that children born before April 2017 would be excluded from the two-child limit and that the benefit freeze would not be continued beyond 2020. Most significantly she announced a delay in transferring people on legacy benefits onto UC, suggesting that she recognises more changes are needed. But it is not clear whether the Government is willing to undertake the radical re-think that is required.

The human cost of Universal Credit

UC has had a devastating impact on the lives of some of the poorest people in the UK.

Foodbanks have seen a 52% average increase in demand for their service 12 months after UC goes live in an area compared to an increase of 13% in areas where UC has only been in place for 3 months or less. The two-child cap is already affecting 400,000 children and in time will apply to all families with more than two children.

Child Poverty Action Group has estimated that if all the cuts made to UC since it was first mooted were reversed, up to 1 million children could be kept out of poverty. As it is, they calculate lone parent families will lose a huge £2,380 a year on average by 2020.

Lone parent families have not only been hit but cuts, but by increased benefit conditionality. All parents face are now obliged to seek work when their child is 3-4, and take part in work focussed interviews if their child is over one, with some work related activity for those with children over two. But these requirements are harder for lone parents than couples to meet as they do not have a partner who can share childcare obligations. And increased childcare costs and severe cuts in investment in public transport makes it difficult for lone parents to combine work with child rearing.

Universal Credit: A deeply flawed system

These impacts are partly a result of a succession of cuts and freezes to benefit levels, but they are also the result of flaws in the design of the UC system, highlighted in numerous reports by Women’s Budget Group and others.

UC is paid in a single monthly payment to a single bank account making it harder to budget, creating income inequalities within families and increasing the risk of financial abuse. The government claimed that the intention of a monthly payment was to mimic as closely as possible the monthly pay that people receive when in employment. However, half those earning less than £10,000 per year receive their earnings weekly or fortnightly and moreover, with UC almost all your eggs are in the one basket. So, if there are delays or administrative problems which are reportedly common with UC payments currently- workless claimants risk losing almost all their income. Only council tax support amongst the means-tested benefits is dealt with separately.

There are reports of claimants surviving for weeks on child benefit as their only source of regular income. This inevitably results in hardship for many claimants and their families, as most have little or no savings to fall back on. It takes 5 weeks to get the first UC payment and it could leave some families worse off by thousands of pounds a year as many families are forced to take out a loan which often, they struggle to pay back.

Furthermore, the research on the original UC design has consistently shown that the tapering of UC at 63% for net income (above the level of the work allowance where relevant) reduces the incentive for second earners to enter paid employment, or to work more hours in relation to the tax credits system. This is because in many couples the ‘first earner’ will have used up the work allowance in relation to their own wages already. The taper in the tax credits system was 41% of gross income. Analysis from the Joseph Rowntree Foundation found that this is especially true for lone parents and second earners on the minimum wage.

For these claimants, working over 30 hours a week translates into lower disposable income compared with working fewer hours, since the childcare allowance and the pay received will not be enough to cover the tapering of UC, the tax that must be paid on such income, and childcare costs.

Those who can’t meet benefit conditions are being hit by a punitive sanctions’ regime. MPs on the Work and Pensions Select Committee heavily criticised the UC benefit sanctions regime, describing it as “pointlessly cruel”. They found that single parents, care leavers and people with disabilities and health conditions were “disproportionately vulnerable” to – and affected by – sanctions. Benefit sanctions have been increasing in severity and conditionality is now applied to previously exempt groups such as lone parents, disabled people but the sanction net has also widened to include ‘low paid workers. Sanctions for people in work are being used to push people to take more hours or to find another job. According to a report published by the DWP in September 2018 ‘

The decision to exclude children born before April 2017 from the two-child limit is only right. However, children born after that date are still being unfairly penalised and the infamous rape clause will continue. The two-child limit makes large families considerably worse off,, penalising large (often black and minority ethnic) families, and meaning mothers and children going without.

Amber Rudd’s announcement that the benefit freeze would not be continued beyond 2020 begs the question, why not now?  The four-year benefit freeze is predicted to increase poverty more than any other policy. The freeze will mean that by 2020 a family of four receiving UC will be over £800 a year worse off, even if both parents are working full-time on the national living wage.

Redesigning the Welfare System

From a gendered perspective it is important that the government recognises the value of unpaid work, without reinforcing or exacerbating the current gendered division of labour. It should also consider that many people, mostly women, have employment histories interrupted by caring breaks and ensure that this does not lead to poverty in old age.

More specifically to UC the government needs to ensure that the process to apply for UC is clear and transparent as well as ensuing that there is a meaningful right of appeal against decisions, including right to legal advice and advocacy.

UC also needs to address the needs and income of an individual and the household to ensure that welfare is being distributed correctly and used for the intended purposes. For example, payments for children should be made to those who meet those children’s day to day needs, payments for rent should go to whoever pays the rent (or landlord if preferred).

Time and time again the government has insisted that it is committed to ending austerity and reforming the welfare system to support the most vulnerable. However, to do this it will require redesigning the welfare system so that people are treated with dignity and respect and there is a commitment to ensuring that people receive their rights.