This House of Commons Library briefing paper explores how Universal Credit has coped and changed during the coronavirus crisis so far, and what challenges lie ahead for this benefit.
Documents to download
Coronavirus: Support for household finances (1 MB, PDF)
Many policy issues touched upon in this paper are fast-moving areas which are subject to change. This paper should therefore be read as correct at the date of publication (22 June 2020).
The coronavirus outbreak, alongside the public health response to it, has had profound effects on the UK economy, and will continue to do so. These, in turn, have had unprecedented impacts on household finances. Whilst it is still difficult to predict the nature and scale of the impact on household finances, existing data suggests that inactivity and unemployment will rise quickly, with low-paid workers most at risk. Indeed, the majority of households have reported experiencing a reduced income as a result of the coronavirus pandemic.
There is also early evidence of financial difficulties translating into a rapid upsurge in benefit claims and an increased reliance on the social security system. By May 2020, 2.8 million people received unemployment-related benefits. This was an increase of over 1.56 million claimants from March 2020, a 126% increase between March and May. In the four-week period ending on 9 April, 1.2 million people in Great Britain started a Universal Credit claim – around a million more than the usual volume of monthly claim starts – and by a further 1.1 million in the five weeks ending on 14 May. As a consequence, the total number of people on Universal Credit in Great Britain rose from 3 million in March to 5.3 million in May.
The Government has come under pressure from various organisations – including think tanks, charities, businesses, trade unions, and other sectoral groups – to intervene and protect household incomes. In response, a raft of emergency measures has been introduced to support the UK workforce, ease and speed up access to social security, and mitigate the impact on the cost of living.
Support for workers
The Government has taken several key steps to support workers — both employees and the self-employed – during the coronavirus outbreak.
On 20 March the Chancellor announced a Coronavirus Job Retention Scheme, allowing employers to claim a grant from HMRC to cover 80% of the wages of ‘furloughed workers’ (up to £2,500 per month). On 12 May the Chancellor announced that the Scheme will continue in its current form until the end of July, and in a more flexible form from August until the end of October. This will involve allowing furloughed employees to work reduced hours as well as requiring employers to contribute to furloughed workers’ wages.
The Government has also changed to the rules for Statutory Sick Pay (SSP) so that employees with Covid-19 or who have to self-isolate are entitled to it from the first day of absence. On 28 May, the Government extended eligibility to SSP to anyone who self-isolates for 14 days after receiving a “relevant notification” from public health bodies as part of the NHS Test and Trace scheme.
For self-employed people – an estimated 15% of the UK workforce – the Government has introduced a Self-employment Income Support Scheme. This pays direct cash grants to self-employed individuals worth 80% of their profits, up to £2,500 per month for the three months from 1 March. On 29 May the Chancellor announced that a second and final grant worth 70% of average monthly trading profits, also paid in a single instalment and capped at £6,570, would be provided under the SEISS in August.
Support in the welfare system
Since early March 2020 the Government has announced a series of measures aimed at ensuring that households affected by the coronavirus pandemic get the support they need from the benefits system. These include:
- Measures to ease and speed up access to benefits for those who are affected by Covid-19 or are self-isolating (‘New Style’ Employment and Support Allowance and Universal Credit);
- The suspension of face-to-face sickness and disability benefit assessments and Jobcentre appointments;
- The suspension of all work-related requirements for benefit claimants until the end of June 2020;
- The suspension of some deductions from Universal Credit;
- An increase in Universal Credit and Working Tax Credit rates, alongside additional help for private renters; and
- The creation of a £500 million ‘hardship fund’ for local authorities to provide Council Tax relief to working age taxpayers in receipt of local Council Tax support, as well as other forms of local welfare support.
Other welfare support measures have been taken by the devolved administrations in Scotland, Wales, and Northern Ireland.
On 22 June, the Work and Pensions Committee published a report on the DWP’s response to the coronavirus outbreak. This praised DWP staff for their work meeting unprecedented demand, and commended ministers for taking policy decisions to help mitigate the worst impacts of the crisis. Nevertheless, it addressed a wide range of issues, calling for further immediate changes, including raising certain legacy benefit rates, and recommending that the Government plan for more long-term issues, such as developing measures to support those impacted by changes to the UK labour market as a result of the ongoing economic downturn.
