“Arbitrary mismatches” of universal credit ignore realities of low income

April 11, 2016

Universal Credit, the single monthly payment for people in or out of work which merges existing benefits and tax credits, has been piloted in certain Jobcentres since 2013. A national rollout started in 2015 and is expected to last until 2017. Here, Fran Bennett, Senior Research and Teaching Fellow at the University of Oxford, explores its impact on roles and relationships, and methods of managing money in low-income families.

We had become accustomed to stories about universal credit, the new all-in-one benefit for those on low incomes, intended to simplify the system and make work pay. But such stories largely concerned delays in introducing it since first being proposed by the coalition in 2010.

Instead of the over 6 million claimants expected in 2016-17 (according to a March 2013 forecast), the latest estimate assumes only 330,000. Although the government has claimed credit for its ‘test and learn’ approach, meaning the system will only be introduced when they are certain it works, many commentators see the repeated postponements as failure.

Now, however, universal credit is in the news for other reasons. The Secretary of State, Iain Duncan Smith, resigned over the contrast between the ‘salami slicing’ of the benefit he has championed and tax giveaways to the better off in the March Budget.

It is unclear whether this will trigger a reconsideration of the very existence of universal credit – though Patrick Butler in The Guardian suggested that the government will continue with it. But, now the focus has shifted to its design rather than solely its delivery, are there more opportunities to draw on social science evidence to inform the debate?

‘Universal’ credit is of course a misnomer. ‘Universal’ usually means non-means-tested. But universal credit brings together six existing means-tested schemes: working and child tax credits, income support, means-tested jobseeker’s allowance and employment and support allowance, and housing benefit. And it is available in or out of work, to make the transition easier and help claimants take ‘mini-jobs’.

So ‘universal’ here means comprehensive. But non-means-tested benefits such as child benefit and carer’s allowance are left out – as is means-tested help with council tax, which was devolved to local authorities with a smaller budget. ‘Passported’ benefits such as free school meals and free prescriptions are also currently still separate.

Universal credit is calculated on a monthly rather than weekly basis, and is paid in one monthly lump sum, into one bank account. Couples have their needs and resources assessed together. There are seven waiting days before universal credit is available, and it is paid in arrears. So the first payment may not be made until six weeks or so after claiming. Claiming is meant to be online, though other methods may be used. There is one taper (withdrawal) rate as net income increases, rather than the different rates in the current system.

The impact of (dis)incentives on the probability of entering, and progressing in, employment has been exhaustively investigated, by government and others. The effects of the various cuts made to universal credit have been analysed by commentators, including the House of Commons Library, using similar modelling techniques. However, issues of roles and relationships, and methods of managing money in low-income families, have arguably not been explored enough, or qualitative research findings exploited sufficiently.

First, universal credit appears to operate on a model of the ‘unitary household’, instead of families being made up of individuals with different as well as similar interests. So all the universal credit is paid into one bank account, rather than both partners being paid different elements of benefit, as now. This ignores the differential likelihood of men and women having other independent income. Some women may be left with little or nothing. The bank accounts used by couples may be joint. But qualitative research shows this does not always mean both partners have equal access to, or control over, such accounts. Although payments can be split between partners, the circumstances triggering this are few, and the intention is that such arrangements should be temporary if possible.

In addition, universal credit incorporates one work allowance, shared between partners. Benefit is only reduced in line with earnings once the allowance is used up. But the ‘first earner’ is likely to use this, leaving the ‘second earner’s’ income reducing universal credit immediately – with a much higher reduction rate for many than under the current system. The government says a generous work allowance for couples will give families choice (though it is simultaneously extending conditionality to those in work, and many partners with children). Yet qualitative research suggests having one’s own income is more likely to give both partners some say in how money is used and the household organised.

Secondly, paying universal credit in one monthly payment does not fit well with low-income families’ common budgeting methods. Ministers argue this is more like normal practices for those in employment – what most claimants should aim for. However, whilst this may be true for those in regular salaried employment, it is less likely for those on low incomes. And qualitative research demonstrates that many low-income families budget on a weekly or even daily basis; use labelled benefits in the way indicated by the names; and prefer their housing benefit to be paid directly to the landlord, to keep their tenancy secure. Many will adapt to the new regime, and possibilities exist for alternative payment arrangements if necessary, as well as for budgeting support. But the main design framework of universal credit does not build on the coping strategies often adopted by those on low incomes but instead tries to move claimants to different norms.

Lastly, security has been shown to be crucial to low-income families, especially those with children. Whilst universal credit should avoid the disruption of claiming different benefits when entering work, or increasing hours, the monthly approach to changes of circumstances could be very hard to cope with. Low-income families often have many such changes. But whatever date a change happens (such as someone leaving the household, or housing costs increasing), this is applied to the whole of the previous month leading up to the date of (re)assessment of universal credit. Some will gain from this and others lose. But the fact that a benefit for low-income families can be designed with such arbitrary potential mismatches between circumstances and amount of benefit witnesses to a continuing, and worrying, lack of attention to the realities of life on a low income.

News Focus articles are the views of the author and not necessarily those of the Campaign for Social Science.

