Written evidence from Citizens Advice Craven and Harrogate [UCW0045]

Citizens Advice Craven and Harrogate Districts (CACHD) covers a large area that includes several towns as well as most of the southern Yorkshire Dales. Harrogate district has been one of the first places covered in each stage of the rollout of Universal Credit and is now the pilot area for managed migration. At each stage we have been monitoring the impact of Universal Credit on our clients.

Summary

Any further interventions which seek to mitigate the effect of the five week wait for UC need to address the following:

• The structure of UC containing a five-week wait was devised on the basis that claimants have sufficient resources when they make their UC claim to manage all their household expenses and their housing costs for over a month. For many people this is not true.
• Anyone who doesn't have any income or savings at the beginning of a claim will be forced to make eleven months benefit stretch over twelve months. However if the claimant isn’t to fall in arrears with their rent the additional months rent will have to come out of their living costs so many will be having to make nine or ten months living costs element stretch over a year.
• Some people wait ten weeks not five for their first payment of more than a few pounds if they make their claim a day or so early and their final wage from their employer is paid just after they make their claim.

The problems created by the five week wait are aggravated by:

• The declining value of the benefit over the past five years means that monthly levels fall below what people need to live on. This is before any advance payment deductions.
• In addition many are having to pay part of their rent out of their living costs because the amount allowed in the housing costs element doesn't cover their rent. Many also have other deductions as well such as rent arrears and tax credit overpayments.

Recommendations

• The default length of an Assessment Period should be two weeks (and twice monthly for those with or changing to regular monthly earnings).

• Any wages should be attributed to the period in which they were earned and any costs such as rent or childcare should be attributed to the AP in which they were incurred.

Short term recommendations

• Final earnings from a job that have not been paid by the time the employee leaves should be treated as if they were paid on the final day of work.

• Extend run-on payments to cover all legacy benefits

Q1. To what extent have the mitigations the Government has introduced so far (e.g. Advance payments) helped to reduce the negative impact of the five week wait for UC claimants?

1. The five week wait for first payment in Universal Credit (UC) means that many of our clients have no option but to request an Advance Payment (AP) of UC but this has a serious impact on their income over the following year. Advance Payments initially covered only half of someone’s monthly entitlement – some households, particularly those in the private sector worried about losing their tenancy, prioritised using the AP to pay their rent and were left with absolutely nothing to live on – many others got into rent arrears. The subsequent change, allowing APs to cover someone’s monthly entitlement in full and extending the time to pay it back, is an improvement in the short term; however in the longer term this stores up further problems.

2. Advance payments are necessary because of the current UC structure, but create future financial difficulties for clients

Some people do not claim UC as soon as they lose their job – they use up savings while looking for other work. Even when their final earnings have run down they may take some time to find out how to claim and for some, difficulties in making the claim delay it still further. Others, such as mothers at home with children who are suddenly left by their partners with no income, have no income at all at the start of the application.

After her partner left her without warning, Lyn was struggling to manage the household costs on her income alone. She then lost her job as she was unable to get to work without her partner’s car. For a number of weeks, Lyn lived off her savings whilst actively seeking alternative work and trying to secure her tenancy. It was only when her savings had run out, that Lyn approached us for help and found out about her entitlement to UC. She claimed UC and requested an Advance Payment to live on through the five week wait. Lyn was left having to find contributions to her rent arrears and repay her Advance Payment all out of the living costs element of her ongoing award.

3.                                                                                                                                                                                                                                                                                                                                                          It in effect means that those claimants who need advance payments to manage through the first five weeks are expected to live for a year on a level of income considerably less than the basic benefit level.

How much are the repayments of Advance Payments for different households?

4. Under UC many households who need a maximum advance payment (AP) will find that the repayment, (even with the additional money announced in response to the crisis) will leave them at levels of income well below that they would have received in 2015 – some even before inflation is taken into account (see below). For example a couple household with two children paying rent of £800 a month will have a monthly repayment of AP £159/month – 15% of the living costs element of their benefit.

The declining value of benefits over the last 5 years

5. The standard level of benefit is now so low that many of our clients, whether in work or not able to work, are finding it increasingly difficult to manage financially. Referral to food banks has become commonplace, people coming to the CAB because they are destitute is not unusual.

