Mike Brewer is Deputy Chief Executive and Chief Economist of the Resolution Foundation.
As someone who has always been a fan of combining several benefits into one, it has been painful, at times, to watch Universal Credit’s (UC) lumbering progress since Iain Duncan Smith announced the project in 2010.
Finally, in early 2019, UC was taking new claims in all parts of the country. But the Department for Work and Pensions (DWP) was still taking the roll-out slowly: by the start of 2020, UC had only about a third of its eventual expected final caseload.
Then coronavirus came – and UC was thrust into the frontline as the crucial safety-net benefit, working alongside the Job Retention Scheme, and the Self-Employment Income Support Scheme.
Claims for UC began to grow the day after the Government advised people not to go to pubs or restaurants, to work from home and to avoid non-essential travel. A week later, the lockdown was announced, and UC claims ran at nine times their pre-crisis rate.
Overall, 2.6 million claims for UC were recorded in just eight weeks. To put this surge into context, more claims were made in the first four weeks of this crisis than in the first nine months last crisis in 2008. Combine this unprecedented surge with UC’s chequered history in terms of its roll-out, and you’ve got a recipe for disaster.
But to DWP’s huge credit, its online systems are performing well, consigning queues outside jobcentres to the past.
Since the crisis hit, DWP say that over 90 per cent of payments due have been paid in full and on time, and the vast majority of advance payments are paid with 72 hours.
Three in four new UC claimants surveyed by us reported they were satisfied or very satisfied with the way DWP handled their claim. We shouldn’t take this for granted. Current experience from the US shows the hardship and health risks that can arise when government systems can’t cope. So far, Universal Credit has proved to be a surprise hero of the crisis.
So who is the system helping? It’s important to remember that as well as helping those with no job, or whose self-employment business has dried up, UC is an in-work benefit. This means it is also topping up the incomes of those on low pay, or whose earnings have fallen following cuts to their working hours or due to being furloughed. Interestingly, just over one in four of the new UC claimants we surveyed were self-employed, perhaps claiming help from UC while they wait for Self-Employment Income Support Scheme grants that are not paid until June.
But despite the emergency £20 a week boost to UC, some of those whose jobs have disappeared are missing out. One example would be a young a couple who are saving for their first mortgage deposit which, if more than £16,000, would prevent them receiving any support from UC should they lose their jobs. To stop this, the DWP should suspend the ‘capital rules’ that are penalising those with savings of £6,000 or over (the point at which UC starts to be tapered away).
Having passed the first test, new challenges await UC. We are going to see labour market disruption carry on into the second half of the year. A second surge of new UC claims may come as the Retention Scheme is phased out, and with that will come a second hit to living standards.
And that hit could be huge. We estimate that those people furloughed see a typical hit to family incomes of just 9 percent, but those made redundant and claiming UC see a typical hit of 47 percent of their in-work income. That doesn’t mean we should extend the current Retention Scheme indefinitely: it means that DWP needs to start preparing now for those extra claims, and politicians need to focus on UC as the key programme protecting families’ incomes throughout and beyond the coronavirus crisis.
DWP will also have to decide when and how to help people look for work. But returning to the light-touch conditionality-plus-sanctions regime in UC will be completely inadequate. A major challenge for DWP is to devise new programmes that can cope with the volume of unemployed people, and whatever labour market conditions we find ourselves in, and it needs to resource these properly.
Finally, it’s not realistic to assume that all of those who lost their jobs last month will find work quickly. DWP will need to monitor carefully how UC recipients are coping with the prolonged hit to their family finances. We think that, to protect family finances through the current crisis, the Government should temporarily suspend or increase the benefit cap, so that all families on UC benefit from the emergency measures. The Treasury should also commit to continuing the additional £20 a week on UC beyond the current financial year, rather than letting it expire next March.
This is Universal Credit’s first experience of an economic crisis and the UK’s first experience of going through a recession with Universal Credit as our key safety-net benefit. It has performed well so far, confounding expectations, and our recommendations will put it in the best position to overcome future challenges.