Written evidence from Tonybee Hall [UCW0080]

1. Executive Summary

1.1 Toynbee Hall has worked on the frontline in the struggle against poverty for over 130 years. We work together with communities facing economic and other intersecting inequalities for a fairer and happier East London. We support immediate needs through access to free advice and collaborate with residents to tackle social injustice through participatory research and policy influencing. Toynbee Hall’s advice services help over 13,000 people a year. We are the lead contract agency for Debt Free London, the Money Advice Service funded face-to face debt advice provision for London. Toynbee Hall also works with Macmillan Cancer Support to provide a free benefits advice service to people affected by cancer living in East London.

1.2 This response draws on the expertise of our frontline welfare and debt advisors, and takes into account evidence from our advice service data. We have based our recommendations on consultation and discussion with people within our networks who have been directly affected by the five week wait for Universal Credit.

1.3 In this submission, we present evidence that advance payments help some, but not all, claimants to avoid short term financial hardship. However, in the longer term, both the five week wait and advance payment are detrimental to the financial health of claimants.

1.4 Based on responses from claimants, we recommend stopping the current approach of the five week wait and instead offering either a non-repayable grant or an immediate estimated first payment. We also support claimants having the choice of receiving their Universal Credit payments on a two-weekly, rather than monthly, basis.

1.5 We touch briefly on the false economy of the five week wait in terms of additional costs for the DWP, the broader loss to the economy as a result of debt and financial hardship, and most importantly the loss of skill, talent and assets to our society from claimants who are trapped in financial hardship.

2. To what extent have the mitigations the Government has introduced helped to reduce the negative impact of the five week wait for UC claimants?

2.1 As can perhaps be expected, claimants who apply for and receive an advance payment find that the loan helps them to cover their outgoings during the wait for their first Universal Credit payment.

“I applied for advance and paid rent so that I would not get into too much arrears. I am also used to being paid monthly and budgeting.”

– Respondents to Toynbee Hall survey in April 2020 on the impact of the five week wait

2.2 It should be noted though that not everyone in financial need does receive an advanced payment for a variety of reasons. Some claimants decline to apply for an advanced payment, and prefer to drastically cut outgoings in the short term over taking on long term debt. A Toynbee Hall Welfare Advisor who specialises in supporting clients with cancer reports that “when I advise clients that they can ask for an advance but that it’s a loan and will be clawed back most people choose to struggle on without one.” There may also be a lack of awareness amongst claimants that the advance payment provision exists. Some respondents to our 2020 survey on the impact of the five-week wait told us that they are struggling to cover their rents, energy and food costs without borrowing money or defaulting on payments.

“[I] have fallen behind on paying rent and bills. As well as rationing on food. Telling the kids they can’t have something is the hardest part of all this as well as making cuts to everyday items.”

“We didn’t pay any bills last month, we only had enough money for food but as some of our bills are direct debits. We've had to borrow money from family members so we will be short next month too and will have to prioritise bills to be paid.”

– Respondents to Toynbee Hall survey in April 2020 on the impact of the five week wait

Unlike those who receive an advance payment, these claimants will pay interest on their loans while also negotiating fees for late payments.

2.3 The short term reprieve provided by an advance payment does not translate to financial stability in the long term. According to fellow debt charity, StepChange, who have written comprehensively on this issue, “The most significant problem linked to Universal Credit is the effect of the waiting period for the first payment and advance loans taken out to help meet expenses. Half of clients (47%) have fallen behind on rent as a result of the wait or the subsequent repayment of advances.”[1]

“Because I took the advance payment I am having to pay it back for 12 months which is a strain on my finances monthly.”

– Respondent to Toynbee Hall survey in April 2020 on the impact of the five week wait

2.4 Data from Toynbee Hall’s own services suggests that Universal Credit is a system that increases the debt of claimants. Our debt advice clients who receive Universal Credit are 85% more likely to have rent arrears and 43% more likely to have priority debts than all other debt advice clients. They are also 70% more likely to have rent arrears than those on means tested benefits in 2016, before the full roll-out of Universal Credit, demonstrating that this is not simply the effect of being on welfare benefits.

56.4% of our debt clients receiving Universal Credit say that their current financial situation means they would not be able to afford most or all essentials like food, housing and heating, rising to 59.8% of those where Universal Credit is their only source of income. This is in comparison to 46% of those not receiving Universal Credit.

“Because of the wait, it forces you to take the loan. Afterwards you regret taking the loan because the repayment is quite a lot, pushing you further into debt. There is the risk of losing your home, especially if you are already in arrears. This was a great worry for me.”

