Written evidence from London Councils [UCW0054]
1.1 London Councils represents London’s thirty-two boroughs and the City of London; making the case to government, the Mayor and others to get the best deal for Londoners and to ensure that our member authorities have the resources, freedoms and powers to do the best possible job for residents and local businesses.
1.2 London Councils is grateful for the opportunity to submit evidence to the Committee on our member’s ongoing experience of Universal Credit (UC). The information contained in this submission reflects the experience of London Councils member authorities in supporting their residents with UC.
1.3 The first testing of the current UC full-service system commenced in Sutton 2014, before expanding to other London boroughs, such as Southwark, Croydon and Hounslow, in 2015. As such London local government has had more than five years experience of UC and this has provided a wealth of evidence of its impact on claimants which forms the basis of this submission. As of November 2020, 338,564[1] households were in receipt UC across London’s 33 local authorities.
1.4 The London experience of UC has been that it places both claimants and local authorities in a position of financial insecurity. This largely arises from the five-week wait and a failure to recognise claimant vulnerability and adapt accordingly. In order to mitigate this impact London Councils is calling for the introduction of non-repayable grant to support claimants through the waiting period.
2.1 A series of changes have been made to UC since the introduction of full-service that are intended to lessen the negative impact of the waiting period. These are as follows:
2.2 There is evidence that some of these changes have had a positive impact. Independent research commissioned by Southwark Council, and carried out by the Smith Institute, found there to be a noticeable decrease in the levels of rent arrears accrued by council tenants moving onto UC after the introduction of the Housing Benefit run-on payment and the removal of the seven day waiting period[2]. Over a 32-week period a group of tenants who claimed UC in 2018 (after these changes) had 10 per cent rent arrears, compared to 12 per cent for a group who claimed in 2016 (prior to these changes). However this level of rent arrears is still significantly higher than that typically experienced under Housing Benefit. This suggest that, despite some improvements, UC continues to leave claimants with financial shortfalls that leads them to underpay their rent. Further research undertaken by the Smith Institute with evidence from 12 London boroughs confirms that UC claimant continue to amass significant rent arrears. The interim findings of this research are summarised in the answer to question three.
2.3 Evidence on the impact of advance payments is more mixed. Some claimants take them gladly, while others are unaware of their availability and a significant proportion are hesitant to go into debt. Research conducted in Tower Hamlets found that 35 per cent of claimants surveyed had taken an advance payment[3]. Of those that did not take a payment 41 per cent were worried about taking out a loan or did not think they would be able to afford repayments and 37 per cent had not realised advances were available.
2.4 Boroughs report they need to work closely with residents when recommending they access advance payments as the repayments may not be affordable and can have a knock-on effect on their accommodation costs. Access to good advice is essential as existing debts should be considered and residents should be supported to understand that it may not be beneficial to take the full advance.
2.5 At best advanced payments are a temporary solution that can tide claimants over the initial five-week wait but only at the expense of embedding a financial shortfall into the UC claim during the repayment period. Claimants who take advance payments often struggle in the following months as repayment of the advance and other debts can leave them with a significantly reduced UC payment. This is particularly challenging for claimants for whom even their full UC amount is insufficient to meet their essential costs, including those receiving less on UC than they did under the legacy system. The repayment of advances can lead to claimants being unable to afford essential goods and non-payment of the utility bill and rent, further entrenching their indebtedness.
2.6 While the two-week Housing Benefit run-on payment has provided some welcome additional support, its impact has been limited. Firstly, this is because the payment is only for two weeks of housing costs, leaving a further three weeks of rent that still needs to be met, and secondly it is only available to existing Housing Benefit claimants. As a result of the COVID-19 outbreak many of those now in the process of claiming UC will be claiming for the first time and will not have a pre-existing legacy claim, so will not receive any of the two-week run-on payments. This means that the system financially penalises new UC claimants by providing them with less support.
