So far, much of the press around the introduction of Universal Credit (UC) has been far from positive. Just last week the National Audit Office said UC has not and may never deliver value for money. But UC has huge potential to transform people’s lives. So how can it be made a success?
Most of the problems that hit the headlines last autumn related to people losing their job, claiming UC and then having to wait at least six weeks before they received support. It’s worth considering why.
At the heart of the problem was the fact that UC assesses entitlement monthly, in arrears. However, almost half of people moving onto the scheme were previously paid weekly (barely a quarter were paid monthly.) The failure of UC to respond to individuals’ needs was a major cause of trouble.
The Government’s decision to reduce the wait from six to five weeks, along with allowing housing benefit payments to be paid for the initial weeks of a UC claim, should help reduce this problem. Furthermore, making the system of monthly entitlements and payments more flexible should help to tackle future problems.
Self-employed
The next big test for UC is to see how it can cope with bringing millions of low- to middle-income working families, many of whom have children, onto the system. The first to stand out are the self-employed.
Self-employed workers will need to report their income monthly under UC, even though that is not how they would have done so to the tax credits system, or how they report it to HMRC. This is more than just an inconvenience. For those with volatile incomes, the imposition of a Minimum Income Floor will reduce their benefit entitlements in lean months when they bring home less than the equivalent of a full-time job on the minimum wage.
To avoid this situation, the Government should allow self-employed workers to report their income at a frequency that suits them – for example, quarterly or annually – and for the Minimum Income Floor to be assessed on the same basis. This would mean poorly performing businesses can be identified and supported to do better, but without hitting people with fluctuating incomings and outgoings.
Similar issues are likely to arise for those with childcare costs. This is another example of where a strict monthly pattern of assessment is unlikely to align with the way in which childcare costs are paid or accrue.
Once again, relaxing the stringent requirements of the system would ease these foreseeable problems.
Less money
Arguably the biggest challenge facing Universal Credit is that it is now set to be less generous on average than the system it replaces. Restructuring support for working families would have always led to some winners and losers. But cutting £3bn from the total spent means that more families will lose than gain. Furthermore, those losses, on average, outweigh the gains.
The Autumn Budget provides a chance to redress that balance before large numbers of families with children are actively moved onto UC. It will be important that any additional funding focuses on the lowest-paid single parents – who are set to be made worse off – and second earners, who have the weakest financial incentive to move into work.
In the case of the latter, it is important that UC better supports dual-earning couples. This would better reflect how people live their lives, with two earners often needed to make ends meet.
Transitional protection
The final part of UC that people are likely to hear much more about in the coming months is ‘transitional protection’. These are top-up payments made to families moved to the new scheme who already claim tax credits. In theory, such support will make up the difference for those finding themselves worse off under UC, so that no-one will lose out in cash terms. However, just how generous the scheme will be – and how long those protections will last – is yet to be determined. This could be the next parliamentary battleground for UC.
This year is a pivotal one for Universal Credit, with the scheme finally being rolled out at scale. With some important changes, the scheme could prove a great success and meet its aims of simplifying the system while boosting incomes and incentives. But if that’s to be the case, the Government needs to do a far better job at resolving foreseeable problems before they occur, rather than reacting to crises after the event.