“Arbitrary mismatches” of universal credit ignore realities of low income

Universal Credit, the single monthly payment for people in or out of work which merges existing benefits and tax credits, has been piloted in certain Jobcentres since 2013. A national rollout started in 2015 and is expected to last until 2017. Here, Fran Bennett, Senior Research and Teaching Fellow at the University of Oxford, explores its impact on roles and relationships, and methods of managing money in low-income families.

We had become accustomed to stories about universal credit, the new all-in-one benefit for those on low incomes, intended to simplify the system and make work pay. But such stories largely concerned delays in introducing it since first being proposed by the coalition in 2010.

Instead of the over 6 million claimants expected in 2016-17 (according to a March 2013 forecast), the latest estimate assumes only 330,000. Although the government has claimed credit for its ‘test and learn’ approach, meaning the system will only be introduced when they are certain it works, many commentators see the repeated postponements as failure.

Now, however, universal credit is in the news for other reasons. The Secretary of State, Iain Duncan Smith, resigned over the contrast between the ‘salami slicing’ of the benefit he has championed and tax giveaways to the better off in the March Budget.

It is unclear whether this will trigger a reconsideration of the very existence of universal credit – though Patrick Butler in The Guardian suggested that the government will continue with it. But, now the focus has shifted to its design rather than solely its delivery, are there more opportunities to draw on social science evidence to inform the debate?

‘Universal’ credit is of course a misnomer. ‘Universal’ usually means non-means-tested. But universal credit brings together six existing means-tested schemes: working and child tax credits, income support, means-tested jobseeker’s allowance and employment and support allowance, and housing benefit. And it is available in or out of work, to make the transition easier and help claimants take ‘mini-jobs’.

So ‘universal’ here means comprehensive. But non-means-tested benefits such as child benefit and carer’s allowance are left out – as is means-tested help with council tax, which was devolved to local authorities with a smaller budget. ‘Passported’ benefits such as free school meals and free prescriptions are also currently still separate.

Universal credit is calculated on a monthly rather than weekly basis, and is paid in one monthly lump sum, into one bank account. Couples have their needs and resources assessed together. There are seven waiting days before universal credit is available, and it is paid in arrears. So the first payment may not be made until six weeks or so after claiming. Claiming is meant to be online, though other methods may be used. There is one taper (withdrawal) rate as net income increases, rather than the different rates in the current system.

The impact of (dis)incentives on the probability of entering, and progressing in, employment has been exhaustively investigated, by government and others. The effects of the various cuts made to universal credit have been analysed by commentators, including the House of Commons Library, using similar modelling techniques. However, issues of roles and relationships, and methods of managing money in low-income families, have arguably not been explored enough, or qualitative research findings exploited sufficiently.

First, universal credit appears to operate on a model of the ‘unitary household’, instead of families being made up of individuals with different as well as similar interests. So all the universal credit is paid into one bank account, rather than both partners being paid different elements of benefit, as now. This ignores the differential likelihood of men and women having other independent income. Some women may be left with little or nothing. The bank accounts used by couples may be joint. But qualitative research shows this does not always mean both partners have equal access to, or control over, such accounts. Although payments can be split between partners, the circumstances triggering this are few, and the intention is that such arrangements should be temporary if possible.

In addition, universal credit incorporates one work allowance, shared between partners. Benefit is only reduced in line with earnings once the allowance is used up. But the ‘first earner’ is likely to use this, leaving the ‘second earner’s’ income reducing universal credit immediately – with a much higher reduction rate for many than under the current system. The government says a generous work allowance for couples will give families choice (though it is simultaneously extending conditionality to those in work, and many partners with children). Yet qualitative research suggests having one’s own income is more likely to give both partners some say in how money is used and the household organised.

Secondly, paying universal credit in one monthly payment does not fit well with low-income families’ common budgeting methods. Ministers argue this is more like normal practices for those in employment – what most claimants should aim for. However, whilst this may be true for those in regular salaried employment, it is less likely for those on low incomes. And qualitative research demonstrates that many low-income families budget on a weekly or even daily basis; use labelled benefits in the way indicated by the names; and prefer their housing benefit to be paid directly to the landlord, to keep their tenancy secure. Many will adapt to the new regime, and possibilities exist for alternative payment arrangements if necessary, as well as for budgeting support. But the main design framework of universal credit does not build on the coping strategies often adopted by those on low incomes but instead tries to move claimants to different norms.

Lastly, security has been shown to be crucial to low-income families, especially those with children. Whilst universal credit should avoid the disruption of claiming different benefits when entering work, or increasing hours, the monthly approach to changes of circumstances could be very hard to cope with. Low-income families often have many such changes. But whatever date a change happens (such as someone leaving the household, or housing costs increasing), this is applied to the whole of the previous month leading up to the date of (re)assessment of universal credit. Some will gain from this and others lose. But the fact that a benefit for low-income families can be designed with such arbitrary potential mismatches between circumstances and amount of benefit witnesses to a continuing, and worrying, lack of attention to the realities of life on a low income.

News Focus articles are the views of the author and not necessarily those of the Campaign for Social Science.