Written evidence from the Child Poverty Action Group and Changing Realities CLP0020

About the authors and our evidence

Child Poverty Action Group (CPAG) works on behalf of the more than one in four children in the UK growing up in poverty. It doesn’t have to be like this. We work to understand what causes poverty, the impact it has on children’s lives, and how it can be prevented and solved – for good. We provide training, advice and information to make sure hard-up families get the financial support they need. We also carry out high profile legal work to establish and protect families’ rights.

CPAG is the largest provider of advice to frontline practitioners working directly with families receiving social security. This submission draws on evidence from our Early Warning System (EWS) – a database of case studies submitted by frontline workers highlighting some of the challenges facing families in poverty who receive social security benefits.

The Changing Realities research programme works in partnership with parents and carers on a low-income to document everyday life during the cost of living crisis, and to work together to develop recommendations for change. Changing Realities is a collaboration between parents and carers, researchers at the University of York, and Child Poverty Action Group. It is funded by abrdn Financial Fairness Trust with additional support provided by University of York's Cost of Living Research Group.

Summary

The DWP’s design of the of cost of living payments has allowed the government to deliver targeted cash to families at speed and scale. Paying them directly into recipients’ bank accounts, allows families to decide how and when to use them and, by making them a separate payment, rather than adding them to benefit awards, families affected by the benefit cap are also eligible.

The biggest flaw in the design of the cost of living payments is that eligible families receive the same amount regardless of family size. This makes them less impactful for households with children, who spend 30 per cent more on energy than households without children.

We welcomed the government’s decision to use entitlement to means-tested benefits as the ‘passport’ to cost of living payments as it ensures they target those on the lowest incomes. But it also means that cost of living payments exacerbate pre-existing gaps in the benefit system (which we outline below). It is deeply disappointing that the DWP did not take the opportunity to refine the design of the cost of living payments in 2023/24 to overcome these.

The extent of hardship experienced during 2022 and 2023 would be considerably worse in the absence of cost of living support payments. However, our evidence from parents and carers on a low income shows that these payments only provide a “five minute breather” for families, because the value of benefits is so inadequate. The government must shift away from delivering temporary top-ups to social security towards sustained investment in social security to ensure that the benefit system provides families with an adequate income to meet their needs.

1. To what extent have the cost of living support payments been sufficient at helping eligible households meet the cost of essentials such as food and electricity?

Last winter, the Changing Realities research programme asked parents and carers on a low income across the UK how the cost of living support payments had affected them. Many reported that they were setting the money aside to pay for energy but some spent it on unexpected costs (such as replacing a broken fridge) or managing other costs (such as Christmas, rent and paying off existing debts).

While the cost of living support payments were welcomed by participants, they fell short of what was needed by parents and carers on a low income. Participants frequently described living in cold homes as a matter of financial necessity. As the quotes below make clear, the payments, at most, provided temporary relief. Families continue to face extreme financial pressure, tightly restrict their energy use and fear for the future.[1]

Victoria S, a single parent from England, describes how she spent one instalment of the cost of living support payment in November:

It hit my account quite early last month, and was gone within a day. I used it to pay off my budgeting advance for UC and some groceries. I was then able to get another advance out to pay for Christmas items for my children and pay towards some bills I've been falling behind on lately. It helped but on its own, if I hadn't used it to get an advance, it wouldn't have been enough to do much of anything. If they gave us that much extra every month then that would actually be helpful, but every now and then it just gives a five minute breather.

Artie U described how, despite the payments, she was still unable to put the heating on, slept with gloves on, and suffered from anxiety about the future:

I’m grateful for the payment, it helps ease my mind about food. The help means I know I can get enough food in the house, but honestly I’m still not able to put the heating on. Food bills and energy bills, and mortgage, have all gone up so much that although some help is better than none, it’s a drop in the bucket. Especially knowing that prices will go up again in January. It’s also knowing that they might not provide help next time things increase, so the future isn’t any less concerning. I’m disabled and my circulation is poor at the best of times. Not being able to turn on the heating means my joints are feeling stiffer and more painful. I'm sleeping with gloves on.

