NHS HEALTH SCOTLAND – WRITTEN EVIDENCE (EUC0005)

The economics of Universal Credit

About Us

NHS Health Scotland is a national Health Board working with public, private and third sectors to reduce health inequalities and improve health.

Our corporate strategy, A Fairer Healthier Scotland, sets out our vision of a Scotland in which all of our people and communities have a fairer share of the opportunities, resources and confidence to live longer, healthier lives. 

Our mission is to reduce health inequalities and improve health. To do this we influence policy and practice, informed by evidence, and promote action across public services to deliver greater equality and improved health for all in Scotland.

NHS Health Scotland will become part of Public Health Scotland in April 2020.

Key Messages:

• The reductions in child poverty and improvements in health anticipated from the introduction of Universal Credit (UC) have so far failed to materialise.  In some respects UC is making things worse.  This has led to direct and indirect economic costs for the individuals and families affected, the Government and to wider society.

• Some of UC’s original assumptions were, and remain, flawed.  UC also reinforces aspects of UK welfare reform likely to have harmed health since 2010 and adds some new aspects (debt and volatility) likely to compound these problems.     

• Reduced poverty and improved health should be reinstated as core objectives of UC.  Appropriate resources should be put in place to achieve this.

Why we are responding
 

While we recognise the Committee’s focus on UC in England and Wales, UC is a UK-wide policy, with almost all aspects of implementation reserved to Westminster. 

In Scotland, there were almost 242,000 people (December 2019) and 192,500 households (August 2019) claiming UC.  Many more (over 220,000 working-age adults claiming Employment Support Allowance[1] and more than 280,000 families claiming child or working tax credits[2]) will be affected by ‘managed migration’ to UC due to begin in 2020/21. 

Income and employability support through the welfare benefits system, has important implications for a nation’s health. Welfare reforms, including UC, impact on the incomes of individuals and their families and access to employability support.

Social security that provides a secure and sufficient income for healthy living and employability support that achieves Good Work[3] outcomes, have the potential to improve population health and reduce inequalities.  Employment which does not help people escape deprivation and hardship can be bad for health, especially mental health.[4]  Inadequate income, especially for children living in poverty, is particularly damaging to health.[5]

We are happy to expand on any of the points raised in this submission.

Q1. How well has Universal Credit met its original objectives?

Universal Credit: Welfare that Works anticipated that UC would, among its other objectives, contribute to reduced child poverty and improvements to health and wellbeing.[6]  At the time of writing, these objectives have not been met.  The national rollout of UC has also been accompanied by a worsening in health trends (including poor mental health),[7] rising health inequalities[8],[9],[10] and a rise in child poverty[11],[12] in both Scotland and the rest of the UK. 

Poor health and child poverty have direct and opportunity costs to families, the Government and the wider economy[13],[14],[15],[16] as well as undermining the prospects of success in other policy areas (e.g. closing the disability employment gap,[17]narrowing inequalities in educational attainment[18]) with associated losses of economic output and productivity.

NHS Health Scotland has been monitoring the impact of UK welfare reform on health since 2013.[19]  The evidence so far suggests UC is, at best, failing to offset broader harmful aspects of UK welfare reform and labour market factors, and in some respects is making things worse. 

This is because UC retains many aspects of UK welfare reform likely to be harmful to health (the benefits cap, 2-child limit,[20] conditionality[21] and sanctions, the low value of benefits paid, flawed assessments for income-replacement incapacity benefits), and adds some novel elements (the five-week wait, advance payments, repayable hardship payments, in-work conditionality) likely to compound these problems.  

NHS Health Scotland is concerned that the managed migration to UC, where large numbers of people will be subject to UC, will result in worsening of mental health and increased economic hardship (with associated adverse health outcomes) of the population, given the results of welfare reform since 2010 so far, including the migration of Incapacity Benefit (IB) claimants to the Employment and Support Allowance (ESA) and national rollout of UC.  

We would like to draw the Committee’s attention to relevant, forthcoming research on the impact of UC on health:

• A quantitative study using Understanding Society data looking at the health impacts of the roll-out of UC to be published in the Lancet in March 2020.
• The National Institute for Health Research is inviting research bids to look at the impacts of health and health inequalities related to the implementation of Universal Credit.   

