Written evidence from Leeds City Council [UCW0077]

Introduction

1.1              This is Leeds City Council’s response to the Work and Pensions Committee’s call for evidence into Universal Credit – The wait for first payment. Leeds City Council is submitting a response written by the Council’s Financial Inclusion Team, based on research and views from colleagues across the Council and partners working on supporting the roll out of Universal Credit in Leeds.

1.2              The response aims to assist the Committee to present to the Government; a better understanding of how the five week wait for payment impacts on claimants, as well as an interpretation of the solutions suggested, including both negative and positive impacts and consequences.

1.3              Universal Credit claimants still frequently face hardship and destitution. Mitigations such as the advance payment system force claimants to decide between facing immediate hardship for five weeks while waiting for payment, or longer term hardship while an advance is repaid at a fixed non-negotiable rate for 12 months. The system itself has been vulnerable to fraud and exploitation, causing financial concerns for the DWP as well as complications and hardships for individually affected claimants. Commonly faced issues for claimants during the initial five week wait for payment include not having enough money to meet basic needs, increased debt and sustained reliance on food banks. For claimants with additional vulnerability such as mental health issues or being the victims of domestic abuse, the problems and issues can be even more complex. Most organisations agree that the five week wait in its current format needs to be revised or even abolished altogether. There have been various suggestions for how to do this, however all would have significant financial implications for the DWP, and many may have unintended consequences such as reduced protection against fraud.

2.0               Question 1: 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?

2.1              For many claimants living in rented accommodation (particularly in the social sector) who are charged rent weekly, Universal Credit and the system of being paid monthly in arrears causes a multitude of complications. Of the existing mitigations, the two week run on of Housing Benefit has proved invaluable to both landlords and claimants, as it offers some leeway while awaiting the first payment, and potentially future protection should they need to move off benefits or be rehoused. 

2.2              The system of advance payments, provides necessary support to customers, who may have no other income or savings, to mitigate the initial five week wait for first payment. The advance system allows each claimant to claim up to the equivalent of a full month’s entitlement, depending on their circumstances. The advance is paid to the claimant within 3 days, although it is often received the same day. While the Advance provides immediate relief in the short term, it often causes long term hardship due to the arrangement of repayments. Currently, the advance loan must be repaid, regardless of the customers circumstances; i.e. even if the customer otherwise had a nil income for the five week wait, the advance is still repayable. Although there are no ‘penalties’ or ‘APR’ considerations, the loan is a fixed term debt with non-negotiable repayments other than a 3 month deferment in extreme circumstances, meaning arguably, vulnerable claimants are being forced to take on debt while waiting for their benefit payment.

2.3              The current rates of Universal Credit mean that for claimants whose sole income is Universal Credit, they are already considered to be ‘living in poverty’. As a consequence, as soon as any deductions for repayment are applied, the claimant’s income is further reduced and can potentially push them into destitution, and for prolonged periods. The advance payment must currently be repaid over 12 months, meaning depending on the amount of advance taken, the claimant could be left with deductions in excess of £100 a month, just for the advance payment alone. The rules surrounding deduction rates are complex, and have recently been amended to a cap of 30%, instead of 40%. Although this is an improvement, claimants can still be left in what can only be described as destitution, when advance payments and other debt deductions are coupled together or alongside other welfare reforms such as under occupancy and benefit cap.

2.4              The DWP have already announced that from October 2021, the overall maximum deduction rate for all deductions will reduce from an amount equal to 30% of the claimant's Standard Allowance to 25%, and the repayment period for advance payments can be extended from 12 months to 24 months. However, this may simply mean that claimants are in debt and unable to meet their own (or their families) basic needs for even longer.