Lexie H, whose stairlift and rise and recline chair both require electricity, described how the extent of her financial hardship meant she was often confined to one room:

It won’t touch the sides to be honest, it’s just not enough, I’m going through £60 of electricity a week - it used to be £50 a fortnight. I honestly can’t keep up, I’m at a point of living in the bedroom so I don’t have to use my stairlift or rise and recline chair because we can’t afford to have them being used too, the stairlift has to actually be turned on at all times otherwise it can break it so that’s a little frustrating. I feel like my disabilities and need for specialist equipment is putting pressure on my family.

2. What role have the following factors played in access to the cost of living support payments:

a) Passporting: Not already being in receipt of certain means-tested benefits, despite being eligible, and consequentially being prevented from accessing emergency support;

In January 2022 the DWP announced that it would cease publishing the take-up rates of income-related working-age benefits.[2]  As a result, there is no data in the public domain to indicate how many people have not accessed cost of living support payments because they are not claiming a qualifying benefit, despite being eligible to do so.

Recommendation: Given the importance of benefit take-up data to effectively scrutinise social security policy implementation, the DWP should resume publishing data on UC take-up.  Although this data will be subject to additional uncertainty while legacy benefits remain in place, previous releases overcame this by publishing high- and low-end estimates.

The DWP’s research on the discovery phase of managed migration to UC found that some claimants on legacy benefits who were sent managed migration notices made “a conscious decision not to claim believing they are not eligible or that an application is not worth the effort”. [3] This highlights that the time required to manage a UC claim and incorrect perceptions about who is eligible for UC is likely to have deterred some people from claiming UC, and therefore they will have missed out on cost of living support payments.

Recommendation: Send reminder letters to tax credit claimants who do not respond to their managed migration notice within the first two months to explain 1) that they do qualify for UC and 2) that they will need to make a claim for UC in order to receive cost of living support payments in 2023/24.

Some people will miss out on cost of living support payments because they do not realise that they are not claiming an eligible benefit as demonstrated by the case below from CPAG’s Early Warning System:

A woman claiming contributions-based ESA wasn't initially signposted by the DWP to claim UC to top up her income. The claimant missed out on UC income for two years, worth £80 per month, and missed the qualifying date for first low income cost of living payment. P1055 30/08/2022

Recommendation: Notify claimants on contributions-based benefits and PIP who are not claiming UC to inform them that they could be eligible for UC which would enable them to qualify for cost of living support payments in 2023/24.

b) Cliff-edges: Not being in receipt of a certain means-tested benefit, because households failed to meet certain qualifying thresholds.

Having No Recourse to Public Funds (NRPF) is an immigration condition that disqualifies almost 1.4 million people from accessing means-tested benefits and hence cost of living support payments. Not all those subject to NRPF will have a low enough income to qualify for means-tested benefits, but those who do are prevented from accessing UC. Without access to UC and cost of living support payments, families affected by NRPF facing financial hardship are forced to turn to emergency provisions such as food banks, charitable support and discretionary local welfare assistance.

Recommendation: Abolish the NRPF condition. Failing that, provide additional funding through the Household Support Fund so local authorities can provide cost of living support to families affected by NRPF.

Being in receipt of maternity allowance (MA) can also prevent someone from qualifying for means-tested benefits and hence any cost of living support payments. MA may be available to women who do not qualify for statutory maternity pay (SMP) but the two are treated differently within the social security system. While SMP is treated as “earned income” under UC and therefore benefits from the work allowance and taper, MA is treated as “unearned income”. This means that anyone receiving MA who applies for UC has their UC award reduced by a pound for every pound of MA they receive. CPAGs Early Warning System has evidence that, because of this rule, some claimants are missing out on cost of living support payments.