– Respondent to Toynbee Hall survey in April 2020 on the impact of the five week wait

2.5 This increased level of debt can partly be attributed to the rate of deduction from the standard allowance by the DWP. The Trussell Trust and StepChange’s report, Hardship Now, or Hardship Later[2] points out that the “DWP figures obtained through parliamentary questions show that, of all claimants on Universal Credit as of September 2018, almost a quarter (24%) had a deduction above 20% of their standard allowance. In total, almost four in ten (39%) were paying over 10%.” This level of deduction, compounded by other deductions from debts such as rent arrears and council tax debt is causing severe financial hardship for many claimants.

2.6 The five week wait does not just harm the financial health of the 13% of UK adults with no savings. It also damages the financial resilience of those who previously had a small savings safety net. 32% of adults in the UK only have savings of between £1 and £1,999[3]. Claimants in this bracket who have accrued a month’s worth of savings before claiming Universal Credit will be ineligible for an advance payment and will immediately lose this safety net. As a result they will be less likely to be able to tolerate income and expenditure shocks caused by factors such as ill health, relationship breakdown or job loss. According to a report co-authored by Toynbee Hall as part of the Financial Resilience Taskforce, “a lack of financial resilience can magnify the impact of an initial income shock, leading to significantly more serious consequences – which can range from mental health issues to problem debt to reduced life chances for the children of those impacted.”[4]

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

a. Is it possible to estimate how much this would cost the Department?

b. Is it possible to estimate any costs or savings to third parties (for example, support organisations)?

3.1 Respondents to our survey who have directly experienced the impact of the five week wait are supportive of removing the wait for all claimants. It could be replaced by a non-repayable grant or an estimated first payment. They also support claimants to have the choice of receiving Universal Credit on a two-weekly, rather than monthly, basis.

3.2 We support the end of the five week wait, on the grounds that would increase the financial resilience of a significant number of claimants, and that financially resilient people are more likely to have good quality of life and to be less reliant on state support in the future.

3.3 If such an objective requires an economic justification, we would argue that the evidence shows that living in debt and struggling with severe financial hardship makes it more difficult to find and maintain well paid employment that can lift claimants out of poverty. Fear of eviction, worry over debt repayments, bailiff visits, inability to heat the home, struggles to pay for childcare and being unable to afford broadband at home means that claimants are less likely to secure and maintain employment, and therefore they are more likely to be reliant on Universal Credit over a longer term.

3.4 When people use their day-to-day time and energy to cope with financial hardship, we stop them focusing instead on how they can bring the skills, knowledge and assets they have to benefit the broader society. Within our community networks, we work with community members who are in receipt of Universal Credit who have many skills and expertise to bring to a workplace. All of them have skills, from caring, culinary, manual, legal, to IT skills and are keen to contribute. Yet the constant struggle to make ends meet makes it more difficult for them to complete training courses and find sustainable good work.  

3.5 Low financial resilience has more general societal implications costs. “In the event of an income shock, where people lack financial resilience there are adverse effects on not only the individual and their household, but also on employers, landlords, utility companies, local authorities and numerous other service providers. At a societal level, if segments of the population lack financial resilience there is a potential impact to the economy and to financial and social stability. A lack of financial resilience can magnify the impact of an initial income shock, leading to significantly more serious consequences, which can range from mental health issues to problem debt to reduced life chances for the children of those impacted. Businesses also suffer as employee productivity falls due to the stress of the income shock and the change in income or expenditure.[5]

3.6   It must be recognised that the impact of the deductions are so devastating for clients because

Universal Credit already fails to meet the essential expenditure of many claimants.

“The Universal Credit amount does not take into account full housing costs for some people and for others there may a cap. For some, any further reduction in an already basic level of money would definitely cause financial difficulties and leads to crisis decision-making that may not be in the best long-term interest of the claimants, such as seeking loans from loans sharks or high interest loans, prostitution, and women continuing to live with domestic violence. It sends families into deeper poverty and they are never really able to get out of the cycle of debt, as once the advance is repaid claimants have often accumulated other debts – due to needing to meet essential needs on a reduced income – and which they then need to pay back as well. This has a tremendous impact on the health and emotional well-being on the main carer and the children of the family as well as financial consequences.”

- Manager of Toynbee Hall’s advice centre

Other elements of the design of Universal Credit must be fixed in order for the system to provide the safety net that the public needs. The benefit cap must be raised and the Local Housing Allowance must be kept at the 30th percentile, and to truly alleviate suffering, should be raised to the 50th percentile as recommended by Shelter[6].

April 2020