4 charts you need to understand how people manage their money on Universal Credit
Half of people struggle to pay for their housing as they wait for payment
What you need to know in 150 words
You might have heard about the wait many people face before they’re paid Universal Credit.
In 2017, government responded to evidence we saw of people struggling to cope by cutting the wait from 6 weeks to 5, providing bigger repayable advance payments to more people and paying 2 weeks’ extra housing support.
This made a dent in the problems, but didn’t fix them.
Our new research shows around half of people we help with Universal Credit still fall behind on rent while waiting for their first payment. Financial problems continue beyond the first few weeks — deductions to repay arrears and money owed to the government are common, and the new benefit is paid in rigid ways that can make it hard to budget.
The government must take action to make sure the benefit works for everyone. This should include making sure people can access adequate financial support at the beginning of their claim and ensuring Universal Credit provides enough to live on.
What you need to know in more detail — with the help of 4 charts
Things have got better, but there’s still big problems
In 2017, problems with rent arrears and other debt prompted the government to take action. They:
- cut the wait down by a week
- provided bigger advance payments
- gave extra money for people moving off housing benefit.
They’ve also made progress on paying more people on time, though 1 in 6 new claims are still paid late. We welcomed these changes because we thought they could make a difference. And they have.
Before the changes, 7 in 10 people we helped who made a claim had to borrow from friends and family, and 6 in 10 went without essentials or fell behind on their bills. After budget changes, this has fallen to half of people. With 1.6 million people due to move onto Universal Credit in this year alone there’s still a huge problem.
In the 2018 Budget, the government unveiled new plans to support people moving from unemployment and disability benefits, but this won’t be in place until summer 2020.
Advances only make a dent for people who have financial difficulties
There’s no doubt that advances help people get through the now 5-week wait for their first payment. People tell us they are vital.
“It was the 6 April, my first payment wasn’t due until the 2 May so I couldn’t go all that time without money… I took the advance payment just to pay off my bills.” — A person we helped with Universal Credit
People often claim Universal Credit because something disruptive is happening in their life, like losing a job or ending a relationship. This can create huge financial pressures and we know many people don’t have savings, so quick access to financial support is needed.
But the data tells us that advances alone can’t solve the financial problems people face. In fact, the people we help who get them are more, not less, likely to build up debt than those who don’t. We think that’s because they start off in worse financial situations that mean they have to take out advances.
Budgets stay really tight beyond the first few weeks
People we help often struggle financially well beyond the first few weeks of being on Universal Credit.
There are lots of reasons for this. The level of benefits has been frozen since 2016 despite rises in the cost of living. This is combined with some people getting less in the new system.
Universal Credit is paid monthly, but many who work or claim the old legacy benefits are used to getting paid more often, which creates budgeting challenges.
Too few people have access to the different ways of being paid, like getting payments twice a month.
Only 14% of the people we helped over the last year knew more frequent payments were possible, although 80% of those who weren’t told about it would have taken the option if they had known.
And of the thousands of people who come to us for debt advice, we found that people claiming Universal Credit have just £2 left over each month after paying for essentials for rent and food, compared to £12 for people who claim the “legacy benefits” that it replaces.
More than half of people don’t actually get their whole award
Government can currently deduct up to £127 a month for a single person over 25 before someone receives their Universal Credit payment to pay back advance payments or recover debts like tax credit overpayments or rent arrears. This is so widespread that 53% of all Universal Credit payments in September 2018 had some money deducted before reaching anyone’s bank account. A quarter had more than 20% of their “standard allowance” deducted — that’s £63 for a single person over 25.
When deductions are made, it’s harder for people to cover bills and essential costs. Most people (7 in 10) think that the maximum amount the government should take is less than £40 a month. The government has recognised that the current £127 a month is too high and will bring it down to £95 in October 2019 — but our evidence suggests this will still be too much for some.
What needs to happen now
To meet the scale of challenges in Universal Credit, and to help people manage their money, the government must take action. It must:
- Make sure people can access adequate financial support at the beginning of their claim and look to improve Universal Credit design to reduce the wait.
- Ensure Universal Credit provides enough to live on by reviewing how benefit rates are set and ensuring deductions are manageable.
- Help people to budget by designing Universal Credit around real lives, providing greater flexibility in how it’s paid and income is assessed.
You can read our full report on how people are managing their money on Universal Credit.
