£20 uplift debate shines a light on inadequate benefit rates and design flaws of Universal Credit

Posted in: COVID-19, Evidence and policymaking, UK politics, Universal Credit, Welfare and social security

Dr Rita Griffiths is a Research Fellow in the Institute for Policy Research (IPR) at the University of Bath. She is co-author of the recently published report, Uncharted Territory: Universal Credit, Couples and Money.

It’s taken a pandemic to bring the unacceptably low benefit rates in this country into the public conversation. Issues of foodbank use, children going hungry and benefit rates that are too low to live on were well documented long before the present crisis. Our longitudinal, qualitative research, based on 123 interviews with 90 Universal Credit claimants in families with and without children started before Covid-19. In 2018, when we conducted our first wave of interviews, most working-age benefits had not increased since 2015, and for the three years before that annual increases had been capped at 1 per cent. At the same time, help with rent and Council Tax had been reducing for many. After almost a decade of frozen benefits and rising living expenses, many of our families were struggling to cope. Then came Covid.

An expression we have heard a lot during the pandemic is that people who have found themselves having to claim Universal Credit have done so ‘through no fault of their own’. But whether due to redundancy, low pay, too few hours of work, or ill-health, people who claimed Universal Credit before the pandemic also did so ‘through no fault of their own’. A large proportion of our interviewees had been working immediately prior to claiming Universal Credit – just like the new ‘Covid cohort’. For them, losing a job was just as devastating and their situation equally ‘blameless’. And let’s not forget that around 40% of Universal Credit claimants are in paid work - but the wages they get are insufficient for them or their household to live on.

The £20 uplift is very welcome and the case for extending it compelling. But, as the Resolution Foundation has pointed out, for families with children this extra £20 per week simply reinstates benefits rates to near the level they would have been without the cuts and freezes to working age benefits over the past decade. Recent analysis by the Institute for Fiscal Studies indicates that for those without children, the £20 uplift represents the first real increase in benefit rates for half a century.

In September and October 2020, we re-interviewed our sample to find out how well they were managing in the context of the Covid-19 pandemic and in the light of the emergency measures put in place by the government. The extra £20 per week on top of a benefit uprating of 1.7% in April 2020 increased the monthly standard allowance for couples (over 25) from £498.89 to £594.04. This difference of £95.15 per month meant a great deal to many of our interviewees. With entire families locked down at home, this additional money had been spent on the extra cost of food, heating, lighting and home schooling. Losing this money would not only be a savage blow to the incomes of some of the poorest families, but would send a clear message that reducing poverty and helping to support living standards – of working people as well as those out of work - is not a priority.

Some families, however, reported that they had not heard of the uplift and, as far as they were aware, had not received it.  All new and existing Universal Credit (and Working Tax Credit) claimants –are eligible for the uplift. So what is going on here? This conundrum reveals the hidden complexity that lies at the heart of Universal Credit. What it highlights is the complicated way in which the Universal Credit payment is put together and calculated each month, and the variable effects that this can have on the amount claimants actually get. In fact, our evidence shows that what claimants are entitled to and what they actually receive each month can be two very different amounts.

Unlike legacy benefits, Universal Credit is assessed and means-tested monthly. Earnings (including those of both partners in a couple) reduce entitlement to Universal Credit by 63 per cent for each pound of net monthly wages above any work allowance (disregarded income). What this means in practice is that if claimants are in paid work, or their circumstances change during the month, the £20 uplift does not necessarily or automatically translate into a £20 per week increase in the payment. Universal Credit is also a form of income, and therefore is taken into account for other kinds of means-tested help. For working families in particular, the £20 uplift sometimes meant a reduced entitlement for financial help under local Council Tax support schemes.

Deductions for advance loans and other debts, taken at source from the Universal Credit payment, could also erode the value of the £20 increase. This is because deductions are calculated according to a percentage of the standard allowance - so the higher the allowance, the higher the deduction. Although this meant people would repay their loans faster than might otherwise have been the case, the downside was a reduction in the Universal Credit payment when they most needed it. Finally, only one Universal Credit payment is made to couples. There is no guarantee that both partners will have equal access to the uplift.

Another important consideration is the flat-rate nature of the increase. A £20 weekly uplift is worth a lot more to single people living with parents than to a two-parent family with several children. Paying a percentage increase in the standard allowance, rather than a flat rate to all, would have been fairer.

It is also worth remembering that Universal Credit is but one of a number of social security measures with the potential to alleviate financial hardship. Child Benefit has been subject to freezes and below inflation uprating since 2011. It is currently worth £21.05 per week for the first child and £13.95 for any subsequent children. The 1.7 per cent increase in Child Benefit in April last year was worth a paltry 35p for families with one child. A real increase of Child Benefit is long overdue and would not be subject to the problems associated with means testing that can undermine Universal Credit. Nor does the uplift apply to the vast swathe of people still claiming legacy benefits. If retaining the uplift is compelling for Universal Credit claimants, it is hard to argue against extending it for this group of claimants, a majority of whom are disabled people and their carers. The same argument applies to those on contributory benefits and Carer’s Allowance.

What the debate about the uplift has highlighted is the pressing need to examine our policies in the round, rather than tinkering piecemeal with separate measures, beneficial though they may be. Whether people are in paid work or not, what we need is a social security system and labour market that allow people a decent standard of living regardless of their circumstances. Everyone in this country should have a right to adequate and secure financial help when they need it.

Learn more about the project, ‘Couples balancing work, money and care: exploring the shifting landscape under Universal Credit’, and read the report ‘Uncharted territory: Universal Credit, couples and money’.

All articles posted on this blog give the views of the author(s), and not the position of the IPR, nor of the University of Bath.

Posted in: COVID-19, Evidence and policymaking, UK politics, Universal Credit, Welfare and social security

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