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Universal Credit: What is it and why does the £20 increase matter?

Many have struggled to get by on Universal Credit during the pandemic, or found themselves having to claim for the first time. We explain the controversial benefits system

The controversial universal credit system has been under a microscope throughout the pandemic after redundancies, the furlough scheme and income losses pushed thousands of families into poverty.

Unemployment hit a five-year high at the end of 2020, with 5.1 per cent or 1.74 million people out of work. It means thousands more are relying on the social security safety net to stay float.

Anti-poverty experts welcomed a £20 weekly increase in payments for those claiming universal credit (UC) and working tax credits, introduced by the Government at the start of lockdown last year.

At Chancellor Rishi Sunak’s Spring Budget on March 3, he announced that £20 increase would remain in place for a further six months, until the end of September 2021.

But anti-poverty campaigners and MPs said the extension did not go far enough to stop millions of families facing a financial cliff-edge later in the year, just as the furlough scheme is also due to end.

Extending the increase was “little more than delaying a cut that will take our social security system back to totally inadequate levels,” charity Turn2us said, adding that “half a million families will fall into poverty as a direct result” of removing £20-per-week from their incomes.

But why is the universal credit system controversial and the increase so important? Who is likely to be affected? We answer your questions.

What is universal credit?

Universal credit was introduced by the Conservative government in 2013, designed to streamline the benefits system. Instead of a patchwork of means-tested benefits like housing benefit and income-based job seeker’s allowance, it wrapped them up into one single monthly payment. It can be applied for online.

It is paid to people on low incomes, both in and out of work. People receiving benefits have been gradually migrated onto the UC system since its introduction. The Government aims to have everyone on the newer system by 2024.

In England and Wales, those who get help to pay their rent will receive it in their monthly UC payment which they must then use to pay their landlord themselves. In Scotland and Northern Ireland, claimants have the option of having the rent paid directly to their landlord.

People who live as a couple and both claim UC will get a joint payment paid into one bank account.

Claimants can be sanctioned, which means having their payments cut for a period of time, if they miss a meeting with their work coach or refuse to go for an interview for a job signposted to them. Sanctions can last for a couple of weeks or for months, depending on the reason.

The Government suspended new sanctions at the start of the first lockdown last March, but reintroduced them in July and allowed them to continue throughout later lockdowns. However any sanctions handed out before the pandemic were allowed to continue throughout.

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Who is eligible to claim universal credit?

People aged 18 or over who are on a low income or are out of work can apply for UC. A person or their partner must be under state pension age and have £16,000 or less in savings.

In some cases, exceptions are made to pay universal credit to 16-17 year-olds and students.

There is no limit on the number of hours people can work if they are employed and claiming universal credit. However payments will reduce depending on how much is earned.

Six million people claim universal credit, official Government figures show, which is double the number who received the benefit before Covid-19 hit the UK. 

The number of people claiming universal credit grew by 270,000 between January and March 2021, demonstrating that “the economic consequences of this pandemic are still in full swing,” according to James Grier, director of external affairs at anti-poverty charity Turn2us.

446 people made a new claim for universal credit every hour in the first week of 2021.

New universal credit claimants include more than 620,000 families with children, according to Save the Children, a 51 per cent increase to 1.8 million since March.

There are an average of nearly 10,000 people claiming universal credit in each parliamentary constituency, charity Z2K said.

Why is universal credit controversial?

The universal credit system has been long criticised as not fit for purpose. 

One problem is the five-week wait most claimants face between applying for the benefit and receiving their first payment. It has been blamed for pushing people further into debt.

Claimants can receive an advance payment to cover the wait, but it must then essentially be paid back. Their payments for the next year are spread out over 13 weeks instead of 12. 

The Government refused to investigate the impact of universal credit on low-income households. This was despite a scathing work and pensions committee report linking it to food bank use and rent arrears.

The Government has refused MPs’ recommendations to investigate the impact this has on people and to introduce a non-repayable starter grant.

The UC system is complicated, making it difficult for people to calculate how much they might receive. Many families who faced income cuts during the Covid-19 crisis found they were not eligible for UC, despite struggling to make ends meet. Applying for UC payments could also end any tax credits a person receives.

