Universal Credit - Time for a U-Turn

The first in-depth analysis of the impact of Universal Credit was published last week and placed Southwark firmly in the spotlight.

The report, which can be read here, was commissioned last year by Southwark council, along with Croydon, and serves as a pretty damning indictment of the adverse impact of Ian Duncan Smith’s flagship welfare reform. 

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Both boroughs were amongst a number of trial sites for the roll-out of the policy, which aims to reduce poverty, “by making work pay”, and to help claimants and their families to become more independent. It also aims to simplify the benefits system by rolling six existing benefits payments into one. These are:

• Income-based Jobseeker’s Allowance

• Income-related Employment and Support Allowance

• Income Support

• Working Tax Credit

• Child Tax Credit

• Housing Benefit

That’s the theory anyway.

In reality its implementation has been disastrous for both residents and local authorities.

The research, carried out by the Smith Institute, confirms fears that more tenants are falling into significant rent arrears under UC than under the previous housing benefit system.

Delayed payments are driving people into debt and are having an adverse effect on their wellbeing. Many of those who are transitioning onto UC face additional hardship due to disability, unemployment or low income.

In Southwark alone, where only 12% of council tenants have moved onto universal credit, rent arrears for UC tenants total over £5.3m. You don’t have to be a genius to work out that if this were to be reflected nationally the arears would run into hundreds millions of pounds.

Fiona Colley, Southwark council’s Cabinet member for Finance, Modernisation and Performance, states that as a result of the implementation of UC “hundreds of thousands of social housing tenants could find themselves in significant debt while social landlords incur substantial additional costs.

“We do not believe this is either acceptable or necessary.”

Something clearly isn’t working.

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Cllr Fiona Colley giving evidence to the Work and Pensions Select Committee

So what’s causing the issue? As noted above the policy aims to mimic how most people receive their wages if they are employed – ie on a monthly basis.

Anyone who starts a new job also normally gets paid in arrears.

As a result when applying to UC a seven day waiting period is initiated at the beginning of the claim for which no benefit will usually be paid.

Those making a claim for UC are also expected to wait for at least six weeks for their first payment to be made – a much longer period than under the previous arrangements. It is this delay that is causing people to enter into rent arrears. After all, how are you supposed to pay your rent when the main means with which you do so is effectively stopped for six weeks?

Impact on Southwark

Southwark has a larger proportion of its housing stock made up of rented social housing than any other local authority area in England and Wales. It is also one of the biggest social landlords in the South of England. This inevitably means that it will be more adversely affected by the policy than local authorities with comparatively less social housing.

Key Findings:

  • Arrears were larger for those on UC than HB: By week 20, UC tenants were on average £156 in arrears while HB tenants overpaid by 4% of rent due (reflecting repayments).
  • Those on UC were more likely to underpay by more: Whilst UC tenants were no more likely to underpay than HB tenants the level of underpayment varied widely. 39% of cases of underpayment being by more than 75% of rent due. The HB figure was just 8%.
  • There are likely to be significant costs to landlords: If after the period covered by the available data tenants continued to meet their rent overall (as the data for the latter weeks suggests) levels of arrears to rent would fall to around 2% for the year. Nevertheless, for a landlord with 20,000 tenants this would represent around £5.4m more than HB claimants, with arrears accumulating quickly within the space of three months.

 

For a full list of findings click here.

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Conclusions

Simply put participants in this research almost universally have experienced financial hardship as a result of transitioning onto UC; notably as a result of the significant delays to payment. The impact this has on claimants’ ability to pay their rent is significant – with tenants falling into arrears, or into worse arrears.

These findings have significant implications for local authorities up and down the country, especially those with large amounts of social housing. More importantly, the national roll-out of UC has the potential to cause significant damage and misery to thousands of people who, as this research suggests, will find themselves in debt.

The knock-on effects will be wide-ranging. Just this month Southwark News published an article focusing on the huge rise in the use of food banks in the borough as a result of UC’s introduction.

What Next?

Southwark council now finds itself in a unique position to use its experience in order to raise awareness and influence national policy as UC starts to roll out across the rest of the country.

As political pressure grows on the government common sense would dictate that we will soon be hearing about a universal Credit U-turn.

Fiona Colley has already written to the Secretary of State for Work and Pensions calling for the removal of the seven day waiting period and the introduction of a housing benefit run-on.

Whether the government will listen to growing calls for a pause in the policy’s introduction, at least until some of the more damaging aspects of it can be addressed, remains to be seen.

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