The 2018/2019 Claimant Service and Experience Survey (CSES) and 2018/19 Households Below Average Income Surveys (due to be released in February/March 2020) will provide some evidence on whether matters have improved.

Q2. Were the original objectives and assumptions the right ones?

Objectives

It was right to include reducing poverty and improving health among the original objectives for UC.

Assumptions which were correct

The 2010 white paper was correct to assume:

• Delays and mistakes in processing benefits can cause “severe financial hardship and emotional stress” for the poorest families.
• The reserved benefits system is complex and difficult to understand and navigate.
• There is a lack of suitable IT, training and incentives for staff.

However, UC has not yet addressed these problems.

Delays and mistakes

The five-week delay to claim UC is a problem.  In 2017, two-thirds of households (68%) in Scotland claiming low-income benefits[22] had no savings with which to cover the five-week wait.  Approaching four in ten (37%) households in Scotland have insufficient savings to cope in case of sudden loss of the main income source, for example due to job loss, rising to almost 8 out of 10 for unemployed or economically inactive households.[23]  The roll-out of Universal Credit in Scotland has led to rent arrears and housing difficulties.[24]

Loans, in the form of advance payments, are not an effective solution.  Problem debt is likely to increase uncertainty, poverty, hardship and poor mental health in low income households. [25]   In 2017, the Department of Work and Pensions (DWP) argued that: “Problem debt….can place a heavy burden on families. This can create a debt spiral in which low-income families become trapped in problem debt, further reducing disposable income, increasing mental stress, and reducing the ability to meet repayments or seek help.” [26]

The approach adopted by the DWP on UC seems inconsistent with this insight.  Of all eligible claims to UC Full Service due a payment in February 2019, 57% (840,000 claims) had a deduction.  On top of repayments for advances which they had to take out because of the five-week delay, another 440,000 households are also repaying at least one other debt for benefit overpayments, social fund loans or other advances.[27]  In Scotland, for the month of August 2019 alone, these deductions amounted to £8.9m, of which £4.7m was for advance payments.[28] All of this further reduces incomes which are already below the Minimum Income Standard required for healthy living.[29]

In Britain, accuracy and timeliness of UC payments has improved over time, but still does not provide secure, predictable incomes to all claimants.  The latest data (July 2019) suggests 88% of new claims and 95% of all claims were paid in full and on time.[30]

Turning now to mistakes, almost one in five (18%) UC claimants experienced difficulties or problems dealing with the DWP, compared to 13% of JSA and 14% of ESA claimants.[31]  When encountered, problems are seldom put right.  In 2015/16, less than half (48%) of problems with UC were resolved.  In 2017/18, this proportion had fallen to 37%.[32] 

The reserved benefits system is complex and difficult to understand and navigate

In 2017/18, of those claiming UC, 23% reported that the decision about their benefit was not clearly explained or not explained at all[33] and 16% reported that they were given incorrect or contradictory information about this benefit by the DWP.[34]

Lack of suitable IT, training and incentives for staff

The UC IT systems should be improved: in 2018, 43% of DWP staff disagreed that the IT they had access to provided effective support for the work they did.[35] 

Just over one in eight people claiming UC (13%) reported that Jobcentre Plus staff either did not understand their particular circumstances or only understood it sometimes, compared to 13% of Jobseekers Allowance (JSA) claimants and 17% of ESA claimants.[36] 

Training to help staff, managers and senior responsible officers understand the causes of poverty and avoid stigmatising people who use their services would be helpful in protecting mental health. 
 

Assumptions which were partially correct, but need careful qualification

Work is good for your health: Some work may be as bad for health as remaining unemployed.[37]  Pushing people into work that is harmful for their health (that is insecure, fails to provide an adequate income for healthy living, control over work, opportunities for development and exposes people to toxic conditions) is not a solution.3

Work is the best route out of poverty: Good work can make a contribution to reducing poverty, but high and rising in-work poverty, especially for lone parents, suggests in many cases the work available does not provide an effective way out of poverty.