A claimant was in receipt of maternity allowance instead of statutory maternity pay. Because of the different treatment of MA and SMP, she lost her entitlement to UC, missed out on cost of living payments and a Sure Start maternity grant.

Women in a variety of circumstances do not qualify for SMP and therefore have to claim MA. For example, women who are sick during their pregnancies, those on zero-hour contracts and seasonal workers, may not have earned enough during the relevant period to qualify for SMP. Additionally, self-employed women have no option but to claim MA, provided they satisfy the contribution conditions.

Recommendation: Treat MA like earnings under UC (in the same way as SMP). This would mean more women with young children could access the cost of living payment, as well as benefiting from the work allowance and the 55 per cent work earnings taper in UC, leaving them considerably better off.

c) Qualifying period anomalies: issues relating to the timing of benefit payments;

The current rules for all 2022 and the first of the 2023 Cost of Living Payments, are more favourable for legacy benefit claimants. To be entitled to a cost of living payment, a UC claimant must have been entitled to UC for an assessment period that ended within the qualifying date periods. Therefore, some people who started a claim for UC because they needed the extra support will have missed out on a cost of living payment as their first assessment period began but did not end within the qualifying date periods. Conversely, claimants on legacy benefits & tax credits receive a cost of living payment if they are entitled to one of those benefits on any day within the qualifying date periods.

The case studies below from CPAG’s Early Warning System shows how this affects people in practice.

Claimant worse off for cost-of-living payment purposes after moving from to UC from legacy benefits (through natural migration) in May 2022. If she had stayed on legacy benefits for the qualifying date of 25 May 2022, she would have received a cost of living payment. But, because her first UC assessment period had not ended by 25 May 2022, she could not get one.

A patient in rehabilitation unit claimed UC in May 2022 and did not qualify for a cost of living payment because his first assessment period ended after the qualifying period. If he’d been on any other benefit, he would have qualified on the basis of being eligible on 25 May.

Recommendation: Change the rules for cost of living payments in 2023/24 so that UC claimants qualify for a cost of living payment in the same way as legacy benefit claimants. If a claimant has UC entitlement at any point during the qualifying period, a cost of living payment should be made.

d) Receiving a nil award on a universal credit payment, due to reasons such as sanctioning

A claimant’s UC award is assessed on the basis of their earnings during a monthly assessment period. This means that those who are paid on a non-monthly basis invariably receive an ‘extra’ pay cheque in an assessment period (even when their earnings follow a consistent pattern) which will considerably reduce their UC payment, sometimes to zero. CPAGs Early Warning System has received multiple case studies of claimants who received an ‘extra’ pay cheque in the same assessment period as the qualifying period for cost of living payments and therefore did not get any UC or a cost of living payment that month.

A single 63-year-old woman is paid four-weekly and receives UC, however due to timing of wage payments her UC entitlement over the qualifying period for the second cost of living payment was £0. She is in arrears with rent and council tax which a cost of living payment would have helped to pay off. Instead, she is using the food bank.

A domestic abuse survivor who is paid weekly missed out on the second cost of living payment because the timing of her wages left her with a nil UC award in the relevant assessment period. She is in debt and her landlord is threatening to evict her from the property she has lived in for 20 years.

Recommendation: Change the rules for cost of living payments in 2023/24 so that UC claimants who receive a nil UC award in the qualifying period, but received something in their two previous assessment periods qualify for a cost of living payments. This would ensure that those who manage on a lower income but are subject to fluctuating earnings do not miss out on cost of living support.

Claimants whose UC payments were reduced to nil due to a sanction during the relevant qualifying period did not receive a cost of living payment. Official DWP guidance[4] provided no details of whether these claimants should be denied a cost of living payment.

