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Social Justice

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 afloat.

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. Now, claimants are receiving texts and notifications telling them their payments will be cut at the end of September.

Anti-poverty campaigners and MPs warned the cut could be devastating for millions of families facing a financial cliff-edge, especially with the furlough scheme also due to end. Even former Conservative welfare ministers have written to the chancellor urging him to make the £20 increase permanent to avoid sending families into financial crisis.

In August, the prime minister told broadcasters: “My strong preference is for people to see their wages rise through their efforts rather than through taxation of other people put into their pay packets.”

But universal credit claimants who have jobs are falling into poverty too, research has shown. One in six working households were living below the breadline just before the pandemic and in-work poverty is at a record high.

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So 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.

People under 25 are paid less in universal credit than those over 25, but the public supports increasing the amount they are paid to match older adults, Fabian Society research has shown.

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. 

Around five million households claimed universal credit between the beginning of the pandemic and April 2021 – more than two fifths (42 per cent) of the total 12 million claims made since the controversial benefit system was introduced in 2013.

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.

Around 47,000 people per week made a new claim for universal credit between February and March, dropping to an average 39,000 per week between March and April, signalling a gradual decrease in people needing state support for the first time though the overall number of people claiming the benefit (six million) remained the same.

This is backed up by a significant drop in new claims between the first week of 2021 – when 75,000 people signed on for the benefit – compared to the 34,000 new claims made in the first week of April 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 2020.

Since February 2018, more women than men have started on universal credit each month. But the four weeks up to April 8 2021 bucked the trend, with men accounting for a higher proportion (51 per cent) of people starting on the benefit. The government observed a similar pattern in the first month of lockdown last year, when 56 per cent of universal credit starts were men.

Why is universal credit controversial?

The 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 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.

The UK hit its highest in-work poverty rate of the century just before the pandemic, according to research by the Institute for Public Policy Research, and the chance of households with two people in full-time work being pulled into hardship has doubled since the millennium.

Researchers cited a failing benefits system as one of the four main drivers of in-work hardship, as well as soaring housing costs, low-paying jobs and costly childcare.

“The government’s response to the crisis of in-work poverty is a cut [to] universal credit, taking £1,000 from five million families already struggling,” said Jonathan Reynolds MP, Labour’s shadow work and pensions secretary.

People also lost out on state support unfairly in lockdown because of their partner’s income, campaigners argued.

Around 200,000 people were ineligible for universal credit during the pandemic because the government said their partner earned too much, research found, despite struggling to afford food and falling behind on bills.

Millions of Brits are falling short of the minimum income needed to live secure and stable lives even if they are on universal credit, a study by the Joseph Rowntree Foundation (JRF) showed.

The organisation’s annual Minimum Income Standard (MIS) report found single people would still be £3,000 short of an income which could cover rent, food and other essential costs even while working full-time on a living wage.

A couple with two children who are out of work and relying on benefits would fall around £14,000 short of the necessary income, rising to around £20,000 for couples without children. Only if the couple were both working full time on the national living wage and received universal credit would they be earning just over the £34,200 required to make ends meet, researchers said.

“It is deeply concerning that millions of households across our country are having to live on incomes that fall so far short of what the public thinks is needed for a minimum standard of living,” said Iain Porter, policy and partnerships manager for JRF.

“Social security should be strong enough for all of us when we need a lifeline, but cuts and freezes in recent years have left it to wear thin and threadbare. We urgently need to restore public confidence by investing in adequate social security support for families when they need it.”

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. 

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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.

On July 9, Supreme Court justices dismissed the High Court appeal of two mums and their children against the two-child limit on benefits payable.

Their solicitors said the policy, which impacts the families of around a million children, breached human rights to be protected from discrimination.

Carla Clarke, head of strategic litigation at Child Poverty Action Group – which represented the mothers and children – said: “This is a hugely disappointing judgment which fails to give any meaningful recognition to the reality of the policy on the ground and its desperately unfair impact on children.  

“We know the two-child limit increases child poverty, including child poverty in working households, and forces women to choose between an abortion and raising their families without enough to live on. It limits the life chances of children by reducing them from a person to a number.   

“It is well established that the ultimate safeguard against discrimination, particularly on contentious issues, lies with our courts.  That is simply not in evidence in this judgment.   

“We continue to believe that the policy is unlawful and, together with our clients, are considering taking the matter to the European Court of Human Rights so that no child is left out of the social security safety net purely because of their birth order.” 

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.

Work and pensions secretary Thérèse Coffey told MPs the cut would go ahead in September, confirming that she will write to the six million claimants to warn them of an “adjustment in their payments”.

