by Mhoraig Green, CAS Strategic Lead for Social Justice.
This article was published in the Herald newspaper on 11 March 2020.
Today’s budget offers the new Chancellor an opportunity to help fix some of the issues in a government policy that manages to be both a decade old and still not fully implemented: Universal Credit.
Supposedly inspired in Easterhouse, it’s a policy announced in 2010, introduced in 2013 but which won’t be fully rolled out across the UK until 2024. We believe that the drive to deliver cost savings during the austerity decade has contributed to fundamental issues with Universal Credit which leaves people with very little money to live off and lacking any financial cushion to deal with debt or any unexpected expenses.
At Citizens Advice Scotland we were one of the first organisations to call for the roll out of Universal Credit to be paused so that problems with the scheme could be fixed.
That’s because we see the impact the policy is having on people right now. We gave more than 40,000 pieces of advice on Universal Credit in 2018/19, a doubling on the previous year. And that’s why we believe that the government should use today’s budget to invest in the system to address the issues that are leaving people worse off, and which are ultimately discouraging take up.
One of those problems is the five week wait for the first payment. Designed to replicate the schedule of a working salary, our evidence suggests this five week wait for payment is simply pushing people into a vicious cycle of debt, leaving people behind on essential bills like energy, rent or food.
The UK Government does offer an advance loan system so people can access cash sooner. But that simply adds another line of credit to people’s outgoings and pushes them further into that debt spiral. Our evidence base tells us that it is difficult to get by on Universal Credit even before your advance loan repayments are deducted.
We believe that advance loans should be replaced by a non-repayable payment system that protects the most vulnerable from destitution – like having to rely on foodbanks – during the waiting period. Alongside this, it makes much more sense for people to just get their first payment sooner; we say within two weeks.
Beyond this, it’s important to remember how ubiquitous Universal Credit will be when it’s fully rolled out, with about one third of working households in the UK having someone receiving the benefit according to the Institute for Fiscal Studies.
If that figure takes you back you are in good company – it does not seem to be widely understood that Universal Credit is an in-work benefit that will eventually replace payments like working tax credits. DWP’s own research showed that even for people who are receiving Universal Credit the level of understanding about how the payments interact with their earnings is very low.
The speculation before Christmas that some Gregg’s workers on Universal Credit would lose out on much of their welcome £300 benefit brought some attention to these issues. However, Citizens Advice Bureau are seeing workers whose income is being affected every single week. One adviser assisted a person working part-time who previously would have been eligible for £37 a week in Working Tax Credits to support their low earnings. On Universal Credit they are entitled to nothing. This means that this person in their sixties who is unable to increase their working hours has lost out on £2000 per year.
That’s why today’s budget should ensure Universal Credit works for working people, by extending the existing work allowance to all workers, not just those with children or a limiting health condition. This was the case before cuts were made to Universal Credit back in 2016. The work allowance is the amount an eligible person can earn without any impact on what they receive through Universal Credit (£287 for people on housing support or £503 without).
For earnings outside the work allowance people on Universal Credit lose 63p for every pound they earn. That means a single person only has to earn £505 after tax and National Insurance a month before they lose out on the standard Universal Credit allowance of £317.82.
For these reasons we’re also calling on the government to reduce the taper rate enabling workers to keep more of what they earn and thus increasing the support Universal Credit provides to low paid workers.
We also back calls to scrap the two-child cap on the child element of Universal Credit, and for a long-term commitment to regularly up-rate the level of payments and the work allowance to help lift people out of poverty.
While the coming years offer a number of public policy challenges for the Government, such as the UK’s future relationship with the Europe and the ongoing challenges of delivering public services for an ageing population, it’s vital that the 4 year delay in the full roll-out of Universal Credit is used to fix the flaws in the system. Get it wrong and we will continue to see people in the same desperate cycle of debt and destitution, but get it right and we can begin to reverse the trend of working poverty.