Your support keeps us publishing. Follow this link to subscribe to our print magazine.

Universal Credit Has Been a Disaster. It Has to Be Replaced.

As the cost of living crisis bites, the failings of Universal Credit – low rates and complicated fluctuating payments among them – are redoubling the misery for millions. It's time to replace it with a benefits system that works.

The basic rate of Universal Credit for a single person over 25 is around £77 a week. This extremely low rate is a seventh of average weekly pay. (mactrunk / Getty Images)

Millions of families are experiencing untold pressure on their household budget as energy and other bills soar. Successive cuts to social security and Universal Credit have only added to that pressure. Not only was the UK’s benefit system inadequate before the current cost of living crisis—the delivery also wasn’t working.

Universal Credit is one of the most significant social security reforms in recent decades. The government stated that in bringing together a group of six benefits, Universal Credit would reduce in-work poverty and simplify the system, making it easier for people to understand.

But in reality, it’s a system that doesn’t deliver for the millions who need it. The TUC believes that Universal Credit is not fit for purpose. Both its policy and design are fundamentally flawed.

As a result, for the past year, a group of union representatives and experts in social security have been examining what a replacement for Universal Credit could look like. Now we’ve published a new report, outlining a plan for a new and fairer system.

The Problems and the Solutions

First, we need to fix the inadequacy of benefit levels. The UK’s benefit system has been dramatically weakened by the harsh cuts to the system that have taken place since 2010, and during the in-depth conversations we had with claimants for our report, inadequacy of income was the key issue which came out time and again.

If you become unemployed, the basic rate of Universal Credit for a single person over 25 is around £77 a week, the same as Jobseekers’ Allowance. This extremely low rate is a seventh of average weekly pay.

To improve the adequacy of benefits, then, the TUC has called for the basic level of Universal Credit and legacy benefits, including Jobseekers’ Allowance and Employment and Support Allowance, to be raised to at least eighty percent of the national living wage, or £260 per week.

Then we’ve got to end the unfair and unnecessary five-week wait for the first payment of Universal Credit. An advance payment is not a solution, it is a loan, and can be a quarter of your standard allowance. That essentially means that you start your Universal Credit claim in debt.

There is no justification for the five-week wait. It only creates further complexity, and causes immense misery for claimants. In the short term, the five-week wait can be replaced with immediate, non-repayable grants, with the amount estimated on the first monthly payment, like the advance.

It sounds technical, but how your income is assessed really matters. The monthly assessment periods in Universal Credit and the timing of benefit payments are far from simple to understand.

Monthly assessment periods are central to Universal Credit’s design. They are set according to the date of your claim, rather than being aligned with your pay cycle, meaning a mismatch between the two and confusing fluctuating payments.

Moreover, as Universal Credit is paid in arrears, you might receive a low Universal Credit payment in the same month you had insufficient hours, meaning real hardship for low-income families. Trying to increase hours worked in Universal Credit, meanwhile, can backfire: a small temporary increase in monthly income—caused, for example, by overtime—can take you over the earnings threshold for that assessment period. In these cases, the Universal Credit payment automatically ends.

To fix these failings, in the short term, there should be an earnings disregard in Universal Credit—so that income can increase a certain amount, without affecting the award. Previously there was legal challenge win on the assessment period causing fluctuating incomes for those in work, but that win only applies to claimants who are paid on a regular monthly basis, but not those who are paid on a four-weekly or fortnightly basis. This needs to be extended to those workers, too.

And in the long term, a three to six month assessment period is needed to reduce fluctuations and provide stability. If circumstances change, claimants should be able to report it, and request that their circumstances are reassessed.

Universal Credit was sold as a system that would make work pay. In reality, those on Universal Credit still face very high marginal deduction rates, which mean that for every pound they earn, they see their universal credit rapidly reduce. The reduction in the taper rate to fifty-five percent from sixty-three percent, and the increase in the work allowance in the October 2021 Budget, while welcome, may still not make work pay.

The taper rate can be reduced further, and options of different taper rates for different groups of people should be examined. Work allowances, meanwhile, need to be increased and extended to those not currently entitled to them.

Finally, we’ve got to make Universal Credit work for the self-employed. The current system makes it very hard to get by: you might only have ten hours’ work one week, but the Minimum Income Floor rule assumes you had 35. This rule means that the amount of Universal Credit that you get is detached from reality. And as a result, many self-employed people are left to suffer severe poverty.

We believe the punitive MIF should be removed permanently, with self-employed people only subject to the ‘gainful self-employment test’ already used by the DWP to ensure that a business is genuine.

Changing the System

Our report includes almost twenty recommendations, looking at every aspect of the Universal Credit system. The report also recognises that some solutions are far more complex than others: changes to the monthly assessment periods, to payments to partners in couples, and in the integration of benefits are seen as the most complicated areas. But delivering vital changes now, as the cost of living crisis worsens, is crucial to ensure that the benefits system provides genuine security for those who need it the most.