Translating knowledge into behaviour change 

We know from public health research “there are limits to how much knowledge of messages – on its own – can influence behaviour in the absence of other structural or motivational changes”, with higher household income and higher levels of education making it more likely that people can put this knowledge into practice.[38]  As a practical example, UC could be reformed to better support people, including parents, to study for higher-level qualifications and improve their prospects of getting better paid work.     

The current system emphasises claimants’ responsibilities, but struggles to balance this with personalised support.  Almost one in four (24%) UC claimants reported that the DWP did not take their personal circumstances (e.g. their health or childcare responsibilities) into account when setting up their claimant commitment.[39]  A more balanced approach would help jobseekers be more effective in their search for work.[40]

Insufficient attention to the demand-side of the labour market

UC could go further in acknowledging labour market demand constraints.  In 2018, 34% of the working-age population of Britain lived in a Travel to Work area where labour market demand was weak (fewer than 8 jobs per 10 working-age people).  There is also a shortage of the flexible vacancies which would allow lone parents and families where someone has a disability to increase their earnings from employment.[41]

Ingold argues that the current UK approach (pushing unemployed people to apply for jobs with little attention to the recruitment needs of employers) risks further demoralising jobseekers and reducing their prospects of securing work, as well as frustrating employers seeking a good match.[42]   She suggests a better approach would be to require public employment services to work more closely with employers to match supply and demand, as well as for employers to provide constructive feedback to candidates who apply for jobs.41

Assumptions which were incorrect

The effectiveness of benefit sanctions

For the least-skilled lone parents[43],[44] and people with health problems,[45],[46] UK conditionality is moving them further away from work.  For unemployed people, the revised sanction regime after 2012 was ineffective overall in improving labour market outcomes.[47]   

The most common reason for being sanctioned in UC (and facing withdrawal of income) is missing an appointment.  In the health sector, we have found that primary care appointments are most likely to be missed by people with mental health problems (including addictions) and those living in deprived areas.[48]  Consequently it might be prudent to see missed appointments as a signal that someone needs extra help. 

Q3. How should they change?

If a renewed emphasis was put on reduced poverty and improved health as UC completes its roll-out, and the effective means to achieve this put in place, this would be beneficial not only for those objectives but for the wider desire to improve labour market outcomes and reduce the fiscal costs of policy failure.  

Together with the Medical Research Council (MRC) and Scottish Government Chief Scientist Office (CSO) Social and Public Health Sciences Unit, NHS Health Scotland have expanded on the theory of change model proposed in the 2016 evaluation study[49], to help improve our understanding of the assumptions underpinning UC and how these relate to health outcomes.  A draft of the model is attached as an appendix – it would be useful to test these assumptions using the available literature and data, to identify where constructive improvements can be made to the system.

It may be useful for the Committee to revisit some of the assumptions made in 2010 and in 2016.  It could draw on the Marmot Report – 10 years on (due to be published on 25 February 2020), in considering the evidence and making its recommendations.

We have listed specific recommendations in our answer to question ten. 

Q4. What have been the positive and negative economic effects of Universal Credit?

No comment

Q5. What effect has fiscal retrenchment had on the ability of Universal Credit to successfully deliver its objectives?

No comment

Q6. Which claimants have benefited most from the Universal Credit reforms and which have lost out?

The 2017/18 DWP claimant satisfaction and experience survey (CSES) suggests that Universal Credit is working well for a third of people but is not working well for around a fifth.[50]  The exclusion of some groups from the CSES sample (homeless people, terminally ill people and those whom the Jobcentre has flagged as “potentially violent”) make it unclear how those groups fare under UC..

The Institute for Fiscal Studies (IFS) forecasts that the persistently poorest 10% of working-age households will lose out from the introduction of UC.  Other groups adversely affected will include: those with financial assets; the low-earning self-employed; couples where one member is above state pension age and the other below; and some claimants of disability benefits.[51]

Q7. How has the world of work changed since the introduction of Universal Credit?