When a claimant is sanctioned, they may be able to apply for a UC hardship payment, which is a payment of UC to provide basic financial support when sanctioned. A hardship payment is paid only for the sanctioned period of an assessment period. As hardship payments are payments of UC, if a claimant received a hardship payment during the qualifying period for cost of living payments, the claimant should be entitled to cost of living payments. There is no information or data on claimants who come within this group and CPAG is concerned that this group of claimants may be missing out on a cost of living payment.  

Recommendation: Ensure that claimants who received a hardship payment and who would meet the cost of living payment eligibility criteria, are paid the cost of living payment.

e) Any other technicality you believe the Committee should investigate

While far-reaching, the cost of living payments have not been made available to all people on a lower income receiving means-tested support from the DWP, notably, people who receive housing benefit. Others are not eligible for means-tested benefits solely because of the income they receive from contributory benefits and therefore miss out on cost of living payments. If either one of these issues were overcome, the following claimant would have been able to access cost of living payments.

A claimant on contributory-ESA did not realise that she was not getting means-tested ESA. She would satisfy the means test, but because of her work history, she was awarded the contributory-ESA instead. This never mattered until she discovered she would not be getting the cost of living payments as she wasn’t getting a qualifying benefit. She also receive housing benefit but, despite being means-tested, this is not a qualifying benefit.

We also received case studies of claimants who were wrongly refused cost of living payments despite being in receipt of income related ESA during the qualifying period, on the basis that contributory-ESA was their ‘main benefit’.

Recommendation: Extend eligibility for cost of living payments in 2023/24 to people who receive mean-tested housing benefit and no other qualifying benefit and to those who receive contributions-based ESA that includes some form of income or income-related ESA.

Sanctioned claimants who successfully challenge the sanction may become entitled to a cost of living payment retrospectively. Similarly, claimants may become entitled to qualifying benefits, such as disability benefits, retrospectively following revision or appeal. CPAG asked the DWP what would happen to claimants who became entitled to cost of living payments retrospectively and the DWP responded that ‘mop-up’ exercises would be taking place, to ensure those claimants with retrospective entitlement would be paid.  DWP has not published data regarding the progress of these ‘mop-up exercises’ and whether any claimants have received a cost of living payment retrospectively.

Recommendation: Ensure that effective systems are in place so that claimants with retrospective entitlement to a cost of living payment are paid and publish data on retrospective entitlement to a cost of living payment.

3. How has the Department’s ad-hoc payment system and its design and use benefitted or limited the delivery of cost-of-living support?

The DWP’s design of the of cost of living payments allowed the government to deliver targeted cash to support families at speed and scale. The design has three clear merits:

1. Eligibility for the payments is based on eligibility for means-tested benefits, so they target those on the lowest incomes and can be paid automatically.
2. The payments are made as cash transfers into recipients’ bank accounts, allowing families to decide how and when to use them.
3. The payments are made separately to benefits exempting them from the benefit cap (unlike the increase to local housing allowance limits and the temporary £20 increase to UC at the beginning of the pandemic).

Despite record levels of foodbank use reported in 2022/23,[5] the extent of hardship would be considerably higher in the absence of cost of living support payments.

The most obvious flaw in the design of the DWP’s cost of living payments is that eligible families receive the same amount regardless of family size. This makes them less effective for households with children, who spend 30 per cent more on energy than households without children.[6]

Using entitlement to means-tested benefits as the ‘passport’ to cost of living payments was a welcome decision as it allows the DWP to reach those on the lowest incomes. But it also means the cost of living payments design is incumbered by pre-existing issues with the benefit system such as the NRPF condition, the treatment of maternity allowance and the rigid monthly assessment of earnings. While we appreciate that the cost of living payments in 2022/23 were designed and delivered at speed, it is deeply disappointing that the design of the 2023/24 payments was not refined to ensure that more people on a low income were able to access the payment.

In the longer term the government must shift away from making last minute and temporary investments in social security which began during the pandemic and has continued into the cost of living crisis. Social security requires sustained investment to ensure that the benefit system provides families with adequate income and security, and enables society to withstand economic shocks.

May 2023