Universal credit needs fixing, say peers

The Conservative peer said universal credit has features that are harming many of the most vulnerable people in our country, leading to problems such as people finding it incomprehensible, rent arrears and growth in foodbanks. Witnesses told his committee that universal credit should not be abolished because it will cause severe disruption for people, but needs reform.

He finds the Chancellor’s decision to cut universal credit by £20 a week ‘simply indefensible’ with cost-of-living up. Despite the increase in the work allowance and reduced taper rate, some of the lowest-paid people in UK face an effective marginal rate of tax of 55 per cent. The DWP should be required to conduct affordability assessments before making deductions from awards, with his committee calling for DWP to write off historic tax credit debt that is owed by universal credit claimants as a ‘sunk cost’, to avoid misery and anxiety among vulnerable people.

Forsyth said the five-week wait for the first universal credit payment entrenches debt, increases extreme poverty and harms vulnerable groups disproportionately. He suggested the DWP should introduce a non-repayable, two-week initial grant for all claimants. Continuing his scathing critique, he said the DWP should fix the level of awards at the same level for three months with some mechanism to enable claimants to have an early reassessment. All claimants should be able to choose whether to have universal credit paid monthly or twice monthly.

In other comments he said:

• the way universal credit is paid as a single household payment should be revisited;
• there should be more support to help coach and train claimants to find jobs or to progress in their current roles;
• and the Government publish an evaluation of the impact of conditionality and sanctions on mental health and well-being

Other notable contributions

Lord Bridges of Headley, Conservative, used the debate to comment on the Spring Statement, saying he could not help but think that we are giving with one hand and taking back with the other, creating a piecemeal system that is extremely confusing. Why are the Government not taking the simpler and more straightforward approach of using the welfare system and reforming it to help those on low incomes? He wonders how the Government can ‘make work pay’ when the overall marginal effective tax rate for universal credit families earning over the work allowance will be 70 per cent in 2022-23.

Baroness Lister of Burtersett, Labour, (photographed below courtesy of Parliament UK) is concerned that the benefit cap has still not been reviewed, the two-child limit is dragging more and more larger families into poverty and the five-week wait is not being solved by repayable advances. Lister said additional funds to local authorities for discretionary support, announced in the Spring Statement, are no substitute for the security provided by weekly benefits that meet people’s needs. She wants the DWP to commit to further piloting of the migration to universal credit and publish the findings. The peer backs CPAG’s call for a pause in the ‘Move to UC’ programme until it has been ‘properly piloted’, the evaluation has been published and Parliament has had a chance to scrutinise the plans.

Viscount Chandos, Labour, said a universal credit system would still work effectively with four or five of the legacy benefits incorporated, not the current six. He wonders why if 80 per cent was the right level of income support under the furlough scheme, 15 per cent of average earnings is a justifiable level of support for unemployed people in normal economic conditions (although he does not support 80 per cent unemployment benefit).

Baroness Wilcox of Newport, Labour, said over one in four people on universal credit have no work requirements because they are unable to work due to a disability or a caring responsibility—a group for which lowering the taper rate provides nothing.

Lord Shipley, Lib Dem, is concerned that some new claimants are not used to monthly pay and a fortnightly payment option would help them, the five-week wait for new claimants is too long and creates insecurity and he is disappointed that the Government turned down the committee’s ‘wise and helpful proposal’ of a two-week grant. He agrees with Lord Forsyth that the DWP should do affordability assessments before making deductions from awards. The peers is concerned about the proposal closure of many DWP offices because he fears it will impact the support of clients, especially those for whom digital or telephone contact may be very difficult.

Baroness Janke, Lib Dem, said ‘the sticking plaster’ in the Spring Statement in the form of an increase in the household support fund seems to show ‘contempt’ for the suffering of so many people. The baroness said confidence in universal credit is ‘extremely low’. There is an overall perception of a chaotic system that is incomprehensible, inaccessible, intractable in its decisions and harshly punitive of any perceived shortcomings of claimants, she said. The idea that people should be paid monthly because it corresponds to work takes no account of the way people work nowadays. It takes no account of the fact that people work on zero-hours contracts and that many need to have two jobs to live.

The Lord Bishop of St Albans said taking ‘pennies off the poor’ at a time when the Government have written off £16 billion in COVID-19 business loans due to errors and fraud is ‘quite extraordinary and unrealistic’. The Lord Bishop said if the Government deem it necessary to pursue these historic tax credit debts from universal credit claimants, ‘I hope they will broach other debts with the same level of vigour’.  He worries that the new shortened sanctions regime introduced earlier this year is merely an aid to get people off, and further discourage them from accessing universal credit. He supports the report’s recommendation to fix the level of awards for three months, to provide longer-term budgetary stability and encourage people to work without pecuniary downside. Extending the assessment period will help.

Baroness Valentine, crossbencher, is concerned that there is currently no quality assurance for a private landlord receiving housing benefit, leading to people being crammed in in ‘appalling’ conditions. It is imperative that, as soon as possible, the Government bring in legislation which means that substandard landlords are not eligible for housing benefit payments, mirroring the decent homes standards that were introduced in the social housing sector in 2000.

Viscount Brookeborough, crossbencher, said universal credit is too complicated and the five-week wait puts people in debt.

Is it beyond the wit of man, or the wit of the department, to consider indexing universal credit, or an element of it, to the price of heating and lighting? asked Lord Kerr of Kinlochard, crossbencher.

Lord Desai, non-affiliated, complained that ‘debt recovery procedures are much tougher on the poor than they are on the rich’.

Government response

The Parliamentary Under-Secretary of State for DWP Baroness Stedman-Scott believes universal credit is working because if we had had the legacy system in place and the issues around COVID-19, she doubted that anybody would have got any money on a regular basis. On universal credit and the monthly assessment period, she said if we had had the tax credit system, there would have been an annual assessment. That is why we have the debt we do. A monthly assessment is far better for the individuals we are trying to serve.

She said that, last autumn, the Government announced a 75 per cent uplift in investment in counter-fraud, compliance and debt operations, taking funding to £1.4 billion over the next three years. And she said the use of assessment periods ensures that we calculate a household’s benefit entitlement correctly, the introduction of new claims advances allows for an eligible claimant to receive their full benefit entitlement up front (resulting in 25 payments of UC over 24 months) and eligible universal credit claimants can claim back up to 85 per cent of their registered childcare costs each month, regardless of the number of hours they work, compared to 70 per cent in tax credits.

On the latest figures, 62 per cent of households with a third or subsequent child that are in receipt of universal credit or Child Tax Credit are not affected by the two-child policy, she said.

The DWP has no plans to change either universal credit assessment periods or payment structures because the current approach reflects the world of work, the minister argued. A benefits structure adjusting automatically to family size is unsustainable. There will be all-peers briefings and meetings to discuss the migration to universal credit, she predicts. DWP will always try to ensure that government debt is recovered effectively without causing undue hardship. We have restarted the work to test issuing a written warning instead of a sanction for a first sanctionable failure to attend a work search review, she told peers.

The Hansard is here.

(Note: Lord Forsyth is longer the chairman of the committee but was when the report was published in 2020 - hence him leading the debate. The new chairman is Lord Bridges)

By Hamant Verma, CIOT Senior External Relations Officer