Written evidence from Shelter [UCW0070]

Shelter helps millions of people every year struggling with bad housing or homelessness through our advice, support and legal services. And we campaign to make sure that, one day, no one will have to turn to us for help.

We’re here so no one has to fight bad housing or homelessness on their own.

Summary

• We welcome the opportunity to submit evidence to this inquiry.  Every week, we work with people threatened with, or experiencing, debt, hunger and homelessness.
• More than 4.7 million people across England and Scotland came to Shelter last year for help with housing and homelessness problems.[1]
• Many of those who used Shelter services required help with Universal Credit (UC) or need to make a claim to help with their housing costs. We also help people who need somewhere temporary to stay or assistance to avoid homelessness.
• Through our services, and our wider research and policy work, we have gathered evidence about how the five-week wait is working for those with housing need.
• Our work demonstrates that there are many concerns with how the five-week wait is affecting those on low incomes and that its original objectives have created unintended consequences that are detrimental to people’s lives.
• This is impacting families’ economic resilience and is pushing people towards debt, poverty and homelessness.
• Following the outbreak of COVID-19, now more than ever we need a functioning and supportive safety net to help those who need it stay afloat.

Recommendations:

• The five-week wait at the beginning of a UC claim should be abolished completely. 

• At the very least, it should be mitigated against by ensuring that the advance payments are easily available and are offered as a grant rather than a loan. This would alleviate the high deduction rates on the income of those who have taken out an advance.

Response to specific questions

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?

During 2018, our services saw over 2,180 cases where the main presenting problem was related to UC.[2] We analysed this data for our From the Frontline report and it reveals the initial five-week wait for payment from making a claim is causing extreme hardship, as people are left with no money to survive, pay rent or bills. This includes those impacted by the later deductions caused by the advance payments that will be discussed in this section.

This is supported by reports by other agencies that the five-week wait is leading to severe hardship. The Trussell Trust have found worrying increases of foodbank use in areas where UC has been rolled out. On average, 12 months after rollout, foodbanks see a 52% increase in demand, compared to a national increase of 13% across the country. This increase exists even after accounting for seasonal and other variations. Their analysis found that one of the key reasons people are seeking help there is because of the initial wait for a UC payment.[3] 

The main government mitigation introduced to counter the negative impacts of the five-week wait has been the advance payments. This allows the claimant to apply for 100% of their first payment in advance and they usually receive it within a few days. However, this money is a loan and is clawed back through very high deductions to their UC standard allowance payment later down the line. The advance payment debt and ensuing high deduction levels are also exacerbated by inadequate housing benefit rates as many people try to use their standard allowance to make up the shortfall, as will be discussed below.

In 2018, the National Audit Office (NAO) reported that the DWP’s most recent data showed that 60% of new claimants receive an advance payment.[4] This is a clear indication that the majority of claimants are unable to cover the five-week period without taking on additional debt they know they will have to pay back.

Not having any income for five-weeks is understandably pushing people towards claiming an advance payment. However, this is just causing further debt and hardship at a later date. The advance payment is paid back through at a rate of up to 30%[5] of the standard allowance. If a claimant has other debts which can be clawed back via deductions at source from UC, then their advance payment deductions may be lower but the total level of deduction from their UC income will still be up to 30% overall. In some limited cases, deductions for benefit fraud and some “last resort” payments that are judged to be in a claimant’s best interest can sometimes even push a deduction level above the 30%.

These deduction levels also do not take into account whether a claimant is repaying additional debts, on top of their UC deductions, such as debts to family and friends, low cost credit or pay day loan debts. This means that a claimant will then have to use further amounts from the remaining 70% of their standard allowance to pay these other debts. For a single person over-25, this leaves the claimant with just over £285 per month to cover all bills, travel, food, any other debts they may have and also if they have a shortfall between their rent and their housing element.

We know many people across the country have experienced shortfalls between the cost of their private rental and the amount they can receive in the housing element, or the Local Housing Allowance (LHA). The LHA, introduced before UC in 2008, is the way in which housing benefit for private renters is calculated. It continues to be the way the housing element is calculated for those claiming UC. The rates are localised to reflect different housing costs in different areas, based on 152 Broad Rental Market Areas (BRMAs) in England.[6] Since 2011, there have been a number of cuts and freezes applied to the LHA rates meaning that until emergency reforms were brought in as part of the government’s response to the COVID-19 pandemic, they trailed far behind the true cost of renting across the country. On 20 March 2020, the Chancellor announced, that LHA rates would be temporarily restored to cover the bottom 30% of each local rental market (30th percentile). This was a necessary and welcome announcement with or without the pandemic and should not be considered a sufficient measure to support people through this emergency period. The long-standing inadequacies of LHA rates mean they must not go back down to pre-2020 levels once the pandemic has subsided.

As a result of the LHA rate freeze, and previous reforms, Shelter research found that there was a shortfall between LHA rates and rents at the 30th percentile in 97% of areas in England.[7] In fact, the rates fell so far below rents across England that in a third of areas, they do not even cover the cheapest 10% of the rental market for a two-bedroom home. With such small proportions of the market affordable under LHA rates, it has been incredibly difficult for families to find suitable accommodation without having to take on a shortfall. Many will try and make up this shortfall out of their remaining standard allowance.

All of these deductions and debts that we regularly see through our services combine to make an impossible situation for many. It is not unusual to see service users with as little as £100 per month to live on after paying their rent, all the deductions and any shortfall they have. One of our services last year reported the difficulties these sorts of situations can cause:

Our client had the usual 40%[8] deducted from her standard allowance. Of her overall deduction, 61% was being deducted for her advance payment – by far the biggest deduction. On top of this, she also had council tax arrears to pay as well as a monthly shortfall between her rent and the LHA/housing element she was receiving. This meant that, in reality, 66% of her standard allowance, including her rent shortfall, was being deducted. This left her with just over £100 to live on per month after paying her rent with the shortfall.