Dianne sought advice from CACHD because the combination of deductions from her Universal Credit award, to repay an Advance Payment and other priority debts, meant that she did not have sufficient income to buy food for herself, her partner and her 12 year old child. CACHD referred Dianne to the local food bank and to the Local Authority for support meeting her family’s essential expenses. 

6. The basic living costs elements in Universal Credit and the legacy benefits were frozen from April 2015 until March 2020. For example in March 2020 a single person household received £317.82 a month, £43 less than if it had risen with inflation (to £361 a month). A couple household with two children received £1007.64 month - £137 less than if it had risen with inflation (to £1145 a month).

7.                                                                                                                                                                                                                                                                                                                                                          In addition there has been a range of measures that have further cut back levels of benefit such as the removal of the WRAG component of ESA/ limited capability for work element of UC and the removal of the family element for households with children; the freezing of LHA rates; and the under-occupancy charge. The relaxation of the benefit freeze announced earlier this year is good news but of itself it does nothing to address the huge drop in value of benefits over the last five years.

8.                                                                                                                                                                                                                                                                                                                                                          The two measures announced in response to the coronavirus crisis – the one year increase in living costs for a household of about £81 a month for each household on UC and the raising of Local Housing Allowance rates to 30% of local market rents - are obviously both very welcome. These measures need to remain in place permanently but even with these many including most families with children will not receive the same value of benefits as in 2015.

What problems do claimants still experience during the five week wait?

9. New claimants may be committed to costs, bills etc that they had previously been able to afford – such as rent in a tenancy agreement with several more months to run at a level that is higher than the amount allowed under the benefit system. Adjusting in this way is bound to be stressful but the five week wait exacerbates the problems. Some claimants do not take out a maximum AP because they are worried about how they will cope on such a reduced level of income for a year.

Unsurprisingly therefore, despite the APs, almost half of clients who we surveyed who are claiming UC said that they had borrowed from friends and family to get them through this period, about a third had used a food bank and just under a quarter had pawned or sold items they owned.

10. Those who have to move to UC whilst still in work and claiming childcare costs face particular problems as childcare payments (unlike in the taxfree childcare scheme or in tax credits) can only be paid in UC once the claimant has paid the childcare provider.

A client with a two year old was working fulltime in self employment but has had to reduce her hours to the free nursery hours she receives as when she claimed UC her tax credits stopped and she couldn't afford to pay her childcare costs in advance.

Some people have to wait 10 weeks from when they make their claim to receiving any, or more than a very small amount, of benefit

11. The principle behind the five week wait was that people would live on their final monthly wages during that month. This obviously doesn't work for those who were previously claiming weekly or fortnightly benefits or had been paid weekly or fortnightly, but there is also an additional hidden problem, especially for those paid monthly: we have seen a number of clients who were only entitled to a few pounds after 5 weeks and had to wait 10 weeks before they were entitled to their first full payment.

Mike went into the Jobcentre because his job was ending. He was advised to claim UC but after waiting five weeks he only received a few pounds. He rang the UC helpline to find out what had happened and was very angry to discover that because his final earnings were paid a few days after he finished work and just after he claimed UC, these had been taken into account as income for that AP. He had to wait another five weeks till his next UC payment. He had lost hundreds of pounds compared to what he would have received at the 5 week point had he claimed just a day or so later. He couldn't even claim an advance payment to get through the next five weeks as he was now in his second AP. Claimants in his situation are understandably extremely upset and angry that having done what seemed the sensible thing by claiming promptly they are left destitute and pushed to food banks, selling belongings and getting into debt and rent arrears.

12. This example shows that in terms of the wait for first payment those who finish work and then claim UC before their employer pays them - as was pointed out earlier – lose all or nearly all of their first payment of UC, they are in effect treated as if they had been working throughout that first five weeks and then been paid wages at the end of that AP.

Q2. What is the best way of offsetting the impact of the five week wait? AND

Q3. Are different mitigating options needed for different groups of claimants? AND

Q4. Are there barriers or potential unintended consequences to removing the five week wait—either for claimants or the Department? How can they be overcome?

