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27 March 2020updated 25 Jul 2021 10:11am

New to claiming Universal Credit? Here are its worst flaws

Half a million are encountering the new welfare system for the first time, discovering the misery it has caused deprived claimants since it arrived.

By Anoosh Chakelian

In the space of nine days, nearly half a million people in the UK have applied for Universal Credit. The unprecedented rate of applications, from 16-25 March, were announced by Department for Work and Pensions officials at a select committee in the House of Commons on Wednesday.

Why are people slipping through the government’s emergency schemes, anyway?

There are many reasons why hundreds of thousands more people will rely on welfare to help them through joblessness or lower earnings during the coronavirus outbreak.

First, the job retention scheme covering 80 per cent of salaries for furloughed workers will only be up and running by the end of April, and you may need money before then. Also, you need to have been hired before 28 February 2020 to qualify – so if you were hired and then laid off after that, you will need access to benefits.

Second, the support for self-employed workers – in the form of grants to cover 80 per cent of average earnings over the last three years – will only start being paid at the beginning of June, and is only for those whose majority of income is from self-employment, and cannot cover those who became self-employed after April 2019.

And there are many other people omitted, too: your employer may have laid you off rather than waiting for the government’s cover, or you may be on statutory sick pay at only £94.25 a week.

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Coronavirus era reforms to welfare don’t go far enough

In anticipation of more people relying on benefits, the government has tweaked Universal Credit to make it more generous. It has increased the standard allowance – the monthly baseline every household receives – by £1,000 for the next year (upping payments by around £20 a week).

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It has also removed the minimum income floor (a calculation set at the national minimum wage, based on how many hours self-employed claimants have worked) to ensure higher payments for those who are self-employed but unable to earn in this period.

The requirement for face-to-face Jobcentre appointments and sanctions as punishment have also been lifted for those affected by coronavirus.

According to the Chancellor Rishi Sunak, this makes the welfare system £7bn more generous. For context, it’s important to remember that this doesn’t make up for welfare cuts of £12bn announced in 2015 to run up until the end of this year by the David Cameron-George Osborne Conservative government.

It also means that – if they’re not eligible for the 80 per cent income grant – self-employed Universal Credit claimants will receive the equivalent of statutory sick pay for employees, at just £94.25 a week.

There is a five-week wait for the first payment

After a huge bottleneck of phone and online application queues requiring hours of waiting, the first issue new claimants are likely to encounter with Universal Credit is the five-week wait for your first payment.

This is not some kind of bureaucratic necessity; it’s a delay built into the scheme’s design for ideological purposes. It is based on the assumption that anyone losing a job serves a notice period, and could survive for five weeks on savings.

Of course, these aren’t the circumstances for many who apply for Universal Credit in general. You may have been on a zero-hours contract or self-employed (therefore without monthly pay or a notice period), or you may never have worked.

Payments are once a month

It’s all supposed to mimic the experience of traditional salaried workers – for example, another reform brought about by Universal Credit was to pay the money to households monthly rather than more frequently as with the former benefits system.

The idea is to train claimants to budget and receive money as a working household does. It is paid in arrears, so that the size of the payment can be tweaked each month, depending on other income sources.

This also doesn’t reflect everyone’s working lives who apply for Universal Credit, as it ignores the reality of self-employment, the gig economy and casual contracts. Some workers, particularly those in low-paid industries, are paid on a weekly or hourly basis.

Research by Lloyds Banking Group into its bank accounts found that 58 per cent of new Universal Credit claimants in 2016-17 had been paid weekly or fortnightly in their previous job. Claimants can request for the frequency of payments to change – and can receive budgeting help from their work coach – but the majority are paid monthly.

You have to apply for in-built loans if you’re desperate

You can apply for an “advanced payment” when you first claim Universal Credit if you can prove you need upfront financial help while you wait for your initial payment, as a quarter of the new sign-ups did last week.

These are not “payments” but loans. If you’re allowed one, you then pay it back via deductions from your monthly UC standard allowance. This means that claimants are getting into debt at the very start of the process; and while they repay an advance, they are receiving a lower amount of benefits each month. Citizens Advice warns that this could lead people to other sources of borrowing, such as loan sharks.

There is a single payment per household

In a bid for simplicity and to “strengthen the family”, Universal Credit was designed from the outset to combine all benefits into one monthly payment paid into a single bank account per couple or family.

This means your ability to claim may depend on your partner’s eligibility, for example.

A report by the work and pensions select committee in August 2018 found that this set-up also risks a family’s income going entirely into an abusive partner’s bank account, making partners and children unable to leave. This problem is exacerbated by domestic abuse cases rising during the coronavirus shutdown, as families are urged to remain indoors.

You can apply especially for a “split payments” exception, but that is only on a “case-by-case basis”, and you have to prove financial abuse or domestic violence.