The economics of Universal Credit

Universal Credit is the latest in a long history of officially sanctioned social welfare systems and procedures that, whilst ostensibly offering support to people facing hard times, can in fact work in practice to hasten the destruction of people’s lives.


  1. This submission specifically provides evidence to answer the following questions:


-          Is Universal Credit (UC) meeting the needs of claimants in today’s labour market and in the changing world of work?

-          Does Universal Credit adequately reflect the reality of low paid work and the lived experience of low paid workers and, if not, how should it be reformed?


The answers are: No and No. The word “reformed” suggests something big, whereas actually a very small, simple and sensible change could bring about positive answers to the two questions addressed and foster real opportunities for those temporarily in need of UC to genuinely find a path back into the labour market and to financial self-reliance.


  1. My evidence is specifically related to the application of UC rules, award caps and reduced payments to Self-Employed Sole Traders.
    I have been self-employed as a Sole Trader since 01.04.2012. (Nearly 8 years).
    I built my business from personal funds without any loans or borrowing of any sort.

I have been in receipt of Universal Credit only recently: w.e.f 29th November 2019. (First payment: Jan 2020)
I made the application for UC after I lost my principle and at that time only client in November 2019 and effectively found myself immediately and unexpectedly with no income at all.
Whilst building my business between 2012 and 2016 I received Working Tax Credit (WTC) under the old Benefits system. Although still entitled to some monies under WTC I willingly and voluntarily cancelled the WTC payments as soon as I began earning an income sufficient to support myself in 2017. This will become very relevant to the current situation described below.
I have no wish to be supported by Benefits under UC; it is soul destroying. However, in the short term I have had no option. Unfortunately, the system has treated me very unreasonably and with no acknowledgement of the lived reality of my situation. .

  1. In order to qualify for UC payments I submit an update of my self-employed earnings and expenses every month on 29th. Based on my net earnings after costs in the preceding month an allocation of payment under UC is then made, in arrears, on 5th of the following month.

As it has been explained to me, for every net £1 that I earn by 29th of each month, the following month’s UC award is reduced by approximately 66p (two thirds). The purpose of this is to encourage people back in to work and “make work pay”: the oft quoted mantra of UC.
In principle I have no objection to this and completely understand its design and intent.
If I have net earnings my UC payment goes down, if I have none it goes back up; so theoretically I don’t lose out whilst still in need and can look to steadily increase my earnings over time, which is absolutely my objective. Indeed, my aim is to reach the point as quickly as possible where I am confident of a consistent income, sufficient to have no further need of UC.
So – all’s well and good….in theory

  1. However, the theory fails to be realised in practice when basic, essential monthly costs (Rent, Bills & Food) are not covered at the outset and the initial and unchanging top line sum awarded by UC is therefore less than needed in order to survive.
    I’m in that position and I’ll explain this more precisely, using my true life circumstances as an example of how, without that initial award being sufficient and because I want to start earning - dire consequences may ensue:
  2. During December 2019, suddenly and unexpectedly without an income for the first time in my life and having to effectively re-start my business from scratch, I earned nothing.
    That’s not unusual for a small Sole Trader operation looking to break in to a crowded market and win new clients and it will take a while to get going again.
    However, my basic, essential living costs for Januarybased on exactly the same things that they had been for years - were approx. £1000. In 2020 in the UK this really is not a lot.
    However, UC awarded me an initial headline payment pcm of only £741.66. Following iniquitous deductions to that figure (which I will deal with below) UC paid me on 5th Jan only £693.99. Obviously, this was approximately £300 less than I needed to meet my basic cost of living.
    I therefore had to earn or find a minimum of £300 in January just to stay afloat – just to be able to eat! £300…come on…that’s not such a huge ask you might think, but it’s not that simple.


  1. If I had earned that £300 (I didn’t and had to close a small savings account to meet my needs in January) I couldn’t have saved it. I would have had to spend it during Jan….on basic costs.
    Assuming I do earn it at some point UC would then reduce my next months award, as explained above in Para 3, by approx. two thirds of £300, (being £200) and the following month would pay me, after deductions, approx. £493.99
    With a shortfall then of 50% of what I need to cover my basic costs, I now must earn a minimum of just over £500 in the following month – again, that’s just to stay afloat – and so it goes on.
    In what you might think was a best case scenario, in which I might steadily earn a bit more each month, this situation actually gets worse and worse. Why? Because for as long as those earnings remain below what I need to cover my basic living costs, plus an amount to carry into next month’s costs the harder it gets to cope, month on month. In reality, I can never really know where I will be: other than knowing that as I earn more the situation will worsen – which is crazy! Conclusion: Work does not pay in this real life scenario!


  1. Worse still, because in January I had a £770 Tax Bill to pay against the year end 18/19 earnings, which wiped out my savings, I am even worse off in terms of being able to meet basic needs in Feb. But UC doesn’t account for a loss in real terms; it always rounds up an actual negative earnings balance in any month to 00.00 and does not ever increase the following month’s payment above the top line award given at the outset. Essentially, for a self-employed person like myself: UC takes away support when you earn something but does not increase support when you incur an income deficit. That’s wrong, plain and simple: wrong.


  1. To worsen the whole situation just a bit more, UC has now increased the deductions (as described below) from the woefully inadequate headline award and in real terms I am severely less able to meet my costs in February; the result of an inflexible and falsely weighted UC calculations matrix
    I’m trying to “make work pay” but find myself in a vicious trap that essentially says: unless I earn a significant sum very quickly, such that I cease to require any further UC at all and can fully support myself, I’m potentially going to find myself in an increasingly desperate situation month in and month out. This is indeed exactly where I am right now.


