Written evidence from Child Poverty Action Group [UCW0058]

About CPAG and our sources of evidence

Child Poverty Action Group 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 have particular expertise in the functioning of the social security system, through our welfare rights, training and policy work. We author and publish ‘The Welfare Rights Handbook’ (the annual authoritative guide to social security in the UK), and provide specialist advice to frontline advisors through a telephone and email service. 

CPAG’s Early Warning System (EWS) collects case study evidence from advisors across the UK on the impacts of welfare reform and has collected thousands of cases to date. We have also carried out original research into the impact of universal credit, through quantitative analysis and interviews with claimants and stakeholders. In putting together this submission we have drawn on all these sources of information.

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

1. Advance payments have helped to reduce the financial shortfall between applying for universal credit and receiving the first payment. However, they are not a good solution, because taking an advance payment now leads to financial difficulties further down the line, as subsequent payments have large deductions.

2. These financial difficulties are likely to be sizeable. Even without deductions to universal credit, we know that millions of households live below the poverty line. Deductions push the most vulnerable households deeper into poverty. Nearly a third of all universal credit claimants (56% of subset of claimants who have deductions) have deductions greater than 20% of the standard allowance.[1] The EWS regularly receives reports of people pushed into destitution because of deductions - “a client who had stayed in a refuge due to domestic violence is reliant on a foodbank because recovery of the advance is leaving her without enough to live on. She has other debts too and can’t afford the universal credit deductions”.
3. It is important to note that not all deductions are due to advance repayments, although the majority of deductions are. In August 2019, universal credit deductions totalled £94 million of which £50 million (53%) was due to advance payments.[2] Scaling this figure up means that every year £1.1 billion is taken away from the poorest households in society, including £600 million due to advance payment repayments.
4. On a separate but related point, there should be regular statistical releases on advances and deductions. DWP clearly possesses the ability to release this information as it does so on an ad-hoc basis.
5. The introduction of a 2 week run on to housing benefit have, to some extent, helped some households who were previously on legacy benefits. However, an additional two weeks of just one component of legacy benefits is nowhere enough to sustain a household for five weeks. Also many households, especially new claimants due to  coronavirus disease (COVID-19), were not on legacy benefits and therefore will not benefit from this run on.
6. Claimants still have a variety of problems before receiving their first universal credit payment. In a study CPAG carried out in Tower Hamlets, many claimants lacked the English language and digital skills required to make their claims, and some had to rely on their children or support workers for help.[3] This means that there is often a substantial delay between starting a universal credit application and submitting it. Currently, payments are not backdated to when someone first started filling in the form, meaning vulnerable households  are pushed even further into debt. A recent legal case ruling stated that not backdating “provides precious little solace for the digitally excluded who have a go by themselves without assistance and persevere to complete their claim some days (or possibly even a few weeks) later (subject to the 28 days rule)”.[4]
7. Some households, in particular families with disabilities, may not be able to get an advance that covers their day-to-day needs. This is because currently advances have to be paid back in maximum 12 months and the maximum monthly payment is 40% of the standard allowance. This means that in effect the advance is  capped at just below £2000 (409.63 x 12 x 40%). A family with high housing costs where someone is disabled could easily have costs/benefit entitlement of over £2000 (they are exempt from the benefit cap due to disability).
8. Even after the five week wait, 13% of universal credit claimants did not receive all  of their first payment on time.[5]  The EWS  regularly receives reports of families who have to wait far more than five weeks, or who only receive a fraction of their total universal credit entitlement after five weeks. “Grandparents claiming universal credit when start looking after grandchild. Disabled partner unable to leave home and other partner carer.  Delays in home visit for verification left claimants without income, further delay after visit before payments started”.

What is the best way of offsetting the impact of the five week wait? Is it possible to estimate how much this would cost the Department? Is it possible to estimate any costs or savings to third parties (for example, support organisations)?

