Mounting Evidence that Universal Credit May Be Adding to the Debt Crisis
The government’s new benefit system, Universal Credit, has begun to be rolled out in some areas this year. This week, Citizen’s Advice, the charity advice network, released their report into the outcomes of this initial implementation and have warned the government that a lot of work needs to be done before the programme’s ‘acceleration’, or we risk further increasing the countries’ personal debt level.
What is Universal Credit?
Universal Credit is the government’s new benefit system. It aims to merge six existing benefits into one. These benefits are tax credits, housing benefit, income support, Jobseeker’s Allowance and employment and support allowance.
The aim of the system is to provide Universal Credit to more than seven million households by 2022. It is estimated that at least half of these households will be in work.
The scheme was originally intended to be fully in place this year, but a series of delays has meant that the main implementation will begin in October. The government hopes that it will be introduced to the entire country by the end of 2018.
Problems at the first hurdle
In their review of the initial rollouts of the service, Citizens’ Advice analysed 52,075 cases of people in debt across the UK, and discovered systemic problems such as processing delays, budgeting difficulties and, most damaging, a six-week wait for the first payment.
They calculated that the people who were on Universal Credit have, on average, fewer than £4 a month left to pay all their creditors after they had paid essential living costs. Under the old system, they would have had £16.25. When many debt solutions, such as an IVA or Trust Deed, require there to be some expendable income after essential living costs, this is very problematic.
Rory Mair, the Chair of Citizens’ Advice Scotland, said ‘Families are falling into debt and rent arrears and having to turn to foodbanks just to survive. These issues simply must be addressed before anyone else is affected’.
He added ‘We are today calling for a pause in the accelerated roll-out of Universal Credit so that these problems can be fixed before more families find themselves in crisis’.
His view is supported by evidence in Scotland that areas using Universal Credit have seen a 15% rise in rent arrears issues. Nationally, rent arrears issues have actually decreased by 2%. Similarly, Southwark councillor, Fiona Colley has reported that an additional £1.3 million of rent arrears can be attributed to the introduction of the new regime in her borough two years ago.
The information in this report, however, is not entirely new. Reports have been surfacing since April of issues surrounding Universal Credits. In August, for example, 30 Labour MPs and Caroline Lucas, the co-leader of the Green Party, came together to warn that families could be facing food banks at Christmas and urge the government to pause implementation until 2018 in an attempt to prevent hardship for thousands during ‘the most wonderful time of the year’.
Similarly, in April, research by Child Poverty Action Group and the Institute for Public Policy Research demonstrated that another 200,000 children will be pushed below the official poverty line as part of the changes to Universal Credit. This is because child benefit will be limited to just the first two children in a family. This move is expected to affect up to 850,000 families.
It is not just the opposition who are critical of the acceleration of the programme. The Independent has reported that six Conservative MPs have also voiced their concern by signing a letter urging David Gauke, the Work and Pensions Secretary, to delay plans to accelerate the programme.
Most notably, Tory MP Heidi Allen has today publically urged the government to delay the scheme. She argues that in her constituency, South Cambridgeshire, 14% of new claimants still do not get their money on time but that ‘we are tantalisingly close to an incredibly revolutionary system change, and I just want us to get it right’.
The Department for Work and Pensions has responded to this newest report by pointing out that it is based only on those already with debts, and not benefit claimants as a whole.
This, however, while being true, does not decrease the validity of the report, and could actually make it all the more worrying. The last thing that people in debt need, is to have their expendable income reduced, or made unreliable. On a national scale, the UKs total personal debt has already reached £1.5 trillion. There could be severe consequences to having an economy with consumers who are so indebted.
Citizens Advice’s Advice
Ultimately, the most important issue to consider in this discussion is that Citizen’s Advice was not, and still is not, against Universal Credit. They have always supported a simpler, more accessible benefits system. Put in this context, their criticism of its implementation, and their call for a pause in the accelerated rollout until these issues have been addressed, can be seen as wholly valid and understandable. As Allen said, ‘We are so close to getting it right, we really just need to pause that roll-out’.
People in debt, and people on benefits, cannot afford to have their future income become unstable, or unknown. Financial instability will only increase debt levels as people are forced to borrow just to survive. The importance of taking the time to create a simpler, accessible, user-friendly benefits system and creating an appropriate and understanding transitional process should not be underestimated, especially at a time when the country is facing a debt crisis.
If you need more information about the options available to you in dealing with your debt, you can always speak confidentially with one of our friendly advisors on 0808 2085 198.