13. Of the possible solutions mentioned we are concerned that extending the time to repay would extend the period even further that someone is living under basic benefit levels. We feel this is the least helpful solution.

14. The Alternative Arrangements more frequent payments option does not alleviate the issue of the five week wait in any way. It actually significantly exacerbates it as having waited 5 weeks for the previous month’s entitlement only half of that money owed is paid then the other half is retained by DWP and paid two weeks later – so seven weeks after the start of the claim.

Recommendations:

15. The default length of an Assessment Period should be two weeks (and twice monthly for those with or changing to regular monthly earnings).

16. Any wages should be attributed to the period in which they were earned and any costs such as rent or childcare should be attributed to the AP in which they were incurred.

17. Estimated earnings would be used in the AP before earnings for that month are known. In the same way as adjustments are made at the end of a year in tax credits so similarly would adjustments be made at the end of the month (or longer when necessary) when the actual costs and earnings that month are known. For self-employed people the period over which earnings are averaged would in some cases need to be significantly longer. 

18. These changes would smooth levels of income and greatly reduce the unexpected consequences for claimants of living with income that varies substantially even though they have regular earnings. They would also offer significant savings in benefit paid for DWP when the current system lifts claimants out of entitlement and therefore those earnings are not tapered (see below).

Would this be more complicated to implement?

19. For those with regular earnings - be they weekly, fortnightly, four weekly, or monthly - assigning average earnings to the period they were earned in, should be able to be automated and therefore create little extra admin.

20. There may be additional admin work needed for those moving in and out of employment and when employers make one-off payments covering money owing from earlier months.

Initial smaller steps

21. It is urgent that the problem of the wait for first payment by those who finish work and then claim UC before their employer pays them and so lose much or sometimes all of their first payment of UC,  is tackled.

• Final earnings from a job that have not been paid by the time the employee leaves should be treated as if they were paid on the final day of work.

22. It makes no sense that there is a run-on of out of work benefits for adults but no run-on for children.

• Extend run-on payments to cover all legacy benefits

-          Is it possible to estimate how much this would cost the Department?

-           

Likely costs of changing the default length of an Assessment Period to two weeks.

23. This would frontload payments to the beginning of the claim but that of itself would not increase the costs of benefit paid. It might necessitate some run-on costs as in the legacy system especially for those who move into work paid monthly. For those on zero hours contracts there may be some increased costs from better take up as it would respond much better to their fluctuating earnings. There may be some additional admin costs.

24. There would be some additional costs in treating any final wages paid after a claimant leaves employment, as if they were received on their final day of work. However, whilst only a minority of claimants claim before their final wages are paid, those that do claim a day or two 'early', may receive no UC in their first UC payment, or lose out on hundreds of pounds. It is unfair to have a system that saves money simply through new claimants not understanding its complexity. Clients who have come to us after this happened to them feel angry and tricked by the system.

Likely savings

25. In general attributing someone’s earnings to the period in which they were earned would be likely to produce savings in benefits paid. Some claimants on low wages who have a work allowance lose if they have two wages taken into account one month and then none the next month as they lose the value of their WA. However many claimants actually get more UC as a result of having two wages whether monthly or four weekly (or three wages when paid fortnightly) taken into account in some of their APs as this lifts them out of entitlement to UC in those months so those earnings which would otherwise be tapered are not tapered. Despite this most claimants we speak to would rather have regular predictable payments. So attributing earnings to the period in which they were earned would save DWP money and most claimants we have spoken to would prefer it

- Is it possible to estimate any costs or savings to third parties (for example, support organisations?

26. Assisting people struggling with the wait for the first payment and the complexities caused by the rigidity of Assessment Periods creates a lot of the issues for which we need to give advice and support. This obviously has a cost.

27. Many people need support to cope with the fluctuations in their income caused by the way UC works.

28. Advice has also become much more complex. Up to now we have always had a system where if you suddenly need financial support the straightforward advice would be make a claim as soon as possible, you couldn't lose money by claiming early. This is no longer true, under UC you face a loss of hundreds of pounds and waiting more than 10 weeks for first payment if you claim on the ‘wrong day’.

April 2020