Government faces crunch decisions this Autumn as Universal Credit enters its ‘most difficult phase’

Published on Tax and Welfare

The government must get the final phase of Universal Credit (UC) right this Autumn if it’s to reboot the reputation of its flagship welfare reform programme and support millions of low income families, according to a new report published today by the Resolution Foundation.

The benefits of moving focuses on the final, and in many ways most difficult, phase of UC, which involves moving 2.1 million families currently claiming benefits (such as tax credits and Employment Support Allowance) onto the new system. This includes around a million ‘just about managing’ families who are in work.

The details of the crucial final phase are due to be decided upon in parliament this Autumn and rolled out from July 2019 onwards. This ‘managed migration’ is the most difficult phase yet for UC because it involves people that have not chosen to apply for the new benefit.

The report notes that the principle of Universal Credit has consistently enjoyed cross-party support on the basis of two key advantages – improved financial incentives and higher-take up for the simplified benefit.

However, the first advantage has been undermined by cuts in Summer Budget 2015 that reduced the generosity of the scheme. The small print of UC’s design also means that the financial incentives for single parents and second earners to enter and progress in work are weak.

The Foundation says that upholding the second key advantage of UC – encouraging higher take-up – should therefore be a top priority for government as it seeks parliamentary approval for the legal rules that will govern the upcoming managed migration this Autumn. It argues that the potential gains from higher take-up are significant, with the OBR estimating that 700,000 families could gain around £2.9bn in total.

The benefits of moving says that a smooth final phase of the rollout, which prevents cash losses and encourages more families to claim their full benefit entitlement, could help to reboot the reputation of UC. However, it warns that further design flaws – which need to be resolved this Autumn – risk further undermining the roll-out and could put people off claiming UC altogether.

The Foundation’s recommendations to make a success of the most difficult phase of UC include:

  • Speeding up UC payments. The government should show that 90 per cent of new claims to UC are paid on time and in full before it rolls out the managed migration process. In February 2018, 83 per cent of claims were paid in full and on time, with little improvement since June 2017.
  • Reducing financial risks. The government should ensure that the state, rather than individuals, bears any financial risk that may arise from teething problems in the managed migration phase. No existing claim should be closed until a new UC claim is in place, so that people don’t lose support altogether.
  • Boosting financial incentives. The government should introduce an earnings disregard for those being forced to move onto UC to prevent claimants with volatile earnings (such as self-employed workers or those on zero-hours contracts), or who have a short-term boost in pay, from losing out financially from the transition. More broadly, the government should improve incentives by increasing single parent work allowances and introducing one for second earners.

David Finch, Senior Economic Analyst at the Resolution Foundation, said:

“Universal Credit enjoyed almost universal support when it was first announced. But its reputation has been undermined in recent years by significant cuts and payment delays that have left too many claimants in difficult financial straits.

“But despite these problems, the rollout of Universal Credit is still going ahead and is in fact about to enter its most difficult phase as two million families already claiming benefits start to be moved onto the new system – including one million just about managing families.

“Get this final phase of the rollout right and it could help to reboot Universal Credit’s reputation, but get things wrong and UC’s reputation risks taking another battering, and worryingly some families could be put off claiming UC altogether.”