Universal Credit: what went wrong? (Part 1: the implementation)

Universal Credit has several objectives, some more, some less explicit. Overall, these seem to fall within two categories: increasing employment and decreasing cost. To achieve the first, UC aims to improve predictability as well as increased self-management of recipients. The predictability of a benefits system is an important factor in reducing disincentives to work, as Kristian Niemietz explains with the following analogy: suppose you are faced with a choice between two restaurants. On average, both are equally good. But one of them offers a constant level of quality, while at the other one, it varies hugely from visit to visit. Due to risk-aversion, most people prefer the former.

Applied to welfare, this means that recipients are reluctant to take up work or increase their hours if they do not know how that will affect their total income. It is thus hoped that simplification (i.e. replacing a system of multiple withdrawal rates with one single withdrawal rate) will increase the number of people in employment – even if the average withdrawal rate is not substantially different, compared to the old system.

Additionally, payments are restructured to more closely mirror how an employee would receive a wage and use it to cover all costs. Specifically, a UC recipient receives a single monthly payment, which contains all benefit entitlements including (what is now) housing benefit. This money must then be budgeted by the recipient to meet all bills and expenses. On the one hand, this is a significant step towards increased independence and responsibility by benefit recipients. Instead of being treated like children, they are able to manage their own “income”, which prepares them for a life of employment.

On the other hand, this takes a simplified view of both the circumstances of life of many recipients, as well as of the reaction of other economic agents to such increased responsibility for benefit recipients, as will be seen later. The reform also includes smaller changes to boost employment, such as increasing self-employment start-up periods.

Regarding the second aim, the Department for Work and Pensions (DWP) seeks to simplify the system of six legacy benefits to reduce waste and fraud. Considering that government statistics show £3.2bn pounds lost to fraud and error between April 2010 and March 2011 alone, reducing the waste of taxpayer money is definitely a worthwhile aim. However, it seems that the DWP also attempts to save costs through the introduction of long waiting periods before applicants receive their first payment. While this may be a short-term relief for taxpayers, it has brought hardship on many already poor applicants, and has thereby been one of the major drivers of the harsh criticisms of UC’s rollout.

The ongoing struggle of UC Implementation

The ideas behind UC may have been sensible, however, the implementation has been flawed to say the least. Criticism has been vehement and may well have developed into an outright scandal, had it not been crowded out by Brexit. Some problems “merely” concern the roll-out of UC, others go deeper into the underlying design of the system. Major issues with the roll-out have been failures of the IT system – by replacing those of the individual legacy benefits there is the potential to greatly streamline the process of managing benefit applications, increasing efficiency and reducing costs. However, it appears the system was simply not prepared for such a task: service centre employees have described it as “fundamentally broken and poorly designed”. It was this lack of preparation that caused repeated delays and rescheduling of the roll-out, so that it currently is six years behind its original schedule. It also led to further extensions of the already prolonged waiting period for an applicant’s first payment: in 2017 the DWP admitted it failed to process payments on time in 20% of cases, often leading to waiting times of 10 to 12 weeks. For poor people without significant savings, a disruption in cash flow of such a length can bring serious hardship. While it is possible to apply for an advance to bridge the gap, this necessitates another bureaucratic process and, more importantly, requires repayment within a short time frame. On a tight benefit budget, such short-term debt will entail deep spending cuts. The transition is likely to be especially hard on those who only recently came into financial hardship and were not previously recipients of a “legacy benefit”, as these will be declined advance payments if they have previous debt.

The hardship caused by this arrangement has made its way into the statistics through the increase in rent arrears and food bank uses after the roll-out. The foodbanks run by the Trussell Trust alone saw their visitor numbers increase by an extraordinary 170% from 2011-2012 to 2012-2013. Although numbers had been steadily increasing in the previous years, this jump stands out both in absolute and relative terms. Significantly, 43% of all visitors in the second year were referred to a foodbank because of benefit problems, and this share grew to over half of all recipients in the following year. This clearly shows an incapability of the new system to handle the accurate determination and distribution of benefits. A similarly substantial development can be observed for rent payments: the number of registered issues in social housing due to rent arrears increased by 13% from the second quarter of 2012 to the same period in 2013. The number of cases of threatened homelessness increased by 12% in the same period. Universal Credit also had a massive impact on the average amount owed in rent by tenants in arrears: in 2018, tenants on Universal Credit owed on average £400 more in rent than those still receiving the ‘legacy’ housing benefit. For one of the counties that has migrated to Universal Credit, the council’s rent arrears have increased by a staggering £1m in the 18 months since implementation. It is difficult to say what proportion of this is due to the extended waiting period rather than the new policy of leaving the payment of rent to the benefit recipient. However, the DWP claims that the share of people with rent arrears falls by a third after several months on UC suggesting that a proportion of comparable size either falls into arrears because of the extended waiting period or because they struggle with budgeting their income towards paying rent in the transition period before getting a hang of it after a few months. Considering the real consequences that this roll-out has brought on the poorest in society, the widespread criticism that UC was not ready for implementation, nor ready to react to and learn from problems along the way, seems more than justified. Numerous delays have been scheduled and adjustments implemented since the initial start of the roll-out to deal with those problems, including the decrease of the planned waiting period to five and then three weeks.


To be continued…

Carolin Bollig is a research intern at the IEA.