David Simmons examines the proposal to make universal credit a monthly benefit.
Introduction
Universal credit (UC), which will replace the current income-related working age benefits from October 2013, is designed to be a monthly benefit in two respects. Firstly, the default payment frequency will be monthly in arrears. Secondly, awards will be based on a monthly assessment of a claimant’s circumstances. This represents a radical change from the current situation which provides for fortnightly payments of income support, jobseeker’s allowance and employment and support allowance; weekly or four-weekly payments of tax credits; weekly, fortnightly or monthly payments of housing benefit; and the immediate adjustment of awards on changes of circumstances (although in the case of tax credits, there is also an annual reconciliation process). This article considers the implications of the change to monthly awards.
Monthly payments
The government proposes to pay UC monthly in arrears ‘unless in any particular case or class of case, the Secretary of State provides otherwise’.' Payment will be made in respect of each ‘assessment period
1 Regulation 41(1) draft Universal Credit, Personal Independence Payment and Working-age Benefits (Claims and Payments) Regulations 2012 which will run for a calendar month from the effective date of claim. Payment must be made within seven days of the end of the assessment period or ‘as soon as reasonably practicable thereafter’.
2 Ibid, regulation 40(C)In practice, claimants will be allocated a pay day seven days after the end of their initial assessment period and subsequent pay days will be on the same day of each following month (if they fall on a weekend or bank holiday, they will be advanced to the nearest working day).
3 DWP, ‘DWP Explanatory memorandum on the claims and payments regulations for the Social Security Advisory Committee’, June 2012, p12 Payment will therefore be made per calendar month and will not be varied to reflect the number of days in the month.
4 Ibid, p11Example
Claimant claims UC on 14 October 2013. The initial assessment period runs until and including 13 November. Payment will be made on 20 November and the 20th of each subsequent month.
The government’s justification for the move to monthly payments is that it reflects the world of work, where 75 per cent of employees re-ceive monthly wages. Paying UC on this basis will, therefore, be most appropriate for most employees and will also ‘smooth the transition into paid work, encourage claimants to take personal responsibility for their finances, and budget on a monthly basis which could save money’ – eg, by setting up cheaper monthly direct debits for household bills.
5 Ibid, p11 Monthly payments will also, of course, be administratively simpler and cheaper for the DWP and fit in with the proposed system of monthly ‘real-time’ earnings notifications by HMRC.
Critics have questioned the reasoning and alleged benefits of the proposal, which was the subject of heated debate in Parliament. In particular, it is feared that it could result in hardship for some of the poorest and most vul-nerable claimants who often need to budget on a daily or weekly basis to make ends meet. Recent research conducted by the DWP sug-gests that more than 40 per cent of claimants believe the change to monthly payments will make it harder to budget, mainly due to a fear of running out of money,
6 T Tu, S Ginnis, Work and the Welfare System: a survey of benefits and tax credits recipients, DWP Research Report 800, 2012 and that the changes required ‘unrealistic financial self-discipline, particularly from vulnerable groups’.
7 M Rotik, L Perry, Perceptions of Welfare Reform and Universal Credit, DWP Research Report, 2011. See also Insight to Support Universal Credit User-centred Design, DWP Research Report, 2012 by the same authors A recent report by the Social Market Foundation, based on an in-depth survey of 30 families, also highlighted a predominantly negative response to monthly payments.
8 N Keohane, R Shorthouse, Sink or Swim? The impact of universal credit, Social Market Foundation, 2012 The report pointed out that 10 million low-income households have unsecured debt, 75 per cent of those in the lowest income quintile have no savings, and only 51 per cent of people earning under £10,000 a year receive their earnings monthly. Most respondents feared they would run out of money before the end of the month.
The government is proposing to put safe-guards in place to support claimants who may struggle to cope with monthly payments. Firstly, there will be a system of short-term advances (‘payments on account’) for those who run out of money before they are paid UC. This could include new claimants who will typically have to wait more than five weeks before re-ceiving their first payment, and claimants who lose their jobs and may have to wait several weeks before their UC is increased. The problem is that the advance payments are loans which are recovered by deductions from on-going awards of UC, making it more likely that claimants will run out of money again in the subsequent assessment period. Secondly, claimants identified as requiring special sup-port will be offered access to ‘budgeting ad-vice services’ and financial products such as direct debit, and in exceptional cases (and for a limited time), more frequent payments. The DWP is currently consulting and developing its ‘exceptions’ policy, but ‘applications for pay-ment exceptions will be screened, so that only those with reasonable grounds reach a human decision maker’, decisions will be made at the discretion of a decision maker’s taking into account a ‘range of vulnerability and financial risk criteria’, and there will be no right of appeal.