2.5              In 2019, due to a loophole in the claim process, cases of advance payment fraud occurred on a mass scale. Most commonly, Universal Credit claims were set up by fraudulent individuals and in some cases, organised groups, in order to access advance payments, using the details of vulnerable individuals, without their knowledge or consent. The level of fraud documented was high, with many victims only became aware, when they received notification that their existing benefit claims had been terminated. The fraud caused hardship in numerous ways, not least because many victims were left liable for repayment of an advance they did not receive. Although the particular loophole responsible for this type of fraud was corrected, this does illustrate how the advance system is vulnerable to exploitation, and may leave some claimants vulnerable to financial abuse and longer term hardship due to repayments.

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

2.6.1              Unless the customer is working, has savings or additional benefit claims such as PIP or Carers Allowance, the claimant is essentially on a nil income for five weeks unless they take an advance payment. The current benefit rates in the UK have been subject to a ‘benefit freeze’ for the last four years. This means that for claimants whose sole income is legacy benefits, they are already considered to be ‘living in poverty’ and are therefore unlikely to have savings to fall back on. According to “The Financial Inclusion and Poverty Historic Trends in Leeds” Executive Report[1] “in 2018, 56% of low income households had no or less than £100 in savings”. Essentially, the major problem that claimants still face during the five week wait is financial hardship. The choice of being in absolute hardship for five weeks, or to take an advance payment which could then cause prolonged hardship over the 12 month repayment schedule, is the impossible situation that many claimants find themselves in. The ‘#5WeeksTooLong’[2] report by Trussell Trust found that “Food bank use rose in the months following the roll-out of Universal Credit, by 30% after 12 months and by 48% after 24 months” and “When Universal Credit goes live in an area, there is a demonstrable increase in demand in local Trussell Trust foodbanks. On average, 12 months after roll-out, food banks see a 52% increase in demand, compared to 13% in areas with Universal Credit for 3 months or less. This increase cannot be attributed to randomness and exists even after accounting for seasonal and other variations.”

2.6.2              Particular complications can also occur for claimants experiencing or fleeing from domestic abuse. The research report ‘Unequal, Trapped and Controlled’[3] by Women’s Aid and Trades Union Congress suggests more than half of all domestic abuse survivors said they couldn’t afford to leave their abusive partner. The process of leaving an abusive relationship is already recognised by domestic abuse agencies as a period of increased stress and danger for victims. For those needing to claim Universal Credit, the five week wait for payment increases these barriers and can cause the victim to delay leaving. In a guest blog[4] by Trussell Trust it is stated that ‘domestic abuse survivors can be waiting for much longer than five weeks. If someone has moved into a refuge, the five-week wait can be extended for up to ten weeks – especially if they had to flee without their documents, or their partner is disputing their entitlement to parts of a Universal Credit payment, like the child payments.’ In addition, many victims may also face issues accessing Legal Aid, which requires applicants to provide a benefit award letter dated within the last four weeks. National Charity Women’s Aid reports that without Legal Aid, victims have been left to attend court, sometimes multiple times, with no representation, due to the lengthy processing times for both Universal Credit and Legal Aid applications.

2.6.3              Many claimants in rented accommodation experience rent arrears as a direct result of the Universal Credit payment system, for example, social sector housing in Leeds charges rent on a weekly basis, meaning that the customer is accruing rent arrears while they are waiting for their first payment of Universal Credit. In addition, for vulnerable claimants who require a Managed Payment to Landlord, the housing costs are not paid to the landlord until after the customer has received their payment, and on a separate four weekly schedule. This can mean that even if a Managed Payment to Landlord has been accepted within the first five week wait for payment, the landlord may not receive the housing costs for that period for some time, potentially until the end of the following month. This system frequently leaves claimants identified as vulnerable, with rent arrears each month, for reasons beyond their control.

2.6.4              Through the five week wait, claimants may face various pressures, with some landlords encouraging or even pressurising their tenants to take an advance payment in order to pay their rent. Others stipulate that if an advance payment has been taken, the equivalent months’ rent must be paid from this with legal action ensuing if not. The advice given directly to claimants by support agencies may be to prioritize daily living costs, but if the claimant is already in hardship and/or subject to debt recovery action, it can leave claimants unsure where to turn and how use their advance appropriately.