However, we have also seen people in our services who feel like taking out an advance payment will be so detrimental to their future finances, that they will struggle through the five-weeks with no income:

A mother of two was in receipt of LHA and tax credits but had recently separated from her partner and moved house, with her children, triggering a new claim for UC. As a result, her tax credits had been automatically stopped but she refused an advance payment because of the high deduction rates she knew would hit her future UC payments. However, she then faced a dire situation and had to rely on food vouchers and fuel assistance for five weeks.

The advance payments are pushing people into needless debt before their UC claim has even started. This, alongside the shortfall between rents and pre-April 2020 LHA rates and other deductions, has been putting people into considerable debt, rent arrears and at higher risk of homelessness. To ensure people are not pushed towards these difficulties, government must:

Remove the five-week wait completely:

• The five-week wait at the beginning of a UC claim causes unnecessary hardship and should be abolished completely.
• At the very least, advance payments should be made in the form of a grant and not a loan that is subject to repayment. 

Recover debts at a sustainable rate by reducing the maximum deduction rate to 10%:

• Removing the five-week wait would remove the punitive deduction rates on the advance payments, but there would still be other UC debts subject to these high deduction rates.
• The rate at which debts are deducted from a UC claim should be as low a percentage as possible. The rate should be based on an individual’s ability to pay and their individual circumstances at an absolute maximum rate of 10%.

Extend the temporary COVID-19 restoration of LHA rates past April 2021:

• The LHA rates need to always cover at least the bottom 30% (30th percentile) of every local rental market in England, and this must remain in place in perpetuity once the current public health emergency ends.
• Going forward, there needs to be a robust mechanism to keep LHA rates in line with at least the 30th percentile of local rents, regardless of fluctuations in private rents.

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

Our services still see people experiencing rent arrears and further debt as a result of the five-week wait. Additionally, we have seen on a few occasions difficulty with claimants receiving a full first payment because they have just left work as well as seeing the five-week wait act as a disincentive to move into work. The exact opposite of the government’s aims with UC.

Firstly, our analysis of service data shows us that the first five-week wait is pushing people into high levels of arrears. We are seeing this up and down the country and it can cause knock-on complications for their housing situation:

One of our service users had a disability that meant he had to use a wheelchair. His house was not appropriately adapted and so he needed to move to suitable accommodation. However, he was prevented from moving by the local authority because he had accrued around £500 in rent arears as a result of his switch to UC and the five-week wait. His switch over to UC had stopped him getting a home he could access.

One of our advisors in the North of England reported the five-week wait is regularly pushing people towards eviction, especially if they already have rent arrears: 

A service user was self-employed but had to stop due to ill health and so had made an application to UC. She had historic rent arrears due to other periods of ill-health through her working life. However, she was making regular payments to bring these down with court agreed payments and she had not been at risk of eviction for some time. Upon making a UC application, her housing benefit automatically stopped, and she did not receive a payment for five weeks. Because of this, her arrears reached over £1000 in this time and her landlord applied for an eviction warrant.

Secondly, the initial income assessment period being a whole month is causing problems for some people’s first payment.

A woman we spoke to had recently lost her job and had received her final pay packet during the five-week wait, which in of itself was not enough to get through the whole five weeks. This period was a struggle, but it was made worse when her first payment after the five-week wait was only £74 for the whole month. Because she had received her final pay packet during the five-week assessment, this had been included in the assessment of income. This essentially resulted in a second month with inadequate income. The direct result of the five-week wait, followed by the reduced first UC payment, was that she accumulated over £3,000 of rent arrears. Another man told us he had lost his job, so applied for UC, to support his wife and two children. Once he had endured the five-week assessment period, he received a first payment of just over £90. This was also because his assessment included his final pay cheque from his job, which again was not enough to make it through the whole first five weeks anyway. The monthly payment cycle is designed to reflect the world of work. However, the inclusion of a person’s final pay from a previous job explicitly does not mirror the world of work as a new job would not take into consideration any previous earnings in the first monthly salary.

The five-week wait is a by-product of the government’s aim to replicate the world of work. However, it is causing unnecessary hardship and is, in some cases, such as when a claimant has recently lost a job and receives a final pay cheque during the assessment period, counteracting the government’s aim of replicating the world of work. If you were entering another job, your first salary would not take into account your final pay cheque when calculating your pay.

Finally, we have also seen examples of where the five-week wait can actually be a disincentive to moving into work. People who are on the old legacy benefit system can move over to UC because of a change in circumstance. However, even those who could receive an increase in their UC payment when moving from legacy benefits and into work, may not actually be better off under UC after the five-week wait. If they take out an advance payment, they will see their standard allowance deducted for some time after they start receiving their increased UC payments. This means they may not see the income increase in real terms until they have paid off their advance payment and any other deductions. If the change in circumstance is taking up employment opportunities, moving to UC and having to endure the five-week wait can actually leave people stuck between a rock and a hard place. We have seen this scenario play out in our services. One of our advisors detailed a case where this difficult decision was in play:

I had one case where a single mother with one child wished to return to work. Her choice was to stay on legacy benefits and be £60 per week worse off than if she were on UC or make a claim for UC and be left with no money for five-weeks. How can we sensibly advise on such a gamble?[9]

In this instance, this difficult decision could ultimately discourage someone to return to work as this could trigger a UC claim and they would knowingly need to endure a period of no income. This undermines the incentivisation of work that UC set out to achieve and is a further reason that the five-week wait should be abolished.

April 2020