UK

What is universal credit - and what's the problem?

woman with pushchair and man walking into a job centre Image copyright Getty Images

Universal credit has proved controversial almost from the beginning, with reports of IT issues, massive overspends and administrative problems.

It's being rolled out across the UK. But now concerns are being raised that 3.2 million working families will lose £48 a week - about £2,500 a year- compared with the old system.

The system has been made significantly less generous since it was announced.

What is it?

Universal credit is a benefit for working-age people, replacing six benefits and merging them into one payment:

  • income support
  • income-based jobseeker's allowance
  • income-related employment and support allowance
  • housing benefit
  • child tax credit
  • working tax credit

It was designed to make claiming benefits simpler.

A single universal credit payment is paid directly into claimants' bank accounts to cover the benefits for which they are eligible.

Claimants then have to pay costs such as rent out of their universal credit payment (though there is a provision for people who are in rent arrears or have difficulty managing their money to have their rent paid directly to their landlord).

The latest available figures show that there were 1.1 million universal credit claimants in August.

This makes up about half of all households claiming unemployment benefit, but only 10% of households claiming housing support and 2% of those claiming disability-related support.

Labour has promised it would overhaul the system, with a spokesperson saying: "Universal credit in its current form simply isn't working, it is causing greater poverty and anxiety wherever it is rolled out, and we are committed to a root-and-branch review of the social security system."


How does it work?

The idea of universal credit is that it can be claimed by people whether they are in or out of work.

There's no limit to the number of hours you can work per week if you receive it, but your payment reduces gradually as you earn more.

It is designed to mean that no-one faces a situation where they would be better off claiming benefits than working.

Under the old system many faced a "cliff edge", where people on a low income would lose a big chunk of their benefits in one go as soon as they started working more than 16 hours.

In the new system, benefit payments are reduced at a consistent rate as income and earnings increase - for every extra £1 you earn after tax, you will lose 63p in benefits.

Universal credit is designed to be paid in arrears once a person's monthly income has been assessed. So new claimants have to wait 35 days before receive their first payment (four weeks to assess the last month's earnings plus a further week to process the payment).


Will some people lose money?

As the benefit is rolled out, claimants will gradually be moved from the old style benefits on to universal credit.

Downing Street says £3bn in total has been set aside to ease this process, ensuring that no-one moving from the old to the new system will lose out initially.

New claimants won't benefit from the protection and if people's circumstances change or if they come off benefits and then go back on them, they will lose this transitional protection.

The independent Office for Budget Responsibility says 400,000 claimants will receive the protection.

Think tank the Resolution Foundation said: "The long list of conditions that are deemed to reflect a change in circumstance, bringing such support to an end, is likely to mean relatively short durations of protection," in a report last year.

Work and Pensions Secretary Esther McVey told the BBC: "I have said we made tough decisions and some people will be worse off."

But she said: "If those people can work, what they will be losing is benefits, but what they have got now is work. Work will be paying. Their wage will be increasing."


What's gone wrong?

Universal credit has been in the headlines again and again since it was first announced in 2010.

The project cost many times more than originally predicted and has taken far longer than expected.

The National Audit Office, which oversees government spending, said that the universal credit programme was "driven by an ambitious timescale" and that it had suffered from "weak management, ineffective control and poor governance".

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