Universal Credit: Ten years of changes to benefit claims and payments

‘Universal Credit: Ten years of changes to benefit claims and payments’ is part of a series looking at developments over the ten years since the Coalition Government came to power and launched its welfare reform programme.

The introduction of Universal Credit changed the way around seven million working-age households make benefit claims and get paid. This paper explores some key changes, their effect, and the debate surrounding them.

While often described as the most significant welfare reform since the Beveridge report and the post-Second World War Labour Government, Universal Credit does not begin from a completely blank sheet. Many of the things it seeks to achieve had been aims of previous reforms. It also retains many features of the benefits it is replacing, providing similar levels of support, often on similar terms, to similar groups of people. Nonetheless, Universal Credit is transformational. Delivering most working-age means-tested welfare support through a single benefit has meant that the Government could take a more holistic approach to meeting these aims, designing a benefit which would be claimed and paid very differently to the old system of legacy benefits.

Legacy benefits and Universal Credit

Like the ‘legacy’ benefits it is replacing, 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. By February 2021, over 5 million households were claiming Universal Credit, compared to 3.2 million claiming legacy benefits. The six ‘legacy benefits’ being phased out and replaced by Universal Credit since 2013 serve different groups of low-income households with different needs. Where a household was eligible for more than one legacy benefit, each was claimed and paid separately. Legacy benefits were criticised by the incoming Coalition Government for their complexity and for creating poor work incentives for some groups.

The single online claim

Universal Credit aims to end excessive form-filling, high administration costs, and the scope for error in legacy benefits through the introduction of a single online claim. This has not been controversial in principle. As Universal Credit was being introduced, however, claimants and advocacy groups pointed to problems faced by those who cannot access the internet or struggle to use it. As rollout got underway, there were also criticisms of the application process itself. These issues resulted in a significant proportion of new UC claims not being paid in full and on time. Adaptations to the claim-making process from 2017 onwards brought about improvements in payment timeliness, and the Government commissioned Citizens Advice and Citizens Advice Scotland to deliver ‘Help to Claim’ from April 2019, assisting people to make applications.

The wait for a first payment

Universal Credit is paid in arrears, after a month-long period where income is assessed to calculate the award, and a seven-day processing period. As a result, claimants have a five-week wait before they can first be paid. Different legacy benefits are paid at different frequencies – weekly, fortnightly, every four weeks, or monthly – meaning that separate payments may be received at different times, usually sooner than five weeks after claims.

The wait for the first payment has long been controversial, with MPs and campaigning organisations arguing that it causes financial hardship for some claimants. The DWP points out that advance payments, and ‘run-ons’ it has introduced for people moving from legacy benefits, are available so no claimant has to wait five weeks for financial support.

Monthly payments and assessments

Universal Credit is paid as a single monthly household payment and based on a monthly assessment of income. This has caused controversy since the benefit was proposed. Monthly assessments can result in fluctuating and unpredictable benefit awards, particularly when working claimants are paid wages on non-month cycles. Monthly payments, particularly for people used to receiving legacy benefits, or in jobs where they are paid their wages more frequently, can also create new budgeting challenges.

The Government has resisted proposals to change Universal Credit’s monthly design, citing practical impediments and downsides to alternative assessment methods, and noting that most jobs are paid monthly. Within the monthly assessment structure, the UK Government has made some provision for Alternative Payment Arrangements (APAs) in certain circumstances. The Scottish Government allows claimants to choose whether to receive payments twice-monthly or to have payments made directly to landlords, resulting in a considerably higher usage of alternatives. In Northern Ireland, twice monthly payments and managed payments to landlords are the default.

Deductions

Deductions have long been a feature of the benefits system, designed to help claimants pay their bills and debts, and for the Government to recover money it is owed. Universal Credit broadly replicated the deductions rules in legacy benefits. However, recoveries of advances and tax credit overpayments have been particularly common under the new benefit, and there have been months where more than half of claimants have had a deduction applied. Welfare rights organisations have argued that these deductions are creating hardship. In response, the Government has introduced reforms including reducing the cap on the amount that can be deducted each month. They argue, however, that deductions help claimants to manage their finances, and that a balance has to be found between helping claimants out of debt and affordability.