Support with the cost of living
The coronavirus outbreak could lead some to be tipped into financial difficulty, whilst others already facing money problems may see their situation worsen. The Government has acted with other relevant authorities to mitigate the financial impact on households by helping to stabilise everyday costs and personal finances.
These include measures relating to banks and financial services. For example, the Financial Conduct Authority has instructed banks and financial services firms to support customers through allowing certain flexibilities. Additionally, in March the Government secured a commitment by mortgage lenders to support customers through payment holidays of up to three months. On 22 May 2020 the Financial Conduct Authority said that firms should continue to offer support, including an extension of payment holidays for a further three months. Homeowners can apply for a mortgage payment holiday until 31 October 2020.
Additionally, as a result of concerns about price ‘hikes’, the Competition and Markets Authority has established a taskforce to “identify harmful sales and pricing practices as they emerge”, to warn firms suspected of exploiting these exceptional circumstances, and take enforcement action if there is evidence of a breach in competition or consumer protection law. It will also advise the Government on any potential legislative measures.
In terms of everyday costs, such as utility bills, the Government, alongside Ofcom (the telecoms regulator) and telecoms providers, has announced a set of commitments for supporting customers during the coronavirus outbreak. These include supporting customers who may struggle to pay bills, removing data allowance caps, agreeing to offer new mobile and landline packages, and ensuring vulnerable customers or those self-isolating can receive alternative methods of communication if needed.
The Government has also launched an emergency package of measures with energy suppliers to protect customers from hardship during the coronavirus outbreak. Additionally, Water UK (the trade body for water companies in England and Wales) has outlined a number of actions water companies have taken to support customers struggling to pay bills, such as offering payment breaks and holidays, adjusting payments plans, stopping new court applications on unpaid bills, as well as offering other forms of support.
On transport costs, the Government has announced a series of policies to help people receive refunds for travel for which they have paid but been unable to take, and to help those who need to make essential journeys to do so at a reasonable price. These include:
- Rail ticket refunds;
- Asking bus companies in England to accept bus passes all day; and
- Suspending car and motorcycle MOT tests for six months, as well as driver theory tests (until 31 May) and practical tests (up to three months from 20 March).
The coronavirus pandemic has also created and exacerbated problems around the ability of households to access food. On 3 June, the Trussell Trust reported an 89% increase in emergency food parcels given to people across the UK in April 2020 compared to April 2019, with a near doubling of families with children receiving parcels over the same period. The Government has announced food aid for households considered to be at greatest clinical risk from coronavirus, but it has been criticised by charitable food aid providers for excluding many people in financial difficulty. On 8 May the Government announced £16 million for food charities, and on 11 May the Department for Food and Rural Affairs opened the Charities Grant Fund offering assistance to food aid charities to help them continue to provide food to the economically vulnerable.
The Department for Education has announced that children in England who are usually eligible for free school meals, but who are now at home, will be eligible for weekly £15 vouchers to spend in supermarkets while schools are closed because of coronavirus. Attention recently focused on whether support will be provided during the summer holidays. Responding to calls to extend the voucher scheme over this period, including by the Manchester United footballer Marcus Rashford in an open letter to MPs, on 16 June 2020 the Education Secretary announced that the Government would provide additional funding to enable children who are eligible for free school meals to claim a six-week voucher over the summer holidays.
Different schemes have also been announced in Scotland, Wales and Northern Ireland.
Food banks are, nevertheless, coming under severe strain, as are many other parts of the charitable sector, including those which help financially vulnerable households.
On 8 April 2020, the Chancellor announced that charities across the UK will receive a £750 million package of support to ensure they can continue their work during the coronavirus outbreak. The Government has since announced that £150 million will be released from dormant bank and building society accounts to “support urgent work to tackle youth unemployment, expand access to emergency loans for civil society organisations and help improve the availability of fair, affordable credit to people in vulnerable circumstances.”
Sources of advice and information are available in section 6 of this briefing paper.
Documents to download
Coronavirus: Support for household finances (1 MB, PDF)
On Monday 18 January 2021, there will be an Opposition Day Debate on a Motion relating to Universal Credit and Working Tax Credit.
An overview of initiatives to support businesses through the coronavirus pandemic.