MPs call for starter payments to provide financial support during wait for first Universal Credit payment

• Work and Pensions Committee report highlights difficulties faced by people claiming Universal Credit
• DWP should make starter payments for new claims, and move people from existing benefits without a gap

• £20 increase in Universal Credit introduced during coronavirus pandemic must be kept beyond April 2021

A starter payment should be made to people claiming Universal Credit (UC) for the first time to ensure that everyone has enough money for basics such as food and heating during the wait for their initial monthly payment, the Work and Pensions Committee says today.

The Committee’s report Universal Credit: the wait for a first payment finds that the current wait of at least five weeks causes difficulties for some households. While the existing system of Advance payments for those in need can provide a valuable financial lifeline, the Committee is concerned that some people are unable to afford the required repayments.

The Committee warns that this leaves people with a difficult choice: five weeks with no income, or the risk of debt and hardship later. The report concludes that the introduction of a new payment - equivalent to three weeks of the standard allowance - would be a simple way of ensuring that new claimants had the money they needed for basic living essentials. For people moving from existing benefits, DWP should make the move seamless wherever possible—and pay a starter payment in other cases.

Advances should still be available for people who need further support to get by, but they should be renamed ‘new claim loans’ to make clear that they will need to be repaid. The DWP should also recognise that a request for a loan is a clear indication that someone is struggling and offer support as early as possible.

Reflecting evidence from Sir Iain Duncan Smith, among others, the Committee has also called for changes to the way that historic tax credit is clawed back from people when they move to Universal Credit—and for DWP’s debt collection to follow best practice in the private sector.

In addition, the Committee calls on the Government to make permanent the £20 per week increase in the standard UC allowance announced in response to the coronavirus pandemic.

Rt Hon Stephen Timms, Chair of the Work and Pensions Committee, said:

“There is a growing body of evidence that moving to Universal Credit leaves many reliant on food banks, falling seriously behind with their rent, and even experiencing increased levels of psychological distress. The Government’s response is that there is no proof that Universal Credit—and in particular the wait for a first payment—is the direct cause of those difficulties. So DWP needs to commission research, and quickly, to find out what lies behind these deeply worrying findings. Our social security system should not be leaving people without the money they need for food and heating.

In the meantime, the Government must face up to the fact that its current system of Advance loans simply isn’t working. They leave people facing the toughest of choices: go without income for at least five weeks, or have repayments subtracted from their future UC payments—which are already barely enough to get by on.

We cannot understand why people who are already claiming benefits need to wait for at least five weeks when they move to Universal Credit—especially when nothing in their lives has changed. Their move should be seamless.

For people claiming benefits for the first time, or people who’ve faced a significant change in their circumstances, the Government should provide starter payments. Doing so would both cut down on the need for Advance loans and ensure that nobody is forced into debt just to be able to afford to eat and keep a roof over their heads.

UC is a highly automated system. That has been a real strength over the last few months, with the huge influx of new claims caused by the coronavirus pandemic. But it can also be a major weakness, leaving people without the tailored support they need, and Ministers unable to make the changes they want to see. There is much the Government can do without completely dismantling the UC system: we hope that our proposals, taken together, offer practical solutions for making Universal Credit work for everyone who needs it.”

Key report findings and recommendations

Starter payments

• All first-time claimants of UC should receive a starter payment equivalent to three weeks of the Standard Allowance.
• The payment should be made two weeks after the initial claim and only once the claimant’s identity has been verified, to guard against fraud.
• People claiming legacy benefits should be moved seamlessly to UC, but where they cannot be they should receive a starter payment instead.

The impact of the wait

• The Committee received evidence from both organisations and individuals which suggested that a significant proportion of people face financial difficulties during the wait for a first UC payment.
• Citizens Advice said that half the people it helps during the wait period are ‘unable to keep up with bills, rent or are forced to go without the essentials such as food and heating’.
• The National Audit Office said that the wait for a first payment can exacerbate claimants’ debt and financial difficulties.
• DWP must carry out research to develop its understanding of the possible impact of UC, particularly the wait for the first payment, on the use of food banks; on claimants' levels of rent arrears; and on levels of psychological distress.

Advance payments

• Even with starter payments, the Committee anticipates some people claiming will still need to ask for an Advance (a loan to tide them over during the wait).
• The DWP risks misleading claimants, and damaging its own credibility, if it insists on denying the obvious fact that these Advances are interest free loans.
• Advances should be renamed ‘new claim loans’ so it is clear that they need to be repaid.
• The Department should offer support to anyone requesting a substantial Advance, as it would be a clear indication that someone is struggling with the transition to UC.

Tax credit debt

• Repayments of tax credit overpayments can compound hardship for people who may already be struggling.
• The Committee recommends that recovery of tax credit debt from people claiming UC should begin only when the claimant has repaid their Advance (if they have taken one out)
• Repayments of remaining debts should be capped at 10% of UC standard allowance and written off entirely if they have not been pursued for more than six years.

Universal Support and Help to Claim

• The DWP must invest in expanding and developing its Help to Claim service so it is closer to its original plans for Universal Support.
• The service must go beyond assisting with an initial claim and should include debt advice, support for people struggling with repaying Advances and support for people with complex needs.

The Work Capability Assessment and support for disabled people

• The Committee finds it troubling that, because of the time taken to complete a Work Capability Assessment, some disabled people and people with health conditions must wait much longer than five weeks to receive their full UC entitlement.
• Four months, on average, is too long to wait and the DWP must work to speed up the process.

Coronavirus measures

• In its report DWP’s response to the coronavirus outbreak, the Committee welcomed the decision to increase the standard allowance in UC and the basic element in Working Tax Credit by £20 per week.
• The Government should now extend the increase past April 2021 and make the rise permanent.