MPs warn Universal Credit system could drive families into debt

A report by the Work and Pensions select committee, published yesterday, warned that moving to an online claims system and a single monthly payment could be difficult for some claimants to manage and push them into debt.

MPs also warned that ministers will need to monitor whether the Universal Credit incentivises parents to return to work, given that there will be less financial support available for childcare and childcare costs remain high.

The report said, 'We welcome the extension of help with the costs of childcare for Universal Credit claimants so that it is available to parents who work fewer than 16 hours a week. However, we note that the effective level of support will be less for some families who are currently benefiting from disregards under Housing Benefit and Council Tax Benefit. The costs of childcare are a key factor in achieving real financial benefits from returning to work and the Government will need to monitor the extent to which the childcare element of Universal Credit is effective in promoting work incentives, particularly in the context of the high cost of childcare in the UK.'

Chair of the Work and Pensions select committee Dame Anne Begg MP said, ‘Some claimants will not be able to make an online claim and others may struggle to adapt to monthly payments.’

‘The measures the Government plans to put in place to help these claimants may be difficult to access and too slow in identifying who these people are, with the risk that they will fall into debt and hardship before extra support can be provided.

'We believe that the Government should reflect on the possible consequences of these major benefit changes for some of the most vulnerable people in society and that it should consider modifying its implementation timescale if those consequences cannot be adequately addressed before national roll-out begins.’

The Universal Credit pilots (pathfinders) start in the north west of England in April 2013 and full national roll-out is due to start in October 2013.

Dame Anne said, ‘Significant further work needs to be carried out before then to ensure that the concerns we have raised are addressed. The Government also needs to ensure that all the impacts of transition to Universal Credit are carefully monitored from the outset.’

Currently, childcare costs are ‘disregarded’ when calculations are made for Housing Benefit and Council Tax Benefit.

The report said that this means that in practice, many parents are currently able to recoup up to 95.5 per cent of their childcare costs, and so a reduction to 70 per cent support would have a significant impact on families’ budgets.

In evidence to the select committee, the Children’s Society welcomed the Government’s decision to extend help with childcare costs to those working fewer than 16 hours per week, but pointed out that the restructuring of support under Universal Credit and the loss of the Housing Benefit and Council Tax Benefit disregards would substantially reduce the amount of childcare support available for some of the lowest income working families.

It estimated that around 100,000 families would lose up to £4,000 per year in entitlement.

Under Universal Credit, support for childcare will be made up of an extra childcare element, and eligibility will be extended to parents working fewer than 16 hours per week.

The maximum amounts of support will remain the same, but will be converted into monthly limits of £760 for one child and £1,300 for two or more, with 70 per cent of costs payable, as the current rate.

Claimants will be required to provide DWP with details of actual childcare costs on a monthly basis. The Government believes that the move to a monthly limit will provide ‘more flexibility for parents whose costs may fluctuate during the month, for example, during school holiday periods,’ the report said.

The Child Poverty Action Group warned that ignoring the MPs’ report would risk policy failure.

Chief executive Alison Garnham said, ‘Ministers risk a "told you so" moment in the future if they ignore this constructive warning that the tight timetable and sheer scale of implementation are threatening to get in the way of Universal Credit delivering on its promises to simply benefits, make work pay and protect the vulnerable.  

‘The report is right to highlight that the success of Universal Credit also hinges on the changes being made to other benefits like Council Tax Benefit, Social Fund help and Free School Meals. If getting a job or working more hours leads to families being out of pocket then the whole point of Universal Credit would be defeated.’

'Drop in income for 400,000 poor families'

The Chartered Institute of Housing also warned yesterday that 400,000 low-income families, including those on the minimum wage, would have less income in 2015 than in 2010.

In a report, the CIH said that households that earn £247 or under per week will all see a fall in real income in 2015 and lone parents with up to three children would always be worse off if Universal Credit continues in its current format.

Grainia Long, CIH chief executive, said, ‘This is a critical time - 400,000 of the lowest earning working households in the UK could see a real drop in income under Universal Credit. Changes to address this need to be made now.

'The principles underpinning Universal Credit are the right ones, but as our report sets out, it is imperative that the detailed design of Universal Credit ensures that low income working families are not disadvantaged.’