The economics of Universal Credit


1       How well has Universal Credit met its original objectives?

1.1            Universal Credit was introduced with several stated objectives, which we believe can be simplified into three broad categories:

1.2            Making sure that work pays better and reducing in-work poverty:

Universal Credit has met this objective for some claimant groups but not for others. The 63p in the pound earnings allowance is more flexible than the fixed £5.00 earnings allowance under older Jobseeker’s Allowance, and Universal Credit does not have the 16-hour ‘cliff edge’ of Jobseekers Allowance or the rigid minimum hourly requirements of Tax Credits. Both of these mean that many people working part-time or on variable hours are better off on Universal Credit.

However, disabled people in work, people with children, and people who are self-employed are often worse off under universal credit, for the following reasons:


1.3            Simplifying the benefit system:

Universal Credit simplifies some parts of the claims process, by allowing people who need help with housing costs to make a single claim rather than two separate benefits, and by unifying means-tested benefits across people who are looking for work, in work or on long-term illness.

However, the Digital By Default claims process proves a significant barrier to a large number of clients who are not IT literate or who struggle with the complexity and length of the online claims process, and threatens to undermine any potential gain from streamlining the benefits concerned.

The Universal Credit Help to Claim Service was launched in April 2019. In the six months following, 4,411 new claims (or ‘starts’) were made across North Tyneside, and 677 people accessed the Help to Claim service through our staff – meaning that over 15% of claimants needed our assistance with the claims process. The overwhelming majority of these needed assistance with the digital aspects of the claim.

1.4            Reducing fraud and error:

This would appear to suggest a small reduction in fraud and error among our Universal Credit clients compared to the previous system, but the sample sizes are too low to draw definite conclusions. Looking at the DWP’s own official figures for the last five years actually shows a higher incidence of fraud among Universal Credit cases than among the benefits it replaces.

There have also been numerous recent examples of fraudulent claims and scams involving Universal Credit. Three separate clients seen by North Tyneside Citizens Advice in 2019 were victims of a scam whereby a cold caller took their details for the purposes of making fraudulent Universal Credit claims, causing them to both lose all existing benefits and have to repay the fraudulent advance payments taken out in their names.

2       Were the original objectives and assumptions the right ones? How should they change?

2.1            Although the original objectives to make work pay better and to simplify the benefit system were both laudable, the emphasis purely on work and transition to work risks excluding the large number of people with long-term health conditions who also come under the benefits replaced by universal credit, many of whom would be unable to work in the immediate future.

48% of the 3,837 people who came to see North Tyneside Citizens Advice about Universal Credit in the first three-quarters of the 2019-2020 financial year had a disability or long-term health condition.

2.2            The emphasis on Digital By Default appears to be based on the assumption that most working-age adults in the UK are IT-literate and have sufficient access to the internet to manage their claims. However, ONS statistics from as recently as 2019 show that disabled adults are less regular internet users than the general population (22% had not recently used the internet, compared to 9% of all adults). This is supported by our own above figures 48% of North Tyneside Citizens Advice Universal Credit clients had a disability or long-term health condition as opposed to 41% of our general client base, demonstrating that people with long-term health problems are more likely to encounter difficulties with Universal Credit claims.

2.3            The monthly payment model was designed on the basis that benefit payments should mirror the payment period that most people encounter in employment. This once again, however, risks disadvantaging the significant number of people with long-term health conditions who are unable to enter employment, some of whom have problems with budgeting money that are exacerbated by a longer period between payments. Although alternative payment arrangements are available, these have restrictive access conditions and are only applied on an individual basis.

2.4            The assumptions about error and fraud are contradicted by the DWP’s own figures, which not only show a higher incidence of fraud among Universal Credit claimants than among the benefits it replaces (eg. 8.6% of Universal Credit payments were fraudulent for 2018-2019 as opposed to 6.5% of Jobseeker’s Allowance), but also show a low level of overall fraud across the benefit system (between 1.8 and 2.2 %). This is consistent with our own figures above, and we would suggest that reduction of fraud and error did not amount to a significant enough problem with the older benefit system to include it among Universal Credit’s objectives.

2.5            Based upon all of these points, we would propose adding a new objective to Universal Credit in addition to its original model: to ensure that disabled and vulnerable claimants are given the flexibility and support they need to manage their benefits, and that they are not disadvantaged by any change in how benefits are calculated or claims are administered.