  1. The system is not meeting my real and most basic monthly living costs, nor is it reflective of or responding positively to the wider reality of building a small business in the UK today.
    I am resurrecting my business from scratch and doing so diligently and determinedly, but in a massively competitive market place and with no budget whatsoever.
    It is thus wholly unreasonable to suppose that I can earn a net income of £1000 plus pcm in a very short time span: it just won’t happen and, in just a matter of a few months I am very likely to be unable to pay my rent. The question I find myself now asking is:
    Why is UC set up to put a decent, hard-working, conscientious person on the street?


  1. Of course, I have sought to address all the above to UC, but my representations have fallen on deaf ears because, as per every official body anywhere in UK these days: decency, flexibility and understanding has largely gone; context is irrelevant and the reply is simply: “Computer – it say NO!”
  2. BUT, there is a simple solution. The unhelpful state of affairs described could be easily overcome, (without any re-programming of systems or people!), if only basic common sense were applied at the outset.
    The simple answer is this: provide an award of money from the start that adequately supports the individual’s true essential needs. Those needs do of course have to be properly evidenced by the applicant and be subject to ongoing checks and reviews, That’s fine by me because:


that should have been my starting payment.

  1. Apparently there are local UC award caps in place in respect of the cost of my rent; something to do with the geography of where I live, which means I cannot have more than £741.66. That flies in the face of the reality. I live in a small apartment. My rent is not unduly high. UC ought to cover it entirely. This cap doesn’t reflect the reality. The reality is constant: I need £1000 each month just to get by.
    I don’t run a car or have my own mobile phone, nor any satellite TV; I never eat out and I haven’t had a holiday since 2015 – but so be it: I’m not trying to provide from UC for any of those things.
    I accept that times are tough and I need to fight to make things better. Sometimes that’s life – I’m a realist and I am prepared to fight. But the way UC is penalising me just doesn’t make sense. It’s like living in medieval times – the harder I try to get ahead, the more I am punished.
  2. To add insult to injury UC are making deductions from the initial award of £741.66.
    The first of these is a “repayment” of Working Tax Credit from my past. This is a fraud – plain and simple. No, that is not too strong a word – the government is literally ripping me off!
    I voluntarily stopped WTC payments long before they would have been cancelled.
    I did so because I started to earn enough to live on in 2017 and felt I didn’t need them.
    It is inconceivable that I should be “repaying” against an old Working Tax Credit record, but again: the system apparently says I must and again my representations have fallen on deaf ears. Well, not quite – I’ve been referred on to multiple other departments and agencies. That is the usual response these days, designed of course to prevent any challenge to procedure gaining any traction. I can get no help with this, but it is absolutely the case that:
    There should not be deductions being made against historical Working Tax Credit payments.
    Unfortunately, I can’t afford legal representation to fight this so the deductions are made and I must suffer this fraudulent abuse of the system by the system. I know this is happening to others, I know how the system achieves it and it MUST BE STOPPED!


  1. Further to this, I now see that for next month (February2020), a further deduction is being made to pay Child Maintenance contributions. The system automatically dictates that I must pay some Child Maintenance from a monthly UC award that comes nowhere near covering even my basic needs and that I have applied for only because I have no earnings. This is nothing short of lunacy, but the system; the all-seeing, all powerful, inhuman and inflexible system says this further deduction must be. I have no issues with the premise that government will intervene to ensure an adequate financial support for children of separated parents, but no one should be forced, without any recourse or opportunity to oppose this, to contribute monies to a third party before funds that may be allocated under UC at least provide for their basic human needs. Conversely, with the provision of that financial safety net I might more effectively begin to grow my earnings once again and then, of course, my liability to contribute Maintenance Contributions could be sensibly assessed. Instead, the inter-connectivity of computerised systems, each telling the other to take such and such an action in absolute and wilful  ignorance of any person’s real life circumstances really is a new age of technological manipulation of lives without any merit, credibility or justification. This is overwhelmingly cruel; diminishing and perhaps ultimately removing any sense of self determination or purpose.


  1. To summarise: The Key Problems in all of the above and the underlying reasons for the failure of UC to offer anything other than very short term support, followed by a fairly speedy descent to destitution - both in my particular circumstances and doubtless in many others, are that it is a process that:


  1. Starts from the wrong place for the wrong reasons,
  2. treats benefits as “income”, penalises you for any real income, fails to increase an award when real income falls and
  3. operates in thrall to a wider system of financial persecution of the less well-off that is grossly unfair and places incredible strain, both financially and emotionally, on the claimant: thereby assuredly reducing their capacity and their will to make work pay! 


I have in no way whatsoever sought to gain any undue advantage from UC and I would prefer to be able to earn a living and contribute to society. UC could assist me to reach that point if it met real life needs, but in my situation: It is a system of welfare provision that will quickly turn from being supportive to being destructive.


16. In conclusion, whilst UC may initially provide me with a cash injection that, yes OK - I’d be worse off without in the short term, it very quickly – far too quickly - will cease to support me effectively and will almost certainly force me into ever increasing indebtedness or destitution. Looking ahead, short of a miracle, I will likely be on the streets by Easter. Decisions on the award of UC and unreasonable and indefensible systems-generated deductions from an already inadequate award show incontestably that:

The mechanisms and calculations applied to determining a provision of welfare support under UC are a) not reasonable, rational or honest and are b) completely at odds with the lived reality of an ongoing need to meet basic and essential everyday living costs, whilst I rebuild my business.


31 January 2020