9 Explanatory Memorandum, pp13,14Monthly assessments
The move to monthly assessments has attracted less publicity and controversy (perhaps because it is more technically difficult for non-specialists in the media and Parliament to understand), but arguably, is even more signif-icant than monthly payments in its implications for claimants. It not only means that claimants will have to wait up to a month for an award to be changed to reflect a change in circum-stances, but also that any change is treated as occurring from the beginning of the month, regardless of when it actually occurred. This ‘whole-month’ approach can lead to signifi-cant losses and ‘rough justice’ for claimants.
The key provision is currently set out in Part 3 of Schedule 2 to the draft decision and appeals regulations.'
10 Draft Universal Credit, Personal Independence Payment and Working-age Benefits (Decisions and Appeals) Regulations 2012 It states that a superseding decision made on the grounds of a change of circumstances normally takes effect from the first day of the assessment period in which the change occurred. This will benefit claimants where the change results in increased entitlement, but significantly disadvantage claimants whose entitlement reduces or terminates (but see below for changes in income and earnings).
Example 1:
Claimant has a child one day before the end of her assessment period. The child al-lowance will be included in her UC award for the whole month.
Example 2:
A young person leaves the claimant’s household one day before the end of her assessment period. She will lose the child allowance for the whole month. If the young person had departed one day later, the claimant would have retained the full monthly allowance for her/him.
Example 3:
A claimant moves into cheaper accommo-dation four weeks into his assessment period. He will receive reduced housing costs for the whole month. If he had moved a few days later, he would have received his pre-vious entitlement to housing costs for the whole month.
Example 4:
Claimant’s entitlement to UC ends four weeks into his assessment period – eg, because he moves abroad, or receives income or capital. He will receive no UC for the whole month.
The justification for this ‘rough justice’ ap-proach of losses and gains is that it is more ‘dynamic’, and easier to understand and ad-minister.'' We suspect that the latter consider-ation is the main driving force, facilitating the automation of awards on a monthly basis with-out the need to pro rata the effect of changes within the monthly assessment period.
The new arrangement opens up the prospect of claimants and advisers trying to plan the most advantageous time to effect changes of circumstances in order to maximise entitlement, and could result in some very rough justice. In its submission to the Social Security Advisory Committee on the draft regulations, Women’s Aid points out that many of its clients enter a refuge for a short stay, and gives an example of a woman who enters a refuge at the beginning of her assessment period but leaves before the end of the period. It appears she will receive no housing costs for her time in the refuge.'
11 ‘DWP explanatory memorandum on the decisions and appeals regulations’, June 2012, pp11,12To make matters worse, the draft regula-tions make it harder to benefit from advanta-geous changes than to lose out because of disadvantageous changes. Claimants have a duty to notify any relevant changes of circumstances to the DWP. Where a change is advantageous to a claimant (ie, will increase her/his award), it must be notified before the end of the assessment period in which it occurs to be treated as occurring at the start of the assess-ment period. If it is notified late, it will only take effect from the start of the assessment period in which it was notified, unless the claimant can establish grounds for late notification (these are similar to the current rules, and require notification within 13 months, and special circumstances which explain why it was not practicable to notify the change earlier).'
12 ‘Universal credit and related regulations – response from Women’s Aid’, July 2012Example:
Claimant moves to more expensive accommodation and is entitled to more housing costs just before the end of his assessment period. If he notifies the change immediately, he will receive the extra payment for the whole of the past month. If he fails to notify the change until after the end of the assessment period, ie. a few days later), he will only receive the increased payment from the start of the following assessment period, unless he can establish that there were grounds for the late notification.
Special rules apply where a claimant reaches state pension credit age in an assessment period, is terminally ill, or is entitled to more UC on becoming entitled to another benefit (in the last two cases, the change is backdated to the start of the assessment period in which it oc-curred).'
13 para 2, part 3, Sch 2,reg 27 Decision and Appeals Regulations (see footnote 10). See also reg 8 of the current Social Security and Child Support (Decisions and Appeals) Regulations 1999Special rules also apply to allow child care costs to continue during the assessment period following the one in which a claimant ceases to be employed.
With regard to income and earnings, it ap-pears that the amounts actually received during an assessment period are fully taken into account (subject to disregards) when calculating a monthly award and that claimants will be required to make a monthly declaration of their income, apart from employee earnings, which are automatically notified via the HMRC’s PAYE system.'
14 Ibid, part 3 Sch 2Conclusion
The change to monthly awards is likely to have significant implications for many claimants. Monthly payments may be advantageous to some claimants (including those in monthly paid employment), but others may struggle to budget effectively. Monthly assessments will result in ‘rough justice’ in relation to changes of circumstances, and seem to be designed to streamline automated administration rather than directly help claimants.
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