2.6.5              ‘Universal Credit and Survival Sex: Sex in exchange for meeting survival needs’ is a separate Work and Pensions Committee Inquiry. Organisations such as The English Collective of Prostitutes, Changing Lives, Homeless Link and Beyond the Streets all contributed individual reports and evidence[5] concluding that the five week wait for payment specifically is a ‘key factor prompting women to engage in survival sex’. In addition, the report submission by Homeless Link[6]  stated “repayable advances are not the solution to this problem. This is because the level at which Universal Credit is paid is simply too low for claimants to be able to meet their basic living costs alongside deductions.” Although an exclusive causal link between Universal Credit and ‘Survival Sex’ cannot be established, it is important to recognise that without sufficient income to meet basic needs, vulnerable claimants may resort to these measures in order to support themselves.

3.0               Question 2: What is the best way of offsetting the impact of the five week wait?

3.1              Scrapping the five week wait for all claimants

This could be achieved by making the advance payment non-repayable for all customers. While this would solve the issue for the customer, it would require substantial policy work, especially in terms of what would happen to claimants that have already repaid their advances or are receiving ongoing deductions? This solution is currently being campaigned for by many organisations such as Trussell Trust and Child Poverty Action Group.

3.2.              Offering non-repayable Advances to some claimants: for example, those considered vulnerable

This solution could be implemented on an application basis with eligibility criteria, meaning that while the advance payment can be applied for in its existing format, an additional application to have repayments nilled or written off, could be submitted afterwards, depending on circumstances. The existing ‘Tier 1 and 2’ criteria of vulnerability when considering Managed Payment to Landlord, could be further utilised for this purpose; Any customer with a Managed Payment to Landlord in place could have their advance payment rendered non-refundable as the DWP has already accepted some degree of vulnerability exists for the claimant to be unable to manage their own rent payments. Further questions would need to be answered in order to understand the overall suitability of this solution; would a time limit be applied to give all existing claimants (roll out began in October 2018 in Leeds) equal opportunity to request their advance payment be written off? Would customers that have already repaid or partially repaid their advances be refunded? An additional concern would be as to whether this could put pressure on claimants to disclose vulnerabilities to Job Centre staff that they are not comfortable with, and further stress/responsibility on Job Centre staff/case managers and decision makers to decide who is ‘vulnerable’ for these purposes, and who isn’t.

3.3.              Allowing more flexibility for the start of a claim to be backdated

For Universal Credit purposes, a claim begins on the date that the online application is completed. This poses problems for many claimants who need advice prior to submitting the claim, or even assistance to complete it. In addition, the possibility of a claim being ‘backdated’ will only be considered in extremely limited specific circumstances. Allowing greater flexibility in claim start dates overall would assist many claimants, particularly those leaving temporary accommodation, hospital, rehabilitation etc. It would also give customers greater opportunity to seek and obtain benefit advice before submitting a claim. This is particularly important as depending on each claimants individual circumstances, the change from Legacy Benefits can be financially detrimental and is not always necessary. Under Universal Credit ‘LIVE’ service, claims could remain ‘dormant’ for up to 6 months after entitlement ceased. This ensured that if a claimant was nil qualified for one period, i.e. due to overtime wages, the claim was still operating as a safety net so in the event that their wages decreased sufficiently, Universal Credit would recognise this change and reactivate the claim to ‘top up’ their income. Adopting a similar principle for ‘Intention to Claim’, wherein customers could ‘pre-register’ for Universal Credit would reduce waiting times for payment for many customers, but could complicate the overall system.