The national roll-out of UC began in February 2015.  Since then:

• Poverty rates have increased for people living in full-time working families and part-time working families.[52]
• Self-reported work-related ill-health has remained broadly unchanged.[53]
• Underemployment has declined, but remains above pre-recession levels;
• Job insecurity has declined.[54]
• Other measures of job quality either remained flat or deteriorated slightly.[55]

The Health Foundation provides a useful analysis[56] of labour market change, including job quality and job insecurity between 2010/11 and 2016/17.  They note that the proportion of UK employees who experienced two or more aspects of poor job quality fell from 40% to 35% between 2010/11 and 20114/15, before rising to 36% in 2016/17.  All markers of job quality (low job autonomy, low pay, low job satisfaction, low job wellbeing, low job security) failed to improve or got worse between 2015/16 and 2016/17.

Q8. Does Universal Credit’s design adequately reflect the reality of low-paid work?

No.  Due to their incomes tending to be more insecure and fluctuating more than the rest of the population, financial stability is held in high value by people in low-income households.[57]  UC risks increasing financial insecurity because of its design, since: “changing benefits as soon as circumstances change adds to financial insecurity, potentially creating stress alongside debts”.[58]  Lone parents and their children, families where someone has a disability, and the self-employed on low incomes, are likely to be particularly badly affected by the roll-out of UC in its current form. 

Q10. If Universal Credit does not adequately reflect the lived experiences of low-paid workers, how should it be reformed?

It is important that UC not only adequately reflects the lived experiences of low-paid workers, but also those with long-term health problems, caring responsibilities and unemployed people who are looking for work.

Any further reform should:

• Consider adopting a human rights based approach,[a] preferably using the PANEL (Participation, Accountability, Non-discrimination, Empowerment, Legality) principles; and
• Work with those using the system to design and continuously improve services.  The Scottish Government Social Security Charter: measurement framework[59] provides some suggestions.
• Incorporate the views of those currently excluded from the Claimant Service and Experience Survey (homeless people, the terminally ill and those whom the Jobcentre has flagged as “potentially violent”).     
• Proceed cautiously, to avoid yet more change and uncertainty, since more changes to UC will impact, once again, on many of the same households, families and people who have been effected by waves of welfare reform since 2010.

Specific recommendations include:

• Reinstate the percentage of children living in poverty as a DWP performance measure.
• Abolishing the five-week wait for UC.
• Paying benefits in advance rather than arrears, remove the benefit cap and end the two-child limit.
• Increase the value of UC payments to a meet a minimum standard for healthy living.  There is evidence that increasing means-tested benefits was an effective income-based reserved policy for reducing premature mortality, hospitalisations, and narrowing inequalities in Scotland.[60]
• Ensure UC payments for childcare costs are accurate and consistently paid on time. 
• Abolishing benefit sanctions entirely, to protect population health and reduce health inequalities.[61]  If this cannot be done, consideration should be given to:

         Abolishing them for pregnant women, parents with children, people on health-related benefits or with a self-declared disability.

         Abolishing them for missed/late appointments. 

         Making the financial penalties for being sanctioned for unemployed adults without dependents much less severe, shortening their length and/or ensure that reductions are only partial.  This would still be consistent with retaining one of the strictest jobs search monitoring regimes for the unemployed in the OECD.[62]

         Making hardship payments grants rather than loans.

• Use missed appointments as a signal to ask whether people need additional help, rather than to trigger withdrawal of financial support.
• Give people in England and Wales the right to choose to maintain direct payments to landlords and twice monthly payments, as in Scotland.
• Look at how anchor institutions (e.g. the NHS, universities and local authorities) can use their role as employers and procurers to increase the availability of flexible vacancies and improve the quality of employment.
• Share responsibility between employers, the public employment service and citizens using the system to improve matching between vacancies and people who are unemployed or looking for more work. 

We would support the efforts of the DWP and UK policy-makers to acknowledge the scale of the challenge and put in place system-wide improvements. 

21 February 2020

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Appendix 1: THEORY OF CHANGE ON THE HEALTH AND SOCIAL OUTCOMES FROM UNIVERSAL CREDIT

Note: The theory of change above builds on the 2016 Evaluation Plan and the assumptions in the 2010 white paper. It excludes external factors and unintended consequences.

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References

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