Universal creditors

It has been another terrible few weeks for the ministers and civil servants at the heart of the universal credit debacle, what with the release of the NAO report into the roll out, their own full service survey and the legal case which showed that they were discriminating against severely disabled people who moved between areas during the roll out period. I’m trying not to shed a tear, but it is pretty hard. Not for the politicians and civil servants, you understand, but for those on the receiving end of the clearly failing benefit.

There are plenty of reasons for this failure- the reports I have already linked to have more than enough detail, but to fully understand why this is so damaging (and to get some wider context into people’s lives rather than simplistic models often used by government) then you need to look no further than the JRF’s 2018 report on destitution in the UK.

Rather than rewrite a very sensible report, I want to try and unpick why people claiming universal credit might find themselves destitute in a bit more detail. If you want, all I’m doing here is fleshing out a couple of sentences closely and with some examples. Crucially I want to point out that this isn’t just “shocks” but in many ways the general running of the benefit that can lead to a spiral of debt and destitution.

The starting rates of universal credit are myriad, but a single person over 25 has a personal allowance of £395.20 a month, with any elements (including the housing element) paid on top. That’s £73.34 a week, roughly equivalent to other means tested benefits.

Private renters may find that their housing element doesn’t cover the rent, if this is seen as “too high” (ie. above the 30th percentile) in the area. Most under 35 year olds will be particularly hit by this, as they can only claim for a room in a shared house, no matter what their actual living circumstances are (or where they can reasonably move to). Social tenants will find their housing element may be reduced if the are seen to have a “spare” bedroom under the much loved bedroom tax. Homeowners will only be able to claim an interest only loan to cover some of their mortgage interest costs.

I’ve written elsewhere about the lack of a severe disability premium in universal credit. Needless to say, compared to the previous benefits system, those who live by themselves who have care needs are going to be significantly worse off.

As you can see, before we even get to the nitty gritty of people’s lives, the amount they receive is at or below a subsistence level. Those subject to the bedroom tax or living in higher rental properties (often because that was what was available when they moved and they could afford it) will be struggling to make ends meet from their remaining income.

So, let’s start at the beginning of a claim: the NAO report shows that 60% of people who claim universal credit also claim an advance. This is a loan from the DWP, that has to be repaid over the next 12 months (it used to be 6, but the government increased it last year following public outcry).  The NAO also stated that the average advance are around £43 a month, so that comes off before payment is made.

Of course the size of the debt (and therefore the size of repayments) is based on how long the household had to wait for the benefit. So it is worth pointing out that the NAO is expecting up to 338,000 households to be paid “late” (at the end of the first month-long assessment period) in 2018. So this is well over a month of having to rely on a DWP loan (or other begging/ borrowing) for a very large number of households.

Then payments get going, claimants might be paid in arrears, but they’ll spend it when they have the money. Payments will usually be based on the last month’s income (although woe betide anyone on very variable earnings subject to the surplus income rule) so what people get in one month and what they need in that same month may be two different things.

If people pay the rent (including any surplus bedroom tax or amount above the local housing allowance) then the money left after deductions and after rent may not be enough to see them through the month. They may be flush at the start, but even very careful spending is going to make the last weeks very difficult. So whilst the headline rates of universal credit may allow for a subsistence existence the sheer act of going through with the claim could be enough to push the household into destitution.

One way out of that trap, to smooth the curve, at least in the short run, is debt. Debt can happen in many ways- some less active than others. Households might not pay all of the rent. They may take out a short term, high cost loan. They might not pay their bills (those that they can not pay- prepayment meters abound).

They may get help from family or friends- a form of social debt. The ebb and flow of universal credit payments may mean that such support is reciprocal- if you’ve just received your payment and someone who loaned you £30 a week ago needs help, would you say no because you’ve got to get to the end of the month? They may also as a last resort look to the less friendly and scrupulous lenders you can find if you really need money quickly.

The other options are of course going without essentials (which is about as clear as destitution can be) or relying on charities or other non-reciprocal social giving.

Any debt taken on of course has to be paid off and if that comes with interest then you’ll have to pay more next month, leading to exactly the same (or worse) situation again in the next month. Give it a few months and reputable organisations (landlords, utility companies, council tax, etc.) can take repayments straight from your universal credit entitlement, meaning at least they get paid, but the amount the household receives gets smaller and smaller and the challenge of making ends meet becomes harder and harder. Just about managing becomes occasionally struggling becomes struggling all the time.

The point I’m trying to make is that whilst the actual allowances for universal credit are arguably slightly above the minimum level, the way that the system works means that households will actually be paid (or have after housing costs) puts them below what they need to fund their necessary expenses. Attempts to even stay afloat in those conditions is destined to make the situation worse in the long run.

This isn’t necessarily about monthly payments, but it is clear that on such a low daily income it is hard to manage a budget over a month. It isn’t also necessarily about paying rent to tenants- but again paying an amount less than their living costs including rent means that they have to make a hard choice-like it or not rent arrears are a choice people make to put food on the table for another week.

It also isn’t necessarily about shocks such as sanctions or payment hold-ups, but these no doubt cause destitution themselves. A sanction is enough to put many people into destitution and even if a hardship payment is authorised this is itself a debt, which has to be paid back- reducing payments when they do return.

So sanctions are one way into the destitution-spiral that can happen under universal credit, but it isn’t the only way by a long shot. According to the survey commissioned by the DWP, only a quarter of people say they do not struggle with financial commitments (a further 2% do not know). The rest, some 73% say that they struggle in one way or another. 35-36% of those surveyed stated that they were in housing arrears.

There is a contradiction at the heart of the DWP’s responses to all this. On waiting for payments they argue that advances are available, and they are- as a loan. On sanctions they argue that hardship payments are available, and they are- as a loan. On ‘extra’ housing costs such as the bedroom tax or above local housing allowance rent they argue (inaccurately, mostly) that people make a choice and can pay for this through their standard allowances. Finally, on payment amounts they argue that they are enough to cover basic living expense- and they possibly are unless there are other deductions, such as loan repayments or payments towards rent.

In very few cases are all of these things true at the same time- indeed, it needs someone not to have the first three for the fourth to be right. And that is why people end up somewhere below the safety net, wondering how the heck to get out.

2 thoughts on “Universal creditors

    • They are much less likely to use strong arm tactics, but the point is they don’t have to. They take the money before it gets close to the recipient. The risk is that the claimant doesn’t have the cash to get through the month and then visits a real loan shark to see them through.

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