There is a lot of discussion in the media this week about the immediate and long-term impact of Universal Credit (UC), whether people will be better or worse off, and whether the ‘losers’ will have their incomes protected when they first move over to UC. This blog seeks to clarify the story.
At present only about a million households are receiving UC, of the 7 million eventually expected to move on to it. From next year the DWP will start asking 2 million households receiving so-called ‘legacy’ benefits to apply for UC, giving each of them a deadline to do so. This process is known as ‘managed migration’. The remaining 4 million will come on to UC through new claims, either claiming benefits for the first time or because they have a change of circumstances (known as ‘natural migration’). It is only the 2 million households going through the managed migration who will have the chance to receive ‘transitional protection’ – a top-up to ensure that their UC payment won’t be any less than they would have received under legacy benefits, if they would otherwise have been worse off on UC.
I say ‘have the chance’ to receive transitional protection, because in practice many of this 2 million won’t receive it. The draft legislation setting out how transitional protection will work specifies that nobody living in temporary accommodation or supported housing (such as a refuge) will be eligible, and nor will families affected by the benefit cap. Furthermore, transitional protection is only available to people who complete their UC claim successfully on their first attempt and before the deadline – if you make a mistake in your first claim and have to start again, or miss your deadline even by a few days, you won’t qualify even if you successfully claim UC later. Currently 1 in 5 claims to UC fails because of difficulties people face with the application process, meaning hundreds of thousands are likely to lose out. As well as losing transitional protection, those who do not claim by the deadline will see their other benefits stop.
And of those who do qualify for transitional protection, many will lose it due to common life events. If a couple moves in together or separates, if someone loses their job and doesn’t get another one within three months, or if someone earns enough to move off UC and then reclaims after three months or more, they will lose transitional protection completely. Others will see their transitional protection eroded over time because any change which would otherwise increase their UC – such as rent going up, or having a child – will instead eat into the top-up.
The other 4 million to claim UC will have no chance to access transitional protection at all. While we don’t know exactly which households will move on through the managed migration vs natural migration, overall we know that the majority are going to be entitled to less money under UC than the legacy system of tax credits and other benefits. 3.2 million working families are expected to lose an average of £48 a week (perhaps the source of Esther McVey’s figure that some families will lose £200 a month), compared with 2.2 million working families who will gain, according to Resolution Foundation calculations. Half of these will lose because they will not be entitled to any UC at all. The majority of non-working families – 1.1 million according to the IFS – will also lose out in the move to UC.
All of these families will be worse off than had the cuts to UC not been made - £3 billion taken out in work allowance cuts alongside a freeze on benefit rates, the two-child limit, and the scrapping of the ‘limited capability for work’ element for disabled people.
The uncertainty here concerns take-up. Estimates show that only 77% of those entitled to housing benefit, 84% of those entitled to income-related ESA, 56% of those entitled to income-related JSA, 86% of those eligible for child tax credit and 65% of those eligible for working tax credit, in fact claimed in the last year for which take-up was assessed. The idea that UC will increase take-up by rolling these benefits into one is one of its few remaining selling points. It is probable that the take-up of housing benefit will improve because it is paid with UC, but it is not at all certain - given the technical complexities of claiming UC and the intrusion of new forms of conditionality into people’s lives - that there will be an improvement in the rest.
Despite government assurances to the contrary, it thus looks like most people will lose out from the move to UC. The media, public and politicians are just beginning to wake up to the consequences of austerity cuts which took £37 billion out of the social security budget for working-aged people, yet most of these cuts are yet to come into effect. If the Prime Minister is serious about bringing austerity to an end, she ought to urgently reinvest in universal credit to ensure that people are not left worse off, restore work allowances to improve the rewards from work, and redesign the migration process so that it truly protects everyone’s incomes.