How Universal Credit advance payments can force struggling people into debt

Claimants have to wait six weeks or more for the new “streamlined” benefit. Any help comes at a price.

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Secretary of state David Gauke’s pledge this week to make sure people aren’t forced into hardship while they wait for a Universal Credit payment was very welcome. It shows that he’s willing to take action to fix flaws in the system so that it delivers on its promise. But whether the actions he announced around advance payments succeed in solving the problems with Universal Credit will come down to the details, which is why we have written to him to request clarification of the changes. Before rushing to judgement, we need to understand what they will actually mean for claimants.

No one wants Universal Credit to succeed more than we do here at Citizens Advice. Every year, hundreds of thousands of people come to us for help with problems accessing benefits, and millions more seek advice from our website. Many are disabled or have insecure incomes. Many just need a bit of help during a difficult time in their lives. But all of them are worried about how they’re going to look after themselves and their families. Often, the complexity of the current benefits system only serves to exacerbate that worry as people struggle to navigate it.

That’s why we are so supportive of the principles behind Universal Credit - which has at its heart a radical ambition to simplify and streamline the benefits system. But if it’s to fulfil that promise, it’s essential that the government gets Universal Credit right. We were therefore very disappointed when Gauke announced his decision not to pause the roll-out despite the serious problems so many people are experiencing with the benefit.

The last few weeks have rightly seen intense scrutiny of the new system. At Citizens Advice we have now helped people with over 100,000 issues about Universal Credit - and have seen the equivalent of 12 per cent of all people receiving the benefit. Our evidence shows that many people are struggling to make ends meet while they wait for their first payment, which can sometimes take far longer than the six weeks that is built into the system. Indeed, the Department for Work and Pensions’ own evaluation of Universal Credit, published just weeks ago, shows that some families are going into rent arrears after applying for Universal Credit, with over a third saying it was either due to time waiting for a payment, issues with benefit delays, benefits being stopped, or errors in the benefit system.

We agree with David Gauke that increasing access to advance payments could help to solve this problem - an outcome our advisers have a crucial role in helping to achieve. (In a report earlier this year, we found that 40 per cent of new claimants we helped weren’t made aware by the Jobcentre they were even an option). But we remain concerned about whether increasing the proportion of people who know about advance payments is enough to fix the problems with Universal Credit.

There are a number of reasons for this. First, it’s important to remember that an advance payment is a loan of two weeks worth of Universal Credit, which claimants usually have to pay back over six months. This means people are getting into debt at the very beginning of the process - if they aren’t already - and that a claimant's income is then reduced while they make repayments. The Universal Credit payment they receive is designed to cover their living costs - but this does not take into account reductions for repayments like these. In practice this can leave people struggling to afford basic bills and potentially turning to other sources of borrowing. In turn, debt can undermine financial work incentives, when people find that any increase in earnings is then eaten up with repayments.

If advance payments are the option that government is taking to tackle the six week wait, then it’s absolutely right that everything possible is done to ensure all claimants know about them and that they can be accessed. But it’s also right that we look again at whether they deliver a sufficient income to tide people over, and at whether they should be an initial payment that does not need to be repaid, rather than a loan.

Secondly, while there’s been a small but welcome improvement in the proportion of people waiting longer than six weeks for their first Universal Credit payment, there are still far too many who are left without an income for weeks on end. The DWP’s own updated data shows that even with this improvement, some 19 per cent didn’t receive their full payment on time - and this includes 11 per cent who received none of their first payment on time. Although advance payments could go some way to reducing the hardship faced by people as they wait six weeks for an income, they can’t be the full solution. Advance payments were never meant to help cover periods longer than six weeks. Much more must therefore be done to increase the number of people receiving payments on-time.

Third, advance payments don’t tackle the many other problems with Universal Credit. For example they don’t address whether people are able to access support to make their claim and manage their finances, or the cost or waiting time to get through to the helpline. Crucially, they certainly don’t help to address more fundamental challenges that are built into the system, like ensuring work pays following the removal of the work allowance for many Universal Credit claimants.

Citizens Advice has an essential role to play in supporting the Government to realise the potential of Universal Credit. As well as providing the new guidance to our network of advisors across the country, we’ll be closely monitoring this next phase of Universal Credit roll-out, and we’ll continue to work with the DWP and others to ensure what we are learning is used to improve the system. It is in all of our interests to make sure Universal Credit works for everyone.

We called for a pause of Universal Credit roll-out because we believe that this would have allowed time for the DWP to fix problems with the benefit - and for those fixes to be properly embedded - before rollout is ramped up and hundreds of thousand more people are affected. We still believe this, which is why it’s so disappointing that this opportunity was not taken. But as Universal Credit rollout now speeds up, working quickly to fix problems and providing sufficient support for people who need it becomes more crucial than ever.

Kayley Hignell is head of policy for Families Welfare and Work at Citizens Advice