Universal Credit (UC) is replacing means-tested benefits and tax credits for people of working age. Around 7 million households will receive payments totalling around £60 billion a year when it’s fully introduced. To date, concerns have tended to focus on problems experienced by people moving onto UC, including the five-week wait for payments. But as the number of people on UC grows, other issues are coming to the fore, including monthly assessment and single monthly payments.
The story so far
After an uncertain start to the programme, the full version of UC was finally rolled out to every part of the UK in December 2018. The number of claimants is growing steadily and by the end of 2019 around 2.4 million households will be on UC. Following the ‘Move to UC’ pilot currently underway, full scale ‘managed migration’ is to start in late 2020 and finish by September 2024. People still getting existing ‘legacy benefits’ will be contacted to claim UC.
How much UC a household receives depends on its circumstances and income in each monthly ‘assessment period’. The first assessment period starts on the date UC is awarded, and subsequent assessment periods usually begin on the same day of the month.
Around a third of people claiming UC are in work. The DWP can calculate entitlement to UC automatically for employees paid through PAYE, based on their earnings.
The Coalition Government argued that responsiveness to changes in earnings would avoid some of the problems with tax credits – in particular, overpayments – and make the financial rewards from work clearer to claimants. This approach could help people with fluctuating earnings, such as those on zero-hours contracts, by increasing support when earnings fall, and vice versa. But as Citizens Advice and others point out, UC can actually exacerbate, rather than smooth, fluctuations in earnings, depending on when paydays fall in relation to the assessment period.
Monthly assessment can also cause problems for those whose earnings don’t fluctuate if their paydays aren’t in step with the UC cycle. In 2018, the High Court heard an appeal from four working UC claimants who sometimes received two months’ wages in a single assessment period, affecting their UC award and leaving them worse off. The DWP says that claimants need to budget for months when this will happen, or ask their employer to change their payday. The Court ruled that UC awards should be based on wages for an assessment period, but not necessarily on earnings actually received in that period. The DWP is appealing the decision.
The Child Poverty Action Group (CPAG) has called for a “fundamental rethink of the strict system of monthly assessment of earnings”, while Citizens Advice believes that the DWP should “explore the options for allowing people greater flexibility around assessment periods.” Some options might be straightforward, such as allowing claimants to change their assessment period dates to avoid clashes with paydays. Other changes – such as altering the length of assessment periods, or averaging earnings for those not paid monthly – would represent a more radical departure from the current UC model.
In line with monthly assessments, the Coalition Government introduced UC as a single monthly payment, paid in arrears, that would cover all a household’s needs. The thinking was that UC “prepares claimants for the world of work,” where 75% of employees are paid monthly.
But this may not be the case for many low-income families. While only 15% of all employees are paid weekly or fortnightly, the DWP expects that the proportion will be closer to 30% among working UC claimants.
Research into how benefit claimants manage their finances suggests that, rather than reflecting poor money management skills, short-term budgeting may be a rational strategy for making ends meet on a very low income.
Single household payments also carry risks. As the Work and Pensions Committee has heard, paying UC as a single payment into one account makes it easier for perpetrators of domestic abuse to further harm and control their victims.
“The Universal Credit assessment period and payment structure is a fundamental part of the design… Minimising the difference between paid employment and being on benefit effectively removes a key barrier to moving back into work by helping claimants to budget on a monthly basis.” – Freedom of Information response DWP ref: FoI 1288, DWP, 5 June 2017.
“People in low-paid work are not paid monthly. Yet the system is built around monthly earnings. Likewise, no one in the real world has their wages paid to a partner. Yet the system pays a whole month’s universal credit into a single bank account belonging to one member of the household.” – Frank Field, FT article, 19 October 2018.
“…the ostensibly simple system of monthly assessment periods for all claimants – regardless of their working arrangements and pay cycles – can, in reality, lead to unpredictable and seemingly arbitrary variations in payments which make budgeting extremely difficult.” – Rough Justice, CPAG, August 2018.
Differing approaches across the UK
UC payment arrangements are not the same across the whole of the UK. Claimants in Scotland can choose to receive their UC payments twice a month and for their landlord to receive the housing element directly. The Scottish Government also plans to split payments of UC to couples, “to increase equality within the welfare system”. In Northern Ireland, twice-monthly payments and direct payments to landlords are the default, and evidence suggests very few claimants have opted out.
In England and Wales, ‘Alternative Payment Arrangements’ (APAs) are possible, but only where claimants can’t manage single monthly UC payments and are at risk of ‘financial harm’. The emphasis is instead on help with monthly budgeting.
In January 2019 the DWP announced new measures to improve access to APAs. These include making it easier for private landlords to request direct payment of rents, and trialling new ways to promote more frequent payments. The DWP also said it was looking at what more might be done to ensure that, for couples with children, household payments go directly to the main carer.
But the DWP is facing calls to go further. CPAG has recommended that APAs should be available on request, arguing that the current criteria are too difficult to meet. Citizens Advice has argued that, in the long term, the Government should make UC payment cycles more flexible so that claimants can choose the schedule that best suits their needs.
- The Universal Credit assessment period and earned income, House of Commons Library.
- Managing Money on Universal Credit, Citizens Advice, February 2019.
- Rough Justice: Problems with monthly assessment of pay and circumstances, and what can be done about them, Child Poverty Action Group, August 2018.
This article was updated on 05.02.20 to reflect a Government announcement confirming a delay to full implementation of Universal Credit. It previously said: ‘The final ‘managed migration’ stage is to start in late 2020 and finish by December 2023.’
Insights for the new Parliament
This article is part of our series of Insights for the new Parliament. This series covers a range of topics that will take centre stage in UK and international politics in the new Parliament.