The prime minister later echoed Coffey’s statement, insisting ministers would instead focus on helping people into work – despite huge numbers of workers having to rely on universal credit despite having a job.

More than 6.2 million families will be impacted by the payment cut, according to JRF. 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.

Dora-Olivia Vicol, executive director of the Work Rights Centre, told The Big Issue removing the £20 universal credit increase threatens to have a bigger impact on migrant workers.

“The planned cuts to universal credit will be devastating for families who struggle to make ends meet,” said Dr Vicol. “Ending the £20 uplift would mean returning to one of the least generous welfare systems in the OECD. This is unlivable.

“A decent welfare system can constitute a real lifeline. We just need to stop seeing it as a drain, and acknowledge that, when they are at their most vulnerable, people need support, not the threat of destitution.”.

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”, Jonathan Reynolds said.

“The prime minister can be in absolutely no doubt about the momentous task he faces in ‘levelling-up’ left behind areas of the UK,” said Sara Willcocks, head of external affairs for Turn2us, calling for the uplift to be made permanent.

“The faith many voters placed in him to deliver improved regional equality seems to be at serious risk.”

“The coronavirus has clearly had a significant impact on social mobility and the government must invest in opportunities and remove barriers if it is serious about giving everyone a fair opportunity to thrive in life. We urge Number 10 to reverse the planned cut to universal credit in September if they want to reverse this worrying trend.”

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.

Meanwhile six former Conservative welfare secretaries wrote to Rishi Sunak calling on him to make the £20 increase permanent, protecting families on low incomes and boosting the economy.

It would be a “terrible mistake” for ministers to “weaken universal credit further”, according to JRF’s Iain Porter, likely to leave millions of families “unable to meet their needs”.

Dora-Olivia Vicol, executive director of the Work Rights Centre, told The Big Issue the cut threatens to have a bigger impact on migrant workers.

“The planned cuts to universal credit will be devastating for families who struggle to make ends meet,” said Dr Vicol. “Ending the £20 uplift would mean returning to one of the least generous welfare systems in the OECD. This is unlivable.

“A decent welfare system can constitute a real lifeline. We just need to stop seeing it as a drain, and acknowledge that, when they are at their most vulnerable, people need support, not the threat of destitution.”

Welfare minister Will Quince told MPs the Department for Work and Pensions (DWP) had made no assessment of the cut’s potential effect on women, ethnic minorities and those in deprived parts of the UK – the people worst-affected by pandemic poverty. But ministers would still remove the £20-per-week increase on October 6.

The DWP said it was “not possible to produce a robust estimate” of how the autumn benefits decrease could impact child poverty or those in work but still struggling to make ends meet, who make up the bulk of those claiming it.

The decreased payments will amount to the “biggest overnight cut to the basic rate of social security since the Second World War”, according to Katie Schmuecker, deputy director of policy and partnerships for the Joseph Rowntree Foundation.

Quince’s comments came just days after – in response to a Freedom of Information request by the Poverty Alliance – the DWP refused to disclose any analysis undertaken into how the universal credit cut would impact UK poverty rates because the government did not deem it to be in the public interest.

In an open letter to the prime minister coordinated by JRF, 100 organisations including The Big Issue warned the cut would “repeat the mistakes of the last economic crisis”.

The letter was sent to Boris Johnson on September 1, a month before the benefit is due to be slashed on October 6.

Experts warned cutting the £20 increase would “fundamentally undermine the government’s mission to level up” and “risk repeating the same mistakes that were made after the last economic crisis”, referring to the decade of austerity which followed the 2008 financial crisis.

Backing the letter to the PM, The Big Issue called on the government to make the increase permanent as part of the Stop Mass Homelessness campaign to prevent thousands of people losing their home in the months ahead.

Does the public support keeping the £20 universal credit increase?

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

A separate study by the Fabian Society found that a majority of the British public wants the increase made permanent for particularly vulnerable people including young adults, carers and disabled people.

Politicians must “catch up with public thinking” around the social security system according to Mubin Haq, chief executive of Standard Life Foundation, to give people “a fair chance to get back on their feet”.

“The cost to government spending is significant, but the human cost of inaction is even greater,” Haq added.

More than 70 per cent wanted increased payments for disabled adults who work part-time for the minimum wage. Meanwhile 68 per cent supported higher benefits for single parents, with two pre-school, children who work part-time for the minimum wage.

Around 77 per cent of people said the government should pay more to severely disabled people who may not work again, while 75 per cent wanted higher benefits for adult carers.

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 for JRF.

“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.

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