2.7 The reports of an unprecedented number of new UC claims arising from the COVID-19 outbreak and the difficulties faced by DWP in processing these claim raises concerns about access to advance payments. New claimants are experiencing delays in being able to access the UC website and extremely long waiting times for telephone contact. Coupled with the suspension of face to face meetings with work coaches and the understandable focus of DWP staff on claim processing this could result in new claimants not being offered advance payments or experiencing difficulties in accessing them.
3.1 Boroughs report that the majority of UC claimants begin their claim already in a position of financial insecurity. New UC customers are either transferring from a legacy benefit, in insecure and low-income employment or recently unemployed – in all these case customers are likely to have no savings and are often already in debt. The policy design of UC, in particular the built in five-week waiting period, serves to deepen this financial insecurity, which can be made even worse if the first payment is delayed. These claimants can then require emergency assistance with food and other expenses.
3.2 Where claimants lack savings or other means of meeting their household costs during the five-week wait they are forced to go into debt. The previously mentioned Tower Hamlets research found more than half of surveyed UC claimants (57 per cent) borrowed money from family or friends while waiting for their first payment, while 27 per cent did not pay their utility bills, 23 per cent did not pay their rent and 8 per cent took out a credit card. Nationally, Citizens Advice has found that debt problems are more common it’s clients requiring help with UC than those claiming legacy and the wait for an initial payment leaves half of the people Citizens Advice helps unable to keep up with bills, rent or essentials.
3.3 The five-week wait has led to a dramatic decrease in rent collection for tenants transitioning to UC, with many immediately falling into rent arrears. Research by Southwark[4], which was one of the first London authorities to have the full service introduced, has shown that rent arrears for UC claimants continue to be much higher than housing benefit claimants, even many months into their claim. Further research commissioned by Southwark and coordinated by London Councils on the impact of UC on rent arrears for tenants of 12 London boroughs has confirmed the continuation of this trend.
3.4 The research, carried out by the Smith Institute, looks at the experience of council tenants who claimed UC in July, August and September 2019. Although the research is still ongoing the interim findings show that 64 per cent on tenants who claimed UC in that period saw a significant increase in rent arrears. Cumulative arrears rise sharply when tenants first claim UC before plateauing approximately 12 weeks into their claim. Although arrears generally stop increase further they remain at this level and do not get paid down, suggesting that the five-week wait creates a spike claimant debt that they are unable to pay off. Three months after claiming UC the average arrears per tenant was £241.
3.5 This level of arrears not only poses a significant, ongoing financial risk for local authorities and other social landlords, it also places claimants in danger of becoming homeless. Of even greater concern is the potential impact on private sector tenants, who face higher risks of being made homeless.
Case Study: Tenant A
A council tenant with no history of rent arrears recently lost their job and as a result claimed UC. This tenant struggled financially during the waiting period and was unable to pay their rent. They were on the mutual exchange register for some time and just as they found an appropriate swap, but were blocked from taking it up because of the rent arrears accrued as a result of the UC waiting period.
3.6 In the context of the ongoing COVID-19 pandemic the five-week wait will exacerbate the financial insecurity of those affected. The majority of those who have lost employment as a result of the outbreak work in low-pay and insecure jobs, with little opportunity or ability to build up savings, while those that work on zero-hours contract have been made unemployed with little or no notice. These claimants will require immediate financial assistance and cannot afford to wait five-weeks for their first payment. There is also the very real concern that UC systems could become overloaded and result in significant delays in claim processing times.
3.7 The pandemic has and is continuing to exacerbate market scarcity and supply chain difficulties. The impact of this is that the price of food is rising. If people cannot identify supplies through reasonable supermarket prices they are forced to rely on smaller retailers whose prices have risen significantly. These factors combined with the five-week wait mean our members are already reporting unprecedented demand on local welfare services. Urgent action is necessary to ensure those affected by COVID-19 can access their UC payments in a timely manner to avoid financial hardship.