9. The best way to offset the impact of the five week wait is to make advances non-repayable. This would ensure that households do not have to choose between either substantial immediate financial difficulty (if no advance), or sustained financial difficulty for a year (due to repayment of the advance).
10. The Secretary of State for Work and Pensions suggested that making advance payments non-repayable would be very difficult to implement, as it would require changes to the universal credit computer system.[6] However, we have a different view. CPAG has been working with Med Confidential to conduct an analysis of the universal credit computer system and the implications of digitisation on access to justice. We understand from Med Confidential's analysis of the system that making advance payments non-repayable would require some minimal technical actions as advance payment deductions are currently automated, but as a large government system that is reported to be agile in its development, such as change could be supported.  Moreover, the risks to this change could be managed, in the same way that changes are made to large pieces of government ICT infrastructure, for example within the NHS.[7]
11. It is possible to estimate how much this would cost DWP. In order to do so we need an estimate of the total value of advance repayments due, in addition to the cost of non-repayable advances for new universal credit claimants.
12. In order to estimate the value of advance repayments due, we need to estimate the number of new universal credit claimants in each of the last twelve months (the standard payment schedule), as well as the average advance payment per claimant per month (averaged across households that claimed and those that did not).
13. We know that in August 2019 the total value of advance payment deductions was £50 million.[8] In the year preceding August 2019 there were 1 million new universal credit claimants.[9] This means a reasonable estimate for the average monthly advance repayment per new claimant is £50.
14. In recent times, the flow of claimants on to universal credit has been around 100,000 a month. This means there are 100,000 claimants 11 months into claiming universal credit, 100,000 10 months in and so on. Applying the £50 per claimant per month figure means the cost of writing off current owed advance payment repayments for the standard flow of universal credit claimants would cost £390 million.
15. However, COVID-19 has seen a massive spike in the number of new universal credit claimants and consequently advance payments. There has been a reported 365,000 claims for advance payments since the outbreak of coronavirus.[10] Over this period we would standardly expect about 100,000 claimants, where the majority ask for an advance.[11] This leaves about 300,000 advance payment claims  due to COVID-19. This is a much lower rate than the standard share of new universal credit claimants who request an advance. This may be because they have higher initial savings (as those previously not on benefits are likely to be better off, on average, than existing universal credit claimants) or because the true number of requested advances is higher.
16. In order to estimate the total cost of the 300,000 COVID-19 related advances, we need to get an estimate for the average advance among those that claimed (the £50 per month does not apply as that was an average over all claimants). In November 2019 (latest figures available) the average monthly payment per household was £720.[12] Since then there has been a £20 per week uprating, so the average monthly payment per household will be around £800. This means that the cost of writing off advances for COVID-19 related claimants will be about £240 million. However, the average requested amount might be higher than £800, as claimants are more likely to be out out work, or lower, as they are probably less likely to have children (most low-middle income families are already on benefits due to higher cost of children and greater benefit entitlement).
17. Making advances non-repayable for new claimants would mean that practically every household would want an advance, as there is no downside to claiming one. Although this will increase the cost of non-repayable advances this should be seen as a good way to get money into the pockets of households when they need support from social security the most, without fear of high repayments further down the line. In order to estimate the cost of non-repayable advances on new claimants we need to know the number of new claimants each year and their average universal credit payment.
18. If we assume, in a standard month there are 100,000 new claimants, this works out as 1.2 million new claimants every year.  Applying the £800  average advance estimate means that the cost of non-repayable advances for new claimants will be around £960 million a year.
19. Although these are sizeable figures, against a backdrop of £36 billion cut from social security since 2010, these are small amounts that would stop millions of vulnerable households falling deeper into poverty.[13] In addition, these are one-off payments; once migration to universal credit is complete, the cost of non-repayable advances to new claimants will reduce significantly.
20. Another option which could be used in conjunction with non-repayable advances is shortening the assessment period. Moving to a weekly (or fortnightly) assessment period would significantly reduce the time before receiving the first payment, as well as the size of the advance payment. It would also make universal credit more responsive to changes in circumstances. Currently, if people move house mid-month, for example, they only receive help with rent on the basis of where they live on the last day of their monthly assessment period, even if they lived elsewhere for most of the month. It would also help align universal credit payments with the large share of universal credit claimants who are paid non-monthly.[14]
21. We believe that shortening the assessment period should be fairly easy with the universal credit system. As with making advances non-repayable, changing the assessment period would require minimal technical actions that should be feasible in a large, reportedly agile government system.
22. It is not possible to put a precise figure on the savings to third party organisations although they are likely to be sizeable. The five week wait is particularly detrimental for the most vulnerable households, the people whom support organisations spend the most time helping. Trussell Trust found that there was a 52% increase in food bank use in areas where universal credit has been live for a year, and a key contributor to this was the five week wait.[15]
23. In addition to savings to third party organisations, taking further steps to mitigate the impact of the five week wait would have a social return on investment for individual claimants. We know from our work providing benefits advice to parents and carers in London primary schools that new claimants of benefits are often struggling with health issues, including mental health issues such as stress and anxiety, and may be struggling with existing debt issues or housing problems.[16] All of which may be positively impacted by the introduction of measures to address the five week wait.

Are different mitigating options needed for different groups of claimants?

24. There is no inherent reason why different mitigating options are needed for different groups of claimants. Making advances non-repayable or having a shorter assessment period could be applied to all groups of claimants.

25. If another solution is preferred, it is important to be clear on which sub-groups would benefit and which would not. For instance, increasing the run on of legacy benefits would help claimants who previously were on legacy benefits, but would mean that other claimants miss out.

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

26. One potential barrier is deciding the amount that different households should receive as an advance payment. When advances are repayable there is no additional cost to DWP of mis-estimating a household's entitlement as if they give out too much initially, they will recoup it back anyway in higher deductions over the rest of the year.

27. However, this barrier could be overcome by having a system where if the advance is greater than the first universal credit payment (or average of first 3 months) than that amount is deducted from future payments.

28. Another potential barrier is that giving people non-repayable advances goes against the universal credit principle of paying people in arrears to prepare them for the world of work. However, we fundamentally believe that this was never a desirable principle. It is false to assume that people on benefits need to be 'prepared’ for work. Many claimants are already in work and those who are not generally have a good reason for not working – between jobs, health barriers, young children or a global pandemic.  This is why we pool resources through our social security system – to spread the risk. Also a precarious labour market and large cuts to social security since 2010 mean many households do not have enough money to cover their basic day-to-day needs.  It is therefore unsurprising that the majority of low-middle income households have no savings.[17] The social security system should provide immediate support for people in times of need, without them being indebted to the government.

April 2020