Universal Credit (UC) is the biggest and most fundamental reform to the welfare system since its creation. It is based on the principles that work should always pay and those who need support receive it, whilst also being fair to taxpayers.
A decade ago, the welfare bill cost each household around £8,500. This was an increase of nearly £3,000 per household since 1997. The system was failing to reward work and trapping people on welfare.
UC protects vulnerable claimants and ensures that work always pays. As UC entitlement is based on up-to-date information about a claimant’s circumstances, it more accurately reflects their financial needs.
Extra support was announced by the Chancellor as a temporary measure in March 2020 to provide additional support those likely to be facing the most financial disruption as a result of the public health emergency. Alongside the temporary increase to Universal Credit and Tax Credits, the Government invested over £352 billion in measures to create, support and protect jobs and businesses, introduced mortgage holidays and additional support for renters, and worked with energy suppliers to protect those struggling with energy bills.
I know my colleagues in the Department for Work and Pensions remain focused on supporting people by helping them get back into work through the Government’s £30 billion Plan for Jobs, including schemes such as Kickstart. The Chancellor has announced further support for UC recipients to help with the cost of living. Around eight million UC recipients will receive cost of living payments worth £650 from September.
This is on top of a previous £1 billion package of changes, providing two additional weeks of DWP legacy benefits for those moving onto UC, a 12-month grace period before the Minimum Income Floor is applied, and extending the payback period for Universal Credit advances from 12 months to 24, meaning in effect someone can receive 25 payments over 24 months.
Furthermore, I welcome the decision announced at the 2021 Autumn Budget to reduce the UC taper rate from 63 per cent to 55 per cent, as well as increasing work allowances in UC by £500 a year. These changes to UC represent an effective tax cut for low income working households in receipt of UC worth £2.2 billion in 2022-23.
In response to Covid-19 the Government increased Local Housing Allowance (LHA) rates to the 30th percentile of local rents. This significant investment of nearly £1 billion provided 1.5 million claimants with an average £600 more housing support in 2020/21 than they would otherwise have received. The uplift has been maintained in cash terms meaning that claimants will continue to benefit from the increase.
In addition, Government has increased the housing support available to care leavers and those with a history of homelessness. From 31 May care leavers under 25 and those who have spent at least three months in a homeless hostel, who would otherwise have the shared accommodation rate of LHA applied, will be able to claim the higher, one-bedroom rate.
In most cases, the Universal Credit single monthly payment is paid direct to claimants. However, a managed payment to landlord can be considered on a case by case basis.
The availability of such payments to landlords mirrors the position in legacy Housing Benefit since 2008 for those who reside in the private rented sector.
A claimant can request a managed payment by speaking to their work coach or case manager. Landlords may use the online ‘Apply for a Direct Rent Payment service’ to request direct payments of rent. It replaces the paper-based forms previously used. Social landlords can also request a managed payment to landlord through the landlord portal.
The removal of the spare room subsidy policy has been an important tool to help to manage housing support expenditure and enable mobility within the social rented sector. For those who require additional support with housing costs, Discretionary Housing Payments are available.
For 2021-22 the Government has made available £140m in Discretionary Housing Payments funding for local authorities in England and Wales to distribute to help support vulnerable people with housing costs.
Discretionary Housing Payments can be paid to those entitled to Housing Benefit or the housing element of Universal Credit who face a shortfall in meeting their housing costs.
There are no prescribed resources tests; local authorities simply have to be satisfied that the person concerned is in need of further financial assistance towards housing costs. The payments are entirely at local authority discretion, including the amount and duration of any award and there is no limit to the length of time over which a Discretionary Housing Payment may be made. It may be awarded for a short period to give a claimant time to deal with their financial circumstances or for an indefinite period until their circumstances change. The start and end dates of an award are decided by local authorities on a case-by-case basis.
The Government has increased the level of support for childcare costs within UC from 70 per cent to 85 per cent, meaning a working family with 2 children can now receive up to £1,108 per month. This support is available to lone parents who are in paid work regardless of the number of hours they work. This helps ensure families with children are able to look for work and progress in their careers, perhaps by taking on more hours. This is part of a wider package of increased childcare provision. This includes an extra 15 hours of free childcare available to working parents of 3 and 4 year olds since September 2017, and the gradual introduction of Tax-Free Childcare for working parents of children aged up to 12, and disabled children aged up to 17.
It is important to note that people do not receive cover for the costs of childcare unless they have a job or are in employment. Childcare is not available to those who are looking for employment.
From April 2017, new claims have been limited to the first two children. It is important to support families, but it is also important to be fair to the many working families who do not see their budgets rise when they have more children. This does not apply to Child Benefit, nor the disabled child element of Universal Credit.
According to the Universal Credit Service Claimant Survey, 98 per cent of claims are made online and over half of claimants did not need help making their application. All Jobcentres across the UK have free Wi-Fi and there are computers available to support customers with making their claim online. Where people who are still unable to access or use digital services, assistance to make and maintain their claim is available via the Freephone Universal Credit helpline. Home visits can also be arranged to support vulnerable claimants in making and maintaining their claim.
The Government has funded Help to Claim for a second year with up to £39 million, enabling Citizens Advice and Citizens Advice Scotland to continue supporting Universal Credit claimants. Help to Claim provides free, confidential and impartial support to help people make a UC claim. People using the service can get advice on anything to do with applying for the benefit, including gathering the required evidence, filling in the application or preparing for their first jobcentre appointment. People can also access support online and over the phone through local Citizens Advice bureaus.
Any student loan or grant paid to meet living costs is subject to a £110 disregard in each Assessment Period where student income is taken into account, equivalent to that provided under Legacy Benefits. Any reduction is only for living costs as loans or grants for other things, such as tuition fees or books, are fully disregarded. Any Special Support loan/grant is also fully disregarded as this specifically covers the costs of the course. Universal Credit does not duplicate the support provided by the student support system.
A key principle of Universal Credit is that it supports people who do not have assets available to meet their basic needs. This is to ensure that the focus remains on getting money to people who need it and safeguarding the most vulnerable.
This means that if someone's capital exceeds £16,000 they are not entitled to Universal Credit. However, I would emphasise that if someone has money in their account that is to be used for business purposes, such as savings reserved for tax payments or business investment, this will not be considered personal savings and will not be taken into account when calculating how much Universal Credit they may be entitled to.
One-off payments are treated as earnings in the same way that they would be for tax purposes. I agree wholeheartedly that individuals should be keep more of what they earn, and I am especially glad that the threshold for National Insurance contributions is going up to £12,570.
I am aware of media reports regarding UC recipients spending money on ‘luxury’ goods. I do not believe that it would be right for me to comment on media speculation regarding individual cases. The UC system is means tested, protecting vulnerable claimants, whilst ensuring that work always pays. The reduction in the UC taper rate from 63 to 55 per cent will help further incentivise UC recipients to get into work.
Finally, the £20 uplift, as it was when in operation, was a temporary response to the Covid-19 pandemic as part of the package of measures, worth up to £400 billion, to create, protect and support jobs in the UK which was withdrawn along with the rest of the measures.
The Government has made permanent changes to Universal Credit to make it more generous. The Chancellor at the 2021 Autumn Budget reduced the UC taper rate from 63 per cent to 55 per cent. Combined with increasing work allowances in UC by £500 a year, this is worth £1,000 a year to a full time worker.