The stakes are extremely high for the Government as the Universal Credit nears the implementation stage. Get it right, and the Government can boast that it has cracked welfare reform. Get it wrong, and the chaos that will ensue could consign many to social hardship and spell electoral defeat for the Coalition parties. At the moment it seems to be hanging in the balance.
Last year, in our report Sink or Swim, the Social Market Foundation found that key aspects of the Universal Credit reform – such as the move to monthly benefits payments and payment of housing benefit via tenants – risked backfiring, with many claimants likely to find it hard to adapt. Several households we spoke to feared losing structure to their finances, running out of money ahead of the month end, and going into arrears on their rent. While our research demonstrated the depth of the problem for households, the Department for Work and Pension (DWP)’s own research illustrated its prevalence: four in ten claimants –equating to about 3 million claimants – said the change would make it harder to manage their money; of these 80% feared running out of money.
The announcement this week from the Welfare Minister Lord Freud that there will be dedicated support to help these vulnerable families is therefore a step in the right direction. As well as budgeting advice, these measures include an alternative payment structure for vulnerable claimants. Crucially, however, they will rest on a central planner defining correctly what is meant by “vulnerable” and determining who should be eligible for support.
This approach defies the evidence and is likely to prove costly to administer, expensive for social landlords who will be faced with much higher rent arrears, and damaging socially.
In short, many claimants are likely to need help, but many will also be difficult to identify and will be missed. There are a multitude of factors that affect whether a household may be unable to adapt effectively to Universal Credit’s new payment structure. Some claimants – such as those with mental health problems or drug addiction – may meet the central planner’s definition of vulnerable. But many won’t.
For instance, many low income families deal in cash deliberately because they have been stung previously by high charges from banks or because they like the flexibility cash gives them. Some rely on frequent payments to help them ration their expenditure and depend on them to provide structure to their household finances. These are the realities for many budgeting on a low income, especially for those least likely to cope with the benefit changes. But will all such people be readily identifiable by DWP?
Evidence from the previous exceptions policy that was applied to Local Housing Allowance suggested that policymakers (in this case local authorities) struggled to identify and collect compelling evidence about vulnerability ahead of the claimant going significantly into rent arrears. Those in need of help were only identified because they had gone into crisis. The result was thousands of families going into arrears. Under Universal Credit the consequences could be yet more severe, with claimants running up big debts.
Faced with this evidence, it would be much more efficient to resolve this problem at source and allow claimants to decide whether the reforms were likely to cause them problems. DWP should also take more active steps to help people manage the transition to greater financial responsibility. Claimants should be able to opt into a “personal budgeting portal”, which would allow them to determine how frequently they received benefit payments and earmark funds for specific expenditure (such as rent payments, saving or childcare).
A lot is resting – both politically and socially – on Universal Credit. But a scheme that has been devised in technocratic detail by some big thinkers in Caxton House will stand or fall by what happens in households around the country. DWP must see the project from their perspective if Universal Credit is to work.