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

3.1            The positive economic effects of Universal Credit include that some claimants are genuinely better off under the new benefits system due to its more generous work allowance and better accommodation of part-time workers. Since Universal Credit full service rolled out in the borough in May 2018, North Tyneside Citizens Advice have seen a higher income gain per Universal Credit client helped (£5,839) during 2018-2019 than we did for claimants of the benefits it replaces for the year before (£4,964 for Jobseeker’s Allowance, income Support, Housing Benefit, Employment and Support Allowance and Tax Credit claimants during 2017-2018)

3.2            Negative economic effects of Universal Credit include the wider social and community cost of increased reliance upon food banks and growing cases of homelessness. Between the 2014-2015 and 2018-2019 financial years, covering the introduction of Universal Credit,  North Tyneside Citizens Advice have seen a 55% increase in client numbers but a 94% increase in food bank referrals.

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

4.1            The 2013 cuts to Legal Aid funding for benefit appeals to tribunal have undermined Universal Credit’s objective to reduce fraud and error by removing a central plank in the support available to claimants to challenge error where it does arise. No equivalent funding has been made available for people to seek support with benefit appeals, which are often complex and confusing to the layperson. Independent specialist support during appeals make a significant difference to the appeal’s chances of success – overall disability benefit appeals since 2013 have had a success rate of 50%, while disability benefit appeals represented by North Tyneside Citizens Advice have had a 78% success rate in the current financial year to date.

4.2            The freeze on benefits rates since 2016 has likewise undermined Universal Credit’s objective to reduce in-work poverty recent studies by national Citizens Advice have shown claimants struggling to pay essential bills. North Tyneside Citizens Advice has seen significant debt problems among Universal Credit claimants – 39% of our Universal Credit clients in 2018-19 also had debt issues, as opposed to 27% of other benefit clients. This is also supported by our above figures on food bank referrals.

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

5.1            As demonstrated above, the claimant groups who have most benefited from the benefit reforms are those in part-time or variable employment who were previously disadvantaged by the ‘cliff edge’ of rigid hour requirements and cut-offs of the older benefits system.

5.2            The specific groups who have lost out, as again demonstrated above, are people with long-term health issues, people with more than two children, and self-employed people; who have been adversely affected by the reduction of disability premiums and working allowances, the two child-limit, and the minimum income floor.

5.3            There have also been claimants across all categories disadvantaged by the initial 5-week wait for payment, which is one of the key factors fuelling the rise in both Debt and Food Bank use among claimants, as shown in our above figures. Nearly 16% of Universal Credit clients seen by North Tyneside Citizens Advice in the first three-quarters of 2019-20 needed to claim an advance payment to help them manage the initial wait, creating further debt and budgeting problems for those claimants in the long run.

  1. How has the world of work changed since the introduction of Universal Credit? Does Universal Credit’s design adequately reflect the reality of low-paid work?

6.1       The model of monthly payments adopted by Universal Credit in order to reflect the payment of wages from employment does not accurately reflect the experience of many workers in the ‘gig economy’ current ONS figures show that the number of workers on 0-hours contracts has been increasing substantially since 2013, and a 2019 study by the University of Hertfordshire showed that the number of people doing gig economy work has doubled in the last 3 years, now including nearly 1 in 10 of working-age adults.

Both of these changes have occurred since the Universal Credit Monthly payment model was introduced in 2013 and show a significant increase in the number of UK workers whose wages and employment do not fit the regular monthly payments on which Universal Credit is predicated, leaving them vulnerable to gaps in income where their fluctuating wages are being inappropriately assessed on a monthly basis.

6.2       The size restrictions on the Universal Credit Housing Element if someone has more than a specified number of bedrooms in their property do not reflect the reality of the current housing market, in which there is a shortage of smaller properties available. Out of all clients who came to see North Tyneside Citizens Advice in 2018-19 about help with their housing costs under Universal Credit or Housing Benefit, 24% needed assistance with discretionary payments to cover the shortfall in their rent not covered by standard benefits.


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

7.1            Both the 5-week waiting period and the rigid monthly payments do not properly reflect the variable wages and inconsistent hours experienced by many low-paid workers, while the alternative payment arrangements are difficult to access and poorly advertised. Claimants should have a shorter wait for their first payment and be given more flexibility about their payment frequency. The assessment period should also have a limited disregard for temporary changes in income to allow people to better adapt to fluctuating wages.

7.2            The freeze on benefit uprating should not only be ended, as is now being proposed, but increased at a rate higher than the Consumer Prices Index to compensate for the number of years during which it did not keep up with the rising cost of living.

7.3            The two-child limit, which is forcing a number of working families into poverty, should be removed.

7.4            The minimum income floor is based on the mistaken assumption that self-employed people are able to maintain a consistent level of business, and does not reflect the reality of many small business owners and self-employed workers. It should also be removed.

7.5            The size restrictions on social housing tenants should be lifted in order to better reflect the modern housing market.

7.6            The loss of the permitted work rules and the restrictions on the disabled work allowance act as a disincentive for disabled people going into work. The disabled work allowance should be available for all claimants who also receive long-term disability benefits, and the permitted work rules should be reintroduced.


26 February 2020