Last year a Lords Economic Committee report said universal credit “punishes the poorest”.

The Scottish Government blamed universal credit for pushing people into homelessness in “deeply worrying” findings on the link between the five-week wait for a first universal credit payment and people left without somewhere to stay.

Both the five-week wait and benefit sanctions were directly contributing to homelessness levels in Scotland, according to the report, after tenants were forced into rent arrears and subsequently eviction.

Scotland’s homelessness rate increased from 532 people per 100,000 in 2015/16 to 573 people per 100,000 in 2019/20, which “roughly coincides” with the introduction of universal credit, researchers said. 

It is not possible to “draw conclusions from these high-level statistics,” the report said, but that “evidence from charities and other organisations indicates … that certain features of universal credit can lead to homelessness,” it added.

Hardship at the hands of the universal credit system was also causing relationship struggles and mental health problems in claimants, the Holyrood report said.

Poverty among people claiming universal credit is so common that most UK telecom companies offered cheaper – if temporary – packages to those on benefits during the height of the pandemic.

This June BT will launch a special deal for people receiving universal credit, offering high-speed fibre broadband for less than half its normal price. 

Eligible households – in receipt of universal credit, jobseeker’s allowance, income support, the guarantee credit element of pension credit or employment and support allowance – will pay £15 per month.

What is the benefit cap?

Restrictions on the total amount of money people can receive in benefits including universal credit have also been blamed for pushing people into poverty.

The benefit cap is applied based on where a person lives, if a person has a partner and if they have children living with them. The Government said it is designed to ensure no one on benefits can receive more than the minimum wage equivalent through the welfare system.

It means a household can be assessed by the DWP to need a certain amount of money to live, but receive less than that if that is more than the limit set by the law.

The numbers can vary but generally people outside London who live in a couple of have children are limited to receiving £384.62 per week, rising to £442.31 per week for those in London due to higher living costs.

Single people can receive £257.69 per week outside London or £296.35 per week in the capital.

Anti-poverty campaigners have long called for the cap to be scrapped. The number of households that had their incomes limited by the benefit cap soared by more than 137 per cent during the pandemic, according to Government figures.

Up to 76,000 households were affected by the cap in February 2020, before Covid-19 hit the UK. By November 2020, the number impacted had soared to 180,000. 

Around 3,800 households had their incomes capped by £200 or more per week. Roughly 39,000 people – 26 per cent of all households impacted by the policy – were capped by between £50-£100 per week.

The benefit cap “breaks the link between what you need and what you get,” a Child Poverty Action Group spokesperson said.

Londoner Saci Kumara Nimai Das slept rough at Heathrow Airport six years ago until he was rehoused as part of Sadiq Khan’s No Second Night Out scheme. But Das lost his job as an office manager for personal growth development company Landmark Worldwide in August last year after spending five months on the furlough scheme.

The 57-year-old former Hare Krishna monk, from Kensal Green, north-west London, applied for universal credit during the pandemic but was stunned to find he would be living on £0 a month from November 2020 to January this year.

 “I called them up when I read £0 and asked them if there had been a mistake and they told me: ‘No, you have been benefit capped’,” he told The Big Issue.

After receiving an initial payment of £300 in October, Das found out he had fallen foul of the benefit cap in November when his statement read £0.

Because Das’ monthly rent on his studio flat was £1,200 all of his universal credit allowance went straight to his landlord, leaving him with nothing to live on.

He was forced to rely on food banks over Christmas and only had his benefit cap overturned with the help of charity Shelter, who found the cap had been applied prematurely. The Department of Work and Pensions paid £1,300 in payments backdated to October last year.

What is the £20 universal credit increase?

At the start of the Covid-19 lockdown in 2020, the Government introduced a temporary £20 weekly increase for people receiving universal credit and working tax credits.

It was designed to support those already struggling through what was a tough time for the economy.

It was initially expected to end in April 2021, but at the spring Budget Chancellor Rishi Sunak extended the increase until September. People receiving UC could face a £1,040 cut to their annual income if the increase ends as planned.

More than 6.2 million families will be impacted by the payment cut, according to the Joseph Rowntree Foundation. Another half a million – including 200,000 children – pushed into poverty. It will disproportionately affect single parents, BAME families and households including a person who is disabled.

