Sink or Swim?

We’re only a year away from the Universal Credit going live, but serious question marks are starting to hang over these much-needed reforms to the benefits system.

Last week, evidence submitted to the Work and Pensions Select Committee highlighted big problems. Charities and employers fear that the IT system on which the Universal Credit is dependent on will not be ready and will be too cumbersome to manage; the most senior civil servant, Sir Jeremy Heywood, is reportedly concerned about the scheme’s viability. And new research published today by the Social Market Foundation shows that many low income households will be ill-prepared too for the significant changes they will face.

The scheme aims to prepare families for work, and boost their resilience to financial shocks. But the SMF research, which looks for the first time at how low-income families themselves will respond to the changes, worryingly reveals that these laudable aims are at risk of backfiring and pushing more people into debt.

When questioned by the SMF about the move from weekly or fortnightly benefit payments to monthly – a change designed to prepare people for the world of work – most households opposed the move, citing fears that they would run out of money before the end of the month. This is not really surprising: 42% of those in the lowest two income quintiles are paid weekly and a recent DWP survey revealed that four in ten of those on benefits and tax credits would find it harder to budget on a monthly basis.

The move to a fixed monthly benefits assessment also looks likely to risk pushing people into debt. Our analysis found that people who lose their jobs could go for over a month with no income at all under the move to fixed monthly assessments. This could be even longer if employers struggle to meet the new reporting requirements. A single payment also means claimants lose the labelling of different benefits, which helps people apportion and nudges them towards desirable expenditure.

And when questioned about the change to Housing Benefit payments, which will in future be paid to social tenants rather than directly to the landlord, households were almost universally opposed. One member of the 30 households we interviewed said: “Everyone is going to be in arrears. It’s just going to end up costing the government more money”. Indeed, when Local Housing Allowance -housing benefit for those in the private rented sector – was introduced in a similar way five years ago, a pilot evaluation revealed the rate of arrears increased from 3% to 7%. This change could cost social landlords hundreds of millions of pounds, affecting Housing Association’s credit ratings and ability to build more houses.

When Iain Duncan Smith defends the Universal Credit in front of the Work and Pensions Select Committee this afternoon, most people will focus on the scheme’s overall viability. But even if the Universal Credit does get off the ground, it currently leaves claimants to either sink or swim. The SMF is proposing that claimants could opt-in to an online budgeting tool where they could request more frequent payments and direct payments to different accounts, even to landlords or childcare providers. This would be a relatively cheap policy that would increases the chances of the Universal Credit succeeding and it would help people on low incomes to help themselves as they grapple with the biggest change to benefits for a generation.

This post first appeared on the Huffington Post UK blog.


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