National Audit Office report on Universal Credit – getting to first payment

When the NAO last reported in June 2018, the DWP expected all claimants to move from the legacy benefits to Universal Credit by March 2023. In March 2020 it expected this to happen by September 2024. As a result, it forecast that the cost of implementing Universal Credit had risen from £3.2 billion to £4.6 billion. It has not yet calculated the impact of COVID-19 on these forecasts.

A minimum five-week wait for the first payment is an inherent part of Universal Credit’s design.1 Around 57% of households making a new claim take a Universal Credit advance payment (which they need to pay back) to help them manage during this period. Advances mean that Universal Credit claimants can get access to money faster than claimants on other benefits. Claimants and representative organisations told the NAO that the wait for the first payment contributes to financial hardship and debt, despite the availability of advances. Repaying the advance can cause claimants difficulties if they are not able to manage on the resulting reduced monthly payments. 

Many claimants are in financial difficulty before they apply for Universal Credit. The DWP’s own research showed that nearly half of claimants (49%) had no earnings in the three months before they applied. It also showed that rent arrears generally start before a Universal Credit claim but then increase more rapidly until the first payment. People delaying their claims can further exacerbate problems. A fifth of claimants (22%) surveyed by the DWP did not claim as soon as they became eligible because, for example, they did not know what to do or thought they would get another job quickly. 

Disabled claimants and people on low incomes are more likely to claim advances and have other debts to repay from their Universal Credit. Some 80% of claims by low-income households, 67% of claims including someone who has limited capability for work because of a disability or health condition, and 70% of claims including a disabled child had a deduction applied to their first payment to cover advances repayments or other debts. This compares to 61% of all claims. 

Claimants with more complex needs and circumstances, such as people with learning difficulties, can struggle to engage with the claim process or provide the evidence required, leaving them at greater risk of being paid late. The NAO’s work identified communication as an issue. For example, people who struggled to understand or communicate in written English found it more difficult to understand what the DWP was asking of them, or complete their claim form correctly. In some cases, the DWP’s communication with the claimant was unclear.

The DWP significantly improved the proportion of claims paid on time, from 55% in January 2017 to 90% in February 2020. However, as the number of people claiming Universal Credit has grown, the number of people paid late has also increased from 113,000 in 2017 to 312,000 in 2019. In 2019 those new claimants who were paid late faced average delays of three weeks in addition to the five-week wait. Some 6% of households (105,000 new claims) waited around 11 weeks or more for full payment. 

The DWP has demonstrated a clear focus on paying more people on time and has made improvements to its systems to address problems that were blocking large numbers of payments. However, the NAO found that the DWP needs to better understand and address the needs of people with more complex claims, who may be more likely to struggle to make and maintain a claim, despite the changes to improve payment timeliness. 

The DWP has reduced the cost of administering each claim, but it is still not certain that Universal Credit will be cheaper to administer than the benefits it has replaced. The overall administrative cost per Universal Credit claim reduced from £699 in June 2018 to £301 in February 2020. This is still more than the £173 per claim that the DWP forecast in its business case that Universal Credit would cost in 2024-25 after it is fully rolled out.

The DWP has made poor progress in reducing fraud and error. Over one in ten pounds paid through Universal Credit is incorrect. The DWP estimates that £1.7 billion (9.4%) of Universal Credit payments were overpaid in 2019-20. This is the highest recorded rate of overpayments for any benefit other than Tax Credits (administered by HM Revenue & Customs), which peaked at 9.7% in 2003-04. The DWP also underpaid 1.1% of total payments. It had forecast the level of overpayments would be below 6.4% in 2019-20.

Even before the COVID-19 pandemic, the DWP had identified that its staff were under pressure. The number of cases each of its case managers handles had increased from 154 at March 2018, to 573 at February 2020, in line with plans. When the NAO last reported in 2018, the DWP expected the number of cases per case manager to rise to over 900 by 2024-25. The DWP told the NAO that many staff were already spending more time than expected to ensure claimants were paid on time. It also had concerns around the volume of telephone calls case managers are receiving and increased absence levels.

The COVID-19 pandemic has led to unprecedent numbers of new Universal Credit claims. The fieldwork for this report was carried out before the lockdown started and claims began to increase significantly. However, the report’s findings on the reasons for late payments and risks to maintaining performance as caseload grows are relevant to the new situation.

Gareth Davies, the head of the NAO, said: 

“The DWP deserves credit for improving its processes so that 90% of claimants are now getting their first Universal Credit payment on time. However, it is concerning that vulnerable people and those with complex claims may struggle with their Universal Credit claim and face financial difficulties.

“The DWP needs to improve its understanding of vulnerable claimants and how best to support them to ensure that no one is slipping through the net. This is only going to become more important as the economic upheaval caused by COVID-19 continues.”

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Notes for Editors 

1. Universal Credit is paid based on a household's costs and earnings, which the DWP monitors over monthly "assessment periods". The first assessment period begins when a claimant submits a new claim. At the end of the assessment period, the DWP assesses entitlement and makes a payment, which can take up to a week.During the first assessment period, the DWP also verifies the claimant's identity and other aspects of their eligibility. If this verification takes longer than a month, the claimant will be paid some or all of their Universal Credit late.