Nearly 60 per cent of the public back making the increase permanent, according to polling from the Health Foundation and Ipsos MORI.

Self-employed people claiming universal credit face an extra cut to their incomes before the £20-per-week increase is set to end, with the minimum income floor for how much money they can claim set to be reintroduced in August. Britain is “facing the worst economic crisis of any major economy” because of the Government’s “incompetence and indecision”, said Jonathan Reynolds MP, Lexabour’s shadow work and pensions secretary.

Removing the £20-a-week increase would cut £1,040 from the annual income of millions of people across the UK.

The reduction will “push children into poverty and leave out of work support is at its lowest level in decades at a time when unemployment is set to peak,” Reynolds added, calling for the Chancellor Rishi Sunak to cancel the “economically illiterate” cut.

Two third of families claiming universal credit are single parent families, according to Save the Children, around 90 per cent of whom are women, meaning the impact of cutting the benefit by £20 a week will hit them the hardest.

Conservative MPs joined calls to make the increase permanent. In a report on the UK’s route out of the pandemic, the Tory Reform Group and One Nation caucus said cutting the benefit would be a “mistake” which would impact the country’s poorest families most.

“Although we have all made sacrifices, it is undeniable that younger people and children, lower income essential workers, and people in developing nations, are more disadvantaged than those of us who have been able to shield and maintain our incomes,” said Damien Green, Tory MP and One Nation chair.

The Covid-19 crisis had an “unequal effect” across society, the MPs said, urging the Government to target support at disadvantaged families.

Do people on other benefits get the £20 increase?

As well as campaigning to keep the £20 increase, campaigners say disabled people and those on so-called “legacy benefits” have been forgotten in Covid-19 support packages

People on employment and support allowance, child tax credits and income support, primarily people with disabilities and health conditions which prevent them working, did not receive any increase in their payments last year. Anti-poverty experts want the weekly £20 to be extended to them as well as keeping it for universal credit claimants.

The High Court is set to decide if the government acted unlawfully by not giving the two million legacy benefit claimants the increase.

Two people on employment and support allowance – one of the six so-called legacy benefits – won the right to challenge the government in court.

The disabled claimants applied for a judicial review over the Department for Work and Pensions’ failure to give them the same increase as other people on benefits, which they called “discriminatory and unjustified”.

The £20 increase would mean “being able to keep the house warm”, a single parent called Michelle reportedly told the All Party Parliamentary Group on Poverty at an evidence session about legacy benefits.

“It has been completely unjust to exclude people claiming legacy benefits from the £20 increase that was rightly made to Universal Credit over a year ago,” said Helen Barnard, director of the Joseph Rowntree Foundation.

“Disabled people and carers already face a greater risk of poverty, so there can be no justification for offering them less support than people claiming Universal Credit simply because they are in a different part of the system.”

The High Court accepted the case, submitted in March 2020, that only giving the increase to those on Universal Credit discriminated against disabled people was in breach of the European Convention on Human Rights.

Lawyers argued disabled people claiming legacy benefits are facing higher living costs during the pandemic but have to get by on less money than those on Universal Credit. The DWP should have to justify their “unfair” decision, they said.

The judicial review will be heard later this year, with claimants requesting it be held before the end of July.

But despite the Government’s decision to compromise by extending the universal credit increase until September, there is no indication ministers will budge on calls to give the increase to those on legacy benefits.

Work and pensions secretary Thérèse Coffey told MPs she did not believe the 2.2 million legacy benefit claimants had been treated badly during the pandemic.

Coffey said she was “not aware specifically of extra costs that would have been unduly incurred” by disabled people throughout the Covid-19 crisis. She said only that discussions were ongoing behind the scenes of government around keeping the £20 increase for universal credit.

But just days earlier, the Disability Benefits Consortium (DBC) published research showing 82 per cent of people on legacy benefits were spending more than they normally would in lockdown.

Two thirds of those surveyed reported going without essentials like food, heating or medication to make ends meet. Nearly half said they had fallen behind on rent, mortgage payments or household bills.

For many it became necessary to use taxis to get to essential appointments, driving living costs up further.