4.1 The five-week wait is central to the system design of UC and removing it would require a wholesale redesign that could take years to deliver. Those now claiming UC as a result of the COVID-19 outbreak require immediate solutions and cannot afford to wait. As a result any worthwhile measure to offset the impact of the five-week wait must be deliverable in the constraints of the current system.
4.2 In the view of London Councils, the simplest and fairest way to fully nullify any negative financial consequences arising from the waiting period would be to replace advance payments with a non-repayable grant. Like the existing advance payments, this grant would be based on an estimate of the claimants UC entitlement and can be paid immediately upon a UC claim being verified. Claimants could be automatically paid the grant without the need to request it, removing the existing inconsistency over which claimants are aware of and/or offered an advance payment. This change could be quickly implemented utilising the existing advance payment infrastructure.
4.3 The implementation of a non-repayable grant would remove the need for the existing Housing Benefit run-on payment and the forthcoming two-week payments for claimants of JobSeekers Allowance, Emloyment and Support Allowance and Income Support. These payments could be abolished, simplifying the system, reducing administrative burden and removing the existing unfairness whereby claimants transitioning from the legacy system receive greater support than new claimants.
4.4 The introduction of a non-repayable grant would relieve pressure on organisations currently supporting claimants through the five-week wait, including councils and foodbanks. It would also reduce demand on council discretionary support services such as Discretionary Housing Payments and Local Welfare Assistance schemes. Freeing up resource from these schemes currently used to support UC claimants wold enable to targeting of funds on more proactive interventions which could create savings for the public purse.
5.1 The introduction of a range of different mitigations for different groups of claimants would be cumbersome to administer and run contrary to the government’s stated goal of simplifying the benefits system. The introduction of an up-front grant for all claimants would already be tailored to the needs of groups of claimants as it would be based on an estimate of their UC entitlement, therefore already taking into account their circumstances. For example claimants with children or those with a disability would receive a larger grant.
5.2 If the government wished to limit the cost of mitigation or target it to particular groups they could introduce eligibility criteria for the grant. For example only claimants without savings or those with a particular vulnerability or financial needs could be eligible for receipt of grant.
5.3 Beyond mitigation for the five-week waiting period it is our view that the government needs to do more to ensure support is available for vulnerable claimant who struggle with UC and that local authorities are best placed to deliver that service. The DWP funded Help to Claim service supports households to claim Universal Credit but there is no funding for support to help claimants manage their claim beyond their first payment.
5.4 Prior to the COVID-19 outbreak work coaches only had fifteen-minute appointments with existing claimants and have no way to identify vulnerability on the system. Work Coaches cannot be expected to be experts on every area of vulnerability and given these constraints effective support is reliant of the supply of services from other organisations. Where local authorities are currently able to provide services, they form a crucial part of the support package for vulnerable claimants.
5.5 Frontline UC staff were already working close to capacity prior to the crisis. As the UC caseload increases JobCentre Plus will not have sufficient resource to continue delivering the few enhanced support services that are currently available. This would call into question the sustainability of DWP’s existing delivery model for supporting claimants. Funding for local welfare support would efficiently reduce the burden of service delivery on JobCentre Plus and thereby allow a better functioning of UC with less risks to claimants.
5.6 London Councils believes that local authorities are best placed to identify the needs of their vulnerable residents and locally integrated support remains the most effective means of meeting those needs. Local authorities should be funded to support residents with their housing costs not met by UC, providing locally tailored early help and support for the most vulnerable and supporting low income households to close the gap between income and outgoings.
6.1 The only barrier to negating the impact of the five-week wait through the provision of a grant is the associated cost to the treasury but given the improved outcome for claimants in increased financial stability and reduced debt it is a cost worth bearing. The payment of grants could be open to abuse through fraud and DWP would need robust systems in place to prevent this.
April 2020
[1] Stat-xplore
[2] Safe as Houses 3, the Smith Institute, August 2019
[3] Worse Off: the impact of universal credit on families in Tower Hamlets, Child Poverty Action Group, October 2019
[4] Safe as Houses 2, Smith Institute, November 2018