Coronavirus: Universal Credit during the crisis

The policy issues touched upon in this paper are fast-moving areas which are subject to change. This paper should therefore be read as correct at the date of publication (15 January 2021).

The coronavirus crisis has had a significant economic impact which, in turn, has affected household finances – and will continue to do so. Since the early stages of the public health response in mid-to-late March, there has been an increased reliance on the UK social security system, and Universal Credit in particular.

The Government has introduced a series of measures which have served to alleviate demand on the benefits system to some extent. In particular, the Coronavirus Job Retention Scheme (CJRS) and the Self-Employment Income Support Scheme (SEISS) have between them attracted more than 10 million claims.

Nevertheless, significant new demand has fallen on Universal Credit as the UK welfare system’s main ‘safety net’ for people of working age.

Universal Credit

Universal Credit (UC) is a means-tested benefit which is in the process of replacing six existing benefits and tax credits for working-age households. It is available to those who are in work but on low incomes, as well as those who are unemployed or whose capability for work is limited by sickness or disability. It was introduced by the Coalition Government from 2013 in order to simplify and streamline the benefits system, improve incentives for work, tackle poverty, and reduce fraud and error.

UC has been available in every part of the UK since December 2018 and is now the only option for any working-age individual or family wishing to apply for a means-tested benefit. In March 2020, 3 million people were on Universal Credit, but the numbers have risen substantially during the coronavirus crisis, reaching 5.8 million people by November 2020.

Impact of coronavirus

In the early stages of the coronavirus crisis, there was a sharp increase in UC claims. In the four-week period ending on 9 April, 1.2 million people in Great Britain started a UC claim – around a million more than the usual volume of monthly claim starts – and a further 1.1 million started in the five weeks ending on 14 May 2020.

Overall, the total number of people on Universal Credit in Great Britain surged from 3 million in March to 5.2 million in May and has since gradually increased to 5.8 million as of November (the latest date for which we have figures). The daily volume of new claims peaked at 135,900 on Friday 27 March. Since then, application volumes have gradually subsided to levels similar to those before the pandemic.

Universal Credit under pressure

This increased demand has placed huge operational pressures on the Department for Work and Pensions (DWP). Initially, UC came under criticism from new claimants regarding the length of time they had to wait to verify their identity by telephone.

In response, the DWP acted to adapt services and to reallocate resources in order both to meet new demand and to facilitate social distancing. This included redeploying nearly 10,000 staff within the DWP and from other Government departments to assist with processing new claims. As a result, the DWP reported that 96% of new UC claims during the assessment period covering 9 April received their full first payment on time, which it was noted, was an improvement on the figure of 88% of payment timeliness in March 2020.

Subsequently, Universal Credit, and DWP staff in particular, have received praise from various quarters, including in reports from the Work and Pensions Committee and the House of Lords Economic Affairs Committee. It has been noted that the digital and automated structure of the benefit, combined with the temporary changes made by the DWP, has enabled the system to withstand a sudden increase in demand where legacy systems may have struggled.

Changes made to Universal Credit

In order to ease and speed up access to Universal Credit, the Government made a number of temporary policy and operational changes. These included:

• An increase to the standard allowance of Universal Credit (and to the basic element of Working Tax Credit), so that claimants of Universal Credit and WTC now receive up to £20 more a week for 12 months up until April 2021. Local Housing Allowance Rates were also uplifted.
• Allowing UC (and ESA) claimants who were ‘affected’ by coronavirus (i.e. anyone with Covid-19 or required to self-isolate or looking after a child of such a person) to be treated automatically as having limited capability for work, without having to obtain a ‘fit note’ or to undergo a Work Capability Assessment.
• Suspending conditionality – conditions such as work-search requirements and attending regular interviews at jobcentres were suspended temporarily (although starting from July 2020 they are being gradually reintroduced).
• Suspending face-to-face assessments and Jobcentre appointments, and pausing disability benefit reassessments.
• Suspending deductions for certain kinds of debt.
• Suspending the ‘Move to Universal Credit’ pilot which had been testing the final phase of Universal Credit caseload rollout (‘managed migration’) in Harrogate.

The DWP has been clear that these policy changes were only meant to be temporary during a moment of acute crisis, and several measures had been withdrawn by the end of 2020. The Secretary of State for Work and Pensions stated in May that it was not her intention “to change the fundamental principles or application of Universal Credit”.

Calls for further change

Despite these policy changes, as well as the Government’s express intention not to alter the fundamental design and architecture of Universal Credit, there have been further calls to reform UC to support households more effectively during the crisis.

These have included:

• Measures to mitigate the ‘five-week wait’ for the first payment of Universal Credit, either by making UC advances non-repayable during the crisis, or by pausing deductions for advances.
• Suspending limits on eligibility and entitlement, such as:
  • The ‘capital rules’, which mean that people who have more than £16,000 in savings are not eligible to claim UC;
  • The ‘No Recourse to Public Funds’ rules, which mean that many foreign nationals cannot claim benefits;
  • The ‘benefit cap’, which limits the total amount of benefit a household can receive; and
  • The two-child limit, under which a household will not receive an additional amount in their award for a third or subsequent child born on or after 6 April 2017.
• Help for former legacy benefit and tax credit claimants who applied for Universal Credit in light of Government guidance, without realising that their existing benefits would stop, and that they might be left worse off.
• Increasing the generosity of Universal Credit payments beyond the rise in the standard allowance, such as an increase in the child element.
• Retaining the temporary uplift in Universal Credit and Working Tax Credit beyond April 2021 (when it is due to expire).

Future challenges for Universal Credit

Universal Credit, and the wider benefits system, will be part of the Government’s overall policy response to prevent financial hardship and support people back into employment as part of the economic recovery.

UC’s ongoing role as the main safety net for new benefit claimants is likely to gain further prominence in 2021. The CJRS and the SEISS are due to close in April 2021, at which point the Office for Budget Responsibility (OBR), in its Economic and Fiscal Outlook published in November, assumes in its ‘central scenario’ that unemployment will peak at 7.5%. The Resolution Foundation has predicted “significant claims for UC” following the end of the CJRS.

Moreover, the £20 a week increase to the UC standard allowance is designed to be temporary and will expire in April 2021 unless it is extended.

There are also challenges ahead with the resumption of employment support and conditionality within Universal Credit. This is especially the case in a context of ongoing social distancing requirements, but also with a weaker labour market.

Finally, the DWP’s ‘Move to Universal Credit’ pilot in Harrogate – in advance of the final ‘managed migration’ phase of UC rollout – remains suspended, and the Department has not yet indicated when it might resume. Before the outbreak of coronavirus, the DWP had revised its forecast for completing the full caseload rollout of UC to September 2024. The Department has not said what effect, if any, the crisis will have had on this forecast. HMRC officials noted in November 2020, however, that completion of managed migration to UC from legacy benefits and tax credits by September 2024 was now “not likely”.

By August 2020 the number of households on UC had reached 4.6 million, well in excess of the level that the DWP had previously been expecting the UC caseload to be at in 2022/23. The DWP now forecasts that the UC household caseload will reach 6.1 million by 2025/26, a year later than its previous forecast of when the UC caseload would pass the 6 million household mark and when it expected to complete the full caseload rollout of UC (see chart below).