Written evidence from Robyn Fawcett, Prof. Alex Nunn, Dr Emily Nunn [UCW0033]

Introduction

1. This briefing note summarises some early interim findings from a Doctoral research project,[1] on the experiences of Universal Credit claimants. The full project will be complete in 2022.

2. This note summarises a short additional study as part of this project, which was launched shortly after the beginning of the Coronavirus crisis.  It is based on data from a survey of 107 new Universal Credit Claimants[2] (in the field between 20 March and 14 April), follow-up (telephone) qualitative interviews with 6 people from the survey, as well as 3 participants from the longitudinal stream of the PhD study.

Summary of Key Points

3. Coronavirus is negatively affecting Universal Credit claimants with large proportions of new claimants reporting strong concern about the impact on their job prospects, economic wellbeing and ability to access/ purchase essential items.

4. People claiming Universal Credit as a direct result of the current crisis were particularly worried about their economic circumstances.

5. As reported by previous research Joseph Rowntree Foundation[3] , The National Audit Report[4] Citizens Advice.[5] The wait for the first payment was a significant concern for new claimants.  Current delays in claim processing, lack of certainty over benefit amounts and first payment dates, coupled with knowledge about the wait were causing distress for claimants.

6. The Coronavirus crisis dominated claimants worries, about waiting for their first payment, particularly concerning their economic wellbeing and employment prospects; guidance on work searches and a lack of clarity regarding their first payment date

7. Despite reporting financial hardship and needing to borrow money from other sources, most respondents did not apply for an Advance Payment, principally because of concerns over-indebtedness. Those who did said this was necessary, but many also borrowed from other sources at the same time.

8. Uncertainty, financial hardship and emotional distress mean that is is extremely difficult to plan and budget, making it more likely that claimants will take on problematic debt or continue to work in unsuitable circumstances during the current crisis. 

9. While this uncertainty may in some circumstances and labour market contexts enhance job search incentives, this is clearly not desirable in the current context, or in any context where labour market demand is not robust or where realistic job prospects are insecure or low quality.  As such, a scheme of immediate payments without this being treated as a ‘debt’ to repay would reduce distress and assist in better budgeting and decision making.

10. There are several options to deal with these problems including abolishing Advance Payments and moving the first payment forward or making Advance Payments automatic and either delaying their repayment until claimants have moved into work or extending the repayment period to two years.

To what extent does the Advance Payment help Universal Credit claimants?

11. Three-quarters of the sample did not apply for an Advance Payment – 75% (n=60). 

Of these over half 59% (N=44) reported they ‘strongly’ or ‘somewhat’ agreed that they did not do so because they were worried about accumulating (and repaying) debt.

12. Nevertheless, only 30% (n=43) of those who did not apply for an advanced payment reported that they were able to rely on alternative financial sources. Meanwhile, 37% (n=43) reported stated they were not offered an Advance Payment.

13. Most of those who took an Advance felt they had ‘no choice’ but remained very concerned about how they would manage their repayments. A concern exacerbated because respondents were not provided with a date for their first payment, making it difficult to budget in the meantime, making it challenging for claimants to budget and plan. A concern which was made worse by increased claim levels resulting in delays.

14. Those who did successfully apply for an Advance Payment said this was positive inasmuch as they needed the money and that it reduced the amount that they would borrow from elsewhere. In this sense, Advance Payments are necessary and can advoid or reduce more problematic debt burdens. Nevertheless, most people who had received an Advance Payment still said they needed to borrow from other sources at the same time.

What other problems do claimant’s experience while waiting for their first payment?

Coronavirus

15. Most claimants, waiting for their first payment, encountered added pressures because of the global Coronavirus pandemic.  Just over half of our respondents stated they lost their job or experience reduced hours because of this.  Unsurprisingly, respondents as a whole reported concerns about this:

• 86% (n=63) reported a strong concern that Coronavirus would negatively impact their household’s economic wellbeing.
• 72% (n=57) reported that they were concerned about the impact of Coronavirus on the processing of their Universal Credit claim.
• 66% (n=65) reported a strong concern that Coronavirus would negatively impact their ability to look for work.
• 75% (n=61) reported a strong concern that Coronavirus would negatively impact their ability to find work.
• 74% (n=65) reported a strong concern that Coronavirus would negatively impact their job security. The most likely to be unemployed in the current environment are self-employed people.

Illustrating this, one respondent said:

Job search support

16. The DWP [6] emphasises the importance of claimants meeting their commitments, including searching for work for up to 35 hours a week. However, 85% (n=84) of respondents stated they had not been given guidance on searching for work during the lockdown. Those who were given guidance were more likely to have been claiming before the crisis.  Recent claimants appeared to have been advised that normal job search expectations were not being applied. Still, some reported that this left them uncertain about expectations and without advice and support in how they might undertake job search in the current context. 

