Flaws in the System: Making Universal Credit Work Better for Claimants

Currently in the UK, if you’re on low income, out of work or unable to work you can claim for Universal Credit. It is a monthly payment from the Government, to help with living costs.

Universal Credit (UC) replaces six ‘legacy’ benefits and tax credits for working-age households. The Government first launched UC in 2013 and completed the delivery rollout of the UC Full Service to all job centres in Great Britain by the end of 2018.

It’s claimed by more than 5.8 million people in England, Scotland and Wales, both in and out of work – 40% of universal credit claimants are employed [1].

Although this is a tool that helps some people stay out of poverty, it isn’t enough for other individuals and families. Currently, 1 in 4 children in the UK lives in poverty.

The Child Poverty Action Group (CPAG) are a not-for-profit that works on behalf of the children in the UK that live in poverty. They work to understand what causes poverty, the impact it has on children’s lives, and how it can be prevented and solved – for good [2]. 

The CPAG are experts in social security, welfare rights, training, and policy work. They collect and analyse evidence about how welfare changes are affecting the wellbeing of children, their families, and their communities. The policy team at the charity are pushing for structural change in the welfare system.

Social Security and Poverty before Covid-19

Child poverty has been rising steadily in recent years. The CPAG wanted to understand why this is happening. They have stated that one of the key drivers of this, is a fall in welfare spending.

Since 2010, £36 billion has been cut from social security budgets. The graph above shows that less money has been spent on social security over the years.

Children and families have been hit particularly hard by this. Lots of benefits used by that group have been cut, in contrast to groups like pensioners who have been protected by the ‘triple lock’.

There has also been a rise in ‘in-work’ poverty in the UK. Historically, it was assumed that work was a route out of poverty. However, there is no longer a clear-cut line between out-of-work families being in poverty and the rest of the working population.

75% of children that experience poverty live in a household where at least one person works. The CPAG believe that this is to do with wage stagnation and an increase in insecure work.

Living costs are increasing, social security is being cut and wage stagnation and job insecurity is common. These things combined mean that less money is going into many households, and this results in poverty.

Additionally, there is a trend that sees high and rising poverty in larger families. Larger families have always been more at risk of living in poverty due to the higher household running costs that come with housing more people.

However, over the years the number of larger families living in poverty has increased.

The CPAG have reported that many of these larger families living in poverty are living in deep poverty. Deep poverty was defined by the United Nations as: “a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information.”

Pandemic Response and Child Poverty

During the pandemic, the Government introduced the furlough scheme and a £20 per week increase in Universal Credit.

However, Covid-19 resulted in rising costs for families with children because of them being at home all the time. There was no targeted welfare support for children at that time. The CPAG argued that there needed to be some additional money to support families on Universal Credit that also had children.

Rates of national household income also changed during the pandemic. For some families, the pandemic meant saving money because they couldn’t go out as much.

For low-income families, this wasn’t the case. Pre-existing costs that presented a struggle before the pandemic were inflated, such as food and energy bills. Additional services that low-income families might have accessed prior to the pandemic such as food banks or support from the local school were also cut off due to lockdowns.

This was confirmed by research that the CPAG conducted in partnership with the Church of England during the pandemic. They surveyed low-income families about the impact of the pandemic on their financial situation.

One respondent stated:

“Financially…we had the water, electricity, everything as cheap as possible. This virus thing happened, and we are behind on everything. I don’t know how we are going to catch up after this.”

The survey also pulled up concerns regarding how parents were trying to hide the financial stress they were under from their children:

“They can see there is no money. I’m trying to sell my things, my jewellery…I try to hide as much as I can from them, but yes, they know.”

This demonstrates that the health and wellbeing of parents and children were significantly impacted by a lack of financial support during challenging times.

Reforming Universal Credit: What Needs to Change

The CPAG published a report in the summer of 2021 called: Universal Credit: What Needs to Change to Make it Fit for Children and Families?

This report covered five different areas of Universal Credit and presented recommendations from the CPAG on how they think the Universal Credit system needs to change.

The five areas are:

1. Improving adequacy
2. Filling the gaps
3. Supporting people into work and in work
4. Starting a claim
5. Managing a claim

They cover issues with how much money people receive but also on design and administration issues. Highlights of the report are as follows:

Improving adequacy: After the 6^{th of} October 2021, Universal Credit was cut by £20 a week. This reduced and will continue to reduce the incomes of millions by over £1000 a year.

The Government response to this has been that families need to compensate for this by finding work. The CPAG have fought back and said that this doesn’t reflect the ongoing challenges that many families face such as childcare commitments.

Additionally, many people on Universal Credit cannot work due to disabilities. The idea that people can work their way out of this cut, doesn’t ring true to the realities that people face.

Filling the gaps: A call to fill the gaps looks at groups that are being left behind in welfare support. The CPAG has found that disabled people, young people, and young parents receive less Universal Credit due to benefit caps.

Currently, the issue with the benefit cap is that it breaks the link between need and entitlement. The system should be responsive to the needs of a family or household. The benefit cap undermines that because it offers an arbitrary amount, not considering the diversity in the needs of people on benefits.

As well as the benefit gap, new rules came into force limiting the child element of child tax credit (CTC) and Universal Credit (UC) awards to two children. This limit only applies to a third or subsequent child born on or after 6 April 2017.

There are a limited number of exceptions to the two-child limit meaning that it does not apply to a third or subsequent child in the following circumstances: multiple births, adoption from local authority care, kinship care and children likely to have been conceived because of rape or a coercive or controlling relationship.

This graph shows that over 1 million children are affected by the two-child benefit limit. This will continue to grow every year.

The CPAG acknowledge that the negative cumulative trends caused by the benefit cap and the two-chid limit are pushing families deeper into poverty. It doesn’t matter if the adequacy of Universal Credit is improved, if these two policies are in place, then these families won’t benefit from the changes.

Supporting people into work and in work: The CPAG has stated that there are some fundamental design issues in the Universal Credit system. It allows people to work only one day a week at minimum wage if they should want to claim their Universal Credit payment. This isn’t much. There is one work allowance per household, which assumes that there is one breadwinner in a family and one carer. The taper rate is high (63%), which means the money is reclaimed from working families at a high rate.

In response, the CPAG have proposed some policy changes. They request that the taper rate be lowered to 55%, which would lift around 275,000 children out of poverty. They also propose a second earner work allowance of £293 which would lift 50,000 children out of poverty. Finally, they request that the household work allowance be doubled to %586 a month, and split equally between members of a couple. This could lift 200,000 children out of poverty.

Starting a claim and transitional protection: There are 3 million people yet to move to Universal Credit from other forms of benefit. The CPAG estimates that 1.5 million of these people will be worse off on Universal Credit.

Transitional protection is available but limited to certain groups. This support should be much more adequate and advice should be clearer and more readily available.

Managing a claim, removing access to barriers: There should be better support for those with limited access, limited digital skills and language barriers. Universal Credit claim forms are digital which excludes a large proportion of people.

Half of the Universal Credit claimants experience difficulties during their application process.

Overall, the CPAG has highlighted many issues in the Universal Credit system. They are asking for the Government to consider the impact that cuts are having on children in particular. Universal Credit should be more adequate, more accessible and consider diversity within the financial needs of the population.

[1] BBC. 2021. What is the Universal Credit Taper Rate?

[2] The Child Protection Action Group. 2021