Changeover to universal credit is driving people into long-term debