The economics of Universal Credit


  1. GIPSIL is registered as a Cooperative & Community Benefit Society with Charitable Status No. 27762R. We are an organisation based in Gipton and Harehills, Leeds, providing a range of services including, accommodation based and floating support to young people; young parents; and care leavers aged 16 to 25 years across Leeds.

GIPSIL is also a partner in the Engage Leeds consortium providing citywide housing support and homelessness prevention, including through Advice provision, to vulnerable service users aged 18+ with a range of complex needs. GIPSIL undertakes and hosts other support services, including specialist engagement and wellbeing work. The Advice Service provides outreach support and consultancy to other services including Women’s Health Matters Domestic Violence Support Groups & through the ‘Open Doors’ Help Through Crisis Project. The Advice Service provides free & independent generalist advice, principally in relation to welfare benefits and housing to our target client groups.


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

Universal Credit aimed to ‘simplify the existing benefit system to make work pay’. The objective was to replace several benefits with one claim that was ‘integrated, income-related, working age credit providing households with a basic allowance topped up by additional components to recognise the needs of families with children, housing costs, disability and health conditions that limit work, and caring responsibilities… Overall financial work incentives will be increased, meaning that the marginal deduction rates for working will be reduced while the personal and social benefits of working will remain… increasing hours worked should always mean an increase in financial return’[1]. Other ‘overarching aims’ were to:


GIPSIL welcomed a move to incentivise moving into work. We have often supported vulnerable people who have not seen any financial improvement between moving from benefit income into work due to legacy benefits often low levels of earnings disregards, particularly those who are single and under 25 on zero hours’ contracts who may have additional work costs such as transport, meals or uniform to consider.

As such, we were disappointed in April 2016 when the Universal Credit (Work Allowance) Amendment Regulations 2015 came into force which substantially reduced or removed the work allowances in Universal Credit. We feel that it should not just be those with children or a limited capability for work who should have a work allowance, but all claimants for Universal Credit.


In terms of a smooth transition into work by offering a single benefit for those in and out of work, it is too early to tell how effective this is as managed migration is only in its early stages (with the pilot in Harrogate underway). However, we do welcome a move away from the complex nature of Tax Credits which was heavily reliant on claimants keeping HMRC up to date of all changes of circumstances and childcare costs and making accurate estimates on earnings. Hopefully, the Real Time Information (RTI) aspect of UC will avoid the large amount of overpayments found in Tax Credits.


We welcomed the aspiration to tackle poverty through increased take up. However, we have found that a large number of vulnerable people lack the IT skills or access to make or continuously manage an online UC claim. Unfortunately, negative media coverage of the new benefit has also made people reluctant to claim it for fear of being worse off (as has been the case for people who have lost their disability premiums). Other barriers to take up include requirements to have a phone number, email address, bank account and acceptable proof of rent (e.g. some clients are on rolling periodic tenancies that exist following Assured Shorthold Tenancies signed a significant amount of time ago, yet the DWP request a tenancy signed in last 3 months). Where people do have live UC claims there are issues with responsiveness when writing to request things via the online journal.


A strange aspect of UC is housing costs. You are only paid for what your liability is at the end of an assessment period. This works out well if claimants move in to more expensive accommodation during an assessment period as they are likely to receive more than their liability. However, for those who move back to live with family from rented accommodation and have no rental liability at the end of assessment period, they lose out on their whole month’s UC Housing Costs element which may be several hundreds of pounds.


Also problematic in terms of incentivising work, are the rules around Loans for Mortgage Interest. There is a 9 month wait until you are entitled to support with mortgage interest and a zero earnings rule which means that if you work the support ends and you have to begin a new 9 month waiting period.


A significant issue has been coordination between the DWP’s Debt Management Team and Universal Credit Processing Team. Many of our clients have deductions taken from the UC at higher rates than is necessary and this causes financial hardship which in term means less income to spend in local economy. Where the DWP does have discretion to reduce the level of repayment it is often difficult to request this because of the separation of the Debt Management and UC Processing Teams who often send clients back and forth without taking on the issue.


Likewise, there have been issues with direct payment of housing costs. We are seeing a number of cases where Housing Costs Elements, especially initial payments, are not reaching tenants’ rent accounts and placing them in arrears. We also are seeing requests for direct payments for arrears being applied for with minimal investigation as to the payment of the actual housing costs entitlement. This issue needs resolving as it is causing issues for both claimants putting them in financial hardship and threatening their tenancies (possible homelessness); and housing providers who have arrears on accounts where UC housing costs should be in payment.


We have also had issues around RTI disputes. We have clients who have been subject to an RTI dispute where they haven’t received any earnings and the dispute is not being resolved in a timely manner so clients are left without money for weeks. One example occurred during a first assessment period and the client waited 8 weeks for her UC payment during which time the RTI dispute itself had to be raised 3 times and her claim was closed as she was deemed to have earned and therefore wasn’t eligible for UC. We queried this issue daily which was extremely time consuming.


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

Yes, but they need further reform and investment (see issues raised above)


  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?

Issues with payment cycles and assessment periods. ‘In a recent case brought by CPAG, the High Court found that the government was not following the law correctly in its rigid assignment of earnings to monthly assessment periods. Since then the government has said that guidance has been updated so that work coaches can manually override the assignment of earnings to assessment periods, in cases where people are paid early in some months. However this requires claimants to request the override, and we have heard from advisers whose clients have requested this and been refused; it is clear this is not an appropriate long term solution’[3].


The DWP has suggested that employers could change payment dates to fit in with employees UC assessment periods. However, as this differs from client to client it is hard to see this being an attractive proposition for any employer.


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


Investment to make processing team more responsive and deal with more complex cases more efficiently and accurately.


Rob McHugh GIPSIL Advice Service  


20 February 2020



[1] DWP, Universal Credit Evaluation Framework, (December 2012), p5

[2] Ibid, p6

[3] CPAG, Universal Credit: What needs to change to reduce child poverty and make it fit for families?, (June 2019), p8