Financial insecurity

17. Previous research[7] found 2 out of 5 families were ‘destitute’ while waiting for their first payment. We asked participants about their ability to manage financially during the waiting period:

• 76% (n=58) of claimants felt unable to meet their bills while waiting for their Universal Credit claim to be processed.
• 55% (n=58) of claimants were unable to buy essential goods while waiting for their first payment.

This had significant consequences for financial, physical and emotional wellbeing for entire families.  One respondent commented:

Debt

18. Citizen’s Advice[8] found that Universal Credit claimants were more likely to be in debt, because of the 5-week-wait than under legacy benefits. Our research asked respondents to provide additional information about their claim, concerns about increasing existing debts or spiralling into debt were common. An issue which was exacerbated by most respondents not being told when they would receive their first payment. As one respondent said:

Conclusions

19. The current context is strengthening the negative outcomes that are already widely noted for Universal Credit claimants while they wait for their first payment. While recent changes such as increased payments and the extended Advance Payment repayment schedule are welcome, the five-week remains a significant cause of economic and emotional distress for claimants.

20. Recent research illustrates[9] unemployed people, claiming Universal Credit are 6.5% more likely to experience clinical psychological distress, than the rest of the population[10]. Wider evidence[11] illustrates the immediate financial distress from the Advance Payment and the waiting period, increasing mental health issues, poor quality decision making and problem debt.[12] This adds further harm to the most economically vulnerable section of society[13]. 

21. When there is strong demand for labour, there may be a rationale for a delay in the first payment to incentives immediate job search, helping jobseekers to stay in work and avoiding the negative financial, health and wellbeing effects of unemployment.  However, this needs to be balanced against the already widespread evidence of negative consequences, and in the current context, this rationale has little merit. 

22. Our respondents reported accruing debt from other sources and avoiding Advance Payments as a result of financial uncertainty and concerns about indebtedness within the benefits system.  Few of our respondents had applied for an Advance Payment as a consequence.

Recommendations

1. One option now is to remove the system of Advance Payments, and the psychology of debt and administrative costs of repayments that are associated with it. Instead, this might reasonably be replaced by moving the first payment forward.  This would result in an additional months Universal Credit payment for all claimants. While this would undoubtly be costly, the marginal utility of the additional payment would likely be close to 100%. It would, therefore, constitute an additional ‘automatic stabiliser’ to the economy, far more effective than loan guarantees to banks or large businesses in terms of the multiplier effect it generates.

2. A second option would be to make Advance Payments automatic and to trigger the repayment only once a claimant has moved into work.  The overall revenue effect of this would be neutral, but spending would be brought forward.

3. A third option would be to make Advance Payments automatic and to extend the repayment period to two years, reducing the effect on monthly budgeting.  Again, the overall revenue effect of this would be neutral, but it would bring spending forward and delay receipts.

4. Lastly, we believe the best way to help offset the confusion experienced by claimints, during the 5-week-wait is to clearly define claimant commitments from the beginning of the claim. We believe this can be achieved through:
1. More guidance on claimants job search requirements, on the work journal and advice on manging the work search.
2. Provide claimants with a first payment date as standard.
3. If Advance Repayments remain, ensure claimants are appropriately informed of the amounts to be repayed, with a payment schedule, to help with budgeting.

References

Alston, P. (2018) Statement on Visit to the United Kingdom, by Professor Philip Alston, United Nations Special Rapporteur on extreme poverty and human rights. Available at: https://www.ohchr.org/Documents/Issues/Poverty/EOM_GB_16Nov2018.pdf [Accessed Thursday 1st April 2020]

Barnard, H. (2019) Briefing: where next for Universal Credit and tackling poverty? Available at: https://www.jrf.org.uk/report/where-next-universal-credit-and-tackling-poverty [Accessed Thursday 9th April 2020]

Drake, C. (2017) Universal Credit and Debt Evidence from Citizens Advice about how Universal Credit affects personal debt problems Available at https://www.citizensadvice.org.uk/Global/CitizensAdvice/welfare%20publications/Universal%20Credit%20and%20Debt%20-%20final.pdf [Accessed Friday 10th April 2020]

Lane., J. (2016) A debt effect?  How is unmanageable debt related to other problems in people’s lives? Available at: https://www.citizensadvice.org.uk/Global/CitizensAdvice/Debt%20and%20Money%20Publications/The%20Debt%20Effect.pdf [Accessed Tuesday 14th April 2020]

National Audit Office (2018) Rolling Out Universal Credit. Available at: https://www.nao.org.uk/report/rolling-out-universal-credit/ [Accessed  Wednesday 15th of April 2020]

The DWP (2019) Universal Credit and your claimant commitment

https://www.gov.uk/government/publications/universal-credit-and-your-claimant-commitment-quick-guide/universal-credit-and-your-claimant-commitment [Accessed Tuesday 7th April 2020]

Wickham, S., Bentley, L., Rose., T., Whitehead M., Taylor-Robinson., D and Barr., B. (2020) Effects on mental health of a UK welfare reform, Universal Credit: a longitudinal controlled study. Lancet Public Health. 5., pp157-164

April 2020