3.4.              Extending run on payments to cover all legacy benefits

In order for the extension of all legacy benefits to be of any benefit to claimants, the legacy benefit amount would need to be disregarded as income, during the first assessment period, otherwise, as is the case if this scenario occurs currently (often due to error), the claimant would receive money weekly or fortnightly during the five week wait, but then receive a nil award of Universal Credit, for their first payment, leaving them with no income while awaiting the second payment. If the legacy benefit payments were disregarded, essentially, this solution would mean that the claimant is paid ‘double’ by both universal credit and their existing benefit claims. If the run on was modelled on the existing  ‘run on’ of Housing Benefit, this only covers two weeks, which, would still leave some claimants with nil income for two/three weeks after the run on ended, while they wait for their first Universal Credit payment. 

2.5.              Substantially reducing the rate at which Advance Payments—the main existing mitigation measure—are paid back, to help claimants better manage their money

The current rate of repayment for Advance Payments, is 12 months, regardless of amount. When considering that for large families, the maximum advance payment could total over £1500, this means that claimants may face deductions of over £125 per month, just for the advance payment alone. The DWP have already confirmed that as of October 2021, the rate of repayment will be extended to 24 months. Although this will go some way in providing some relief to claimants, it does not address the fact that many claimants have been left in a position where they had no choice but to claim a loan, just to meet essential living costs during the five week wait, when had Universal Credit not been introduced, they would have been able to remain or claim Legacy Benefits instead.

2.6.              Paying UC two-weekly, like many legacy benefits, rather than monthly

Some vulnerable Universal Credit claimants already receive their benefits twice monthly, and in Scotland, as part of ‘Scottish Choices’ all Universal Credit claimants are given the option of receiving their benefits in this way. While this system works for individual claimants who have barriers to managing their finances, to utilise this method by default would be to go against the founding outcomes of Universal Credit – to prepare people for work, where the vast majority of employees are paid monthly.

4.0              Question 3: Are different mitigating options needed for different groups of claimants?

4.1              Utilisation of a ‘one size fits all’ approach would not be appropriate for the majority of Universal Credit claimants, whose circumstances can vary significantly and in a host of ways. One of the overall aims of Universal Credit, was to provide a simple support system that was customer centric. For this to be realised, Universal Credit needs to increase flexibility, particularly in regards to disabled people and people who may be vulnerable for a variety of reasons.

4.2              Special rules are already in place for victims of domestic abuse, but these rules do not currently extend to offer additional financial support for claimants during the process of leaving an abusive relationship.

4.3              Many claimants are recognised by front line staff as vulnerable, but this is easily lost or simply not addressed when the Universal Credit claim is largely managed by a case manager that will never meet the claimant face to face. Some claimants such as those with addiction issues, can be considered a danger to themselves with large sums of money such as a full monthly payment of Universal Credit. Again, while some systems exist to provide support, these rely on front line services and third party organisations identifying these risks and raising them as soon as possible.

4.4              In Scotland, ‘Universal Credit Scottish Choices’ was implemented, meaning that all Universal Credit claimants have the option of being paid twice monthly and/or having their housing costs paid directly to the Landlord. This scheme aims to help families by making Universal Credit payments more flexible, and may go some way in terms of mitigating the issue of landlords pressurising/encouraging claimants to use advance payments to pay their rent.

5.0              Question 4: Are there barriers or potential unintended consequences to removing the five week wait – either for claimants or the Department? How can they be overcome?

5.1              Removing the five week wait would constitute a substantial change to the benefit system, and as such it would undoubtedly cost the DWP significantly to develop and implement such a change.

5.2              One of the most basic risks to removing the five week wait, would be the potential for increased fraudulent activity. If the wait was removed by making the advance payment non repayable, assuming no other procedures were amended, there would be nothing to stop individuals from making claims in order to access a one off advance payment - knowing that they are not entitled to any ongoing Universal Credit awards. As such although the decision to remove the five week wait would be welcomed by many claimants and organisations alike, there would need to be due consideration and mitigation put in place to combat this risk.

April 2020