Written evidence from Dr Rod Hick [UCW0071]

Introduction

1. I am a Senior Lecturer in Social Policy at Cardiff University. My recent research has examined the growth of in-work poverty in the UK[1] and the efficacy of tax credits in reducing poverty.[2] I am currently working with Policy in Practice on a study examining the relationship between Universal Credit and rent and council tax arrears in Wales, the findings of which are due to be published later this year.

The five-week wait and why it is problematic

2. The five-week wait for an initial Universal Credit payment is an integral part of the system. An application for Universal Credit triggers a one-month assessment period with an initial payment made 7 days after this period, in cases where payment is made on time.

3. The five-week wait has also been the subject of some of the most significant criticism of Universal Credit. Research by the Trussell Trust found that ‘For many, the change of circumstances that triggered a Universal Credit claim - e.g. unexpected illness and job loss - had already led to financial hardship; the five-week wait made their situation worse’.[3]

4. Shelter have suggested that their service users risked ‘severe hardship’ as a result of the five-week wait and that this contributed to rent arrears,[4] while Citizens Advice suggest that ‘many people need additional resources during the wait for a payment’.[5]

To what extent have mitigations helped to reduce the negative impact of the five-week wait?

5. The negative impact of the five-week wait has been mitigated in three direct ways, each of which shorten the wait for an initial payment, and one indirect one, which seeks to limit the negative impact of one of the mitigation strategies.

6. The direct ways in which the delay has been dealt with are by providing an advance payment of Universal Credit, by providing run-on payments as part of the pre-existing (“legacy”) system, and by reducing the length of the delay, by eliminating the seven waiting days, which cut what was an initial six-week wait to the current figure of (at least) five weeks.

7. Advances are clawed back from subsequent payment receipt at a rate of – at present – 8% per month over 12 months. From October 2021, advances for new claimants will be repaid over 16 months, thus reducing the per-month impact of deductions from Universal Credit payments.

8. Take-up of Universal Credit advance payments has been high – the figure of 60% being given by then Minister of State for Employment Alok Sharma MP for the month of October 2018.[6] The high level of take-up of advance payments suggests that many claimants perceive the need for a more prompt initial payment.

9. Research by the Trussell Trust[7] found that advances were viewed to be of use by some, but not all, claimants, noting that ‘Of the respondents who gave more detail on the impact of the advance (just over half of respondents), the majority (49%) stated the advance was not helpful, while a third (33%) stated it was. The two key reasons why individuals found it unhelpful was that they needed to pay it back or that the amount was too little.’

10. In a survey of their service-users, Citizens Advice[8] find that Universal Credit claimants who applied for a Universal Credit advance are more likely to be in debt than those who did not. They suggest that this does not mean that the advance system is not working but, rather, that it is indicative of the hardship that some Universal Claimants are experiencing before the commencement of a claim, and that this is not equalised by the payment of advance.

What is the best way of offsetting the impact of the five-week wait?

11. The five-week wait period is a necessary feature of UC due to the monthly assessment period, which is a central feature of the policy design.  The monthly assessment period is necessary in order for UC to count monthly (‘salary’) earnings, weekly wage payments and irregular amounts.

12. In his evidence to the House of Lords Select Committee on Economic Affairs, Sir Iain Duncan Smith MP[9] claimed that ‘we need to get one argument completely right: there is flexibility to pay people in two weeks or one month. The only thing that is agreed by all is that the assessment period has to be within those four weeks, because that is where you assess all the various elements coming in at different levels. It is a policy position for a Government to decide how they then pay out’.

13. It may be possible to reduce the wait for an initial payment further – in his evidence to this House of Lords Select Committee Sir Iain Duncan Smith MP mooted the idea of a four-week wait – but this would not resolve the underlying problem of a prolonged wait for an initial payment.

14. The best way to offset the impact of the five-week wait would be to convert ‘advances’ into non-refundable payments. The objections to providing advances to claimants as, in effect, loans are rooted in both principle and practice.

15. In principle, we can ask whether a system that imposes ‘deductions’ on so many claimants is a well-designed one. Social security systems ought to provide security, which requires both timely and adequate payments. As Nicholas Timmins has argued in his recent Institute for Government report. ‘It cannot be in the interest of any social security system to create debt for new claimants.’[10]

16. In practice, social security payments in the UK are, by international standards, ungenerous and they have been less generous in the past decade as a result of years of below-inflationary indexation. A useful comparison on this point is provided by the Irish social security system, which has a similar structure to the pre-Universal Credit social security system. The main rates of Ireland’s Jobseeker’s Benefit and Jobseeker’s Allowance – ignoring recent temporary increases as a result of Covid-19 – are £175 per week at current exchange rates (i.e. €203 per week).

17. Deducting Universal Credit advances from what are not generous payments is not a sensible policy design.

18. An alternative is to expand the system of run-ons. However, this would only cover applicants who have been in receipt of one or more pre-existing social security payments (under the “legacy” system) and thus will only cover some UC applicants. Moreover, the run-on for Housing Benefit that is currently operational, and the run-ons for JSA and ESA and Income Support that are due to be introduced in the summer, are only paid for two weeks, which still leaves a period of three weeks without any payment. For these reasons, extending the system of run-ons seems not to be the optimal approach.

19. The suggestion by Nick Timmins of providing a two-week ‘silver hello’ to all first time (i.e. not repeat) Universal Credit claimants would respond to the first of these problems (i.e. different pathways onto Universal Credit) but not the second (i.e. the remaining wait for an initial payment).

20. Another alternative might be to reduce the rates of deduction in lieu of advances further. This seems the least desirable of the options considered here given that it simply spreads repayments further rather than eliminating them. A final option would be to deduct only the difference between an advance provided and a person’s subsequent calculated entitlement (i.e. that only any ‘error’ in the estimation of an advance would be deducted). This would imply fewer and smaller deductions (for claimants) and would reduce costs relative to the proposal of a non-repayable advance (for the Exchequer). But it would increase the complexity of the scheme.

Are different mitigating options needed for different groups of claimants?

21. Universal Credit is already highly complex. Any attempt to vary mitigation for different groups will increase complexity further and this would need to be weighed against the perceived gains from any such variation.

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

22. Making advances non-recoverable would carry a cost to the Exchequer, as Thérèse Coffey MP, Secretary of State for Work and Pensions noted in her recent evidence to the Select Committee,[11] when she stressed the importance of ‘fairness to the wider taypayer’ in considering this issue. But the five-week wait is an administrative necessity (to facilitate a month-long assessment period), not one that was introduced for fairness reasons, and we have learned more over time about its detrimental impact on claimants. A non-repayable advance would preserve the assessment design of UC and would be a reasonable price to pay for an improved policy design and the reduction in hardship and debt that would be likely to result.

Conclusion

23. The five-week wait is a well-recognised flaw of Universal Credit. Indeed, given that this is so, it somewhat surprising that it remains. The boldness of the Universal Credit reform stands in stark contrast to the hesitancy that there has been to remedy some key limitations, of which the five-week wait is clearly one.

24. Remedies to-date have adopted an incremental, piecemeal approach, introducing and then increasing advances and run-ons while reducing deductions. Existing evidence does not parse the effects of these different mitigations, but what is clear is that at best they partially respond to the problem caused by the lengthy period before an initial Universal Credit payment is received.

25. There is a need for bolder change. Social security systems should not tip people into debt or expose citizens to severe hardship and they should not operate as loan systems. The solution to the five-week wait needs to avoid introducing new complexities and divisions. The optimal solution would therefore seem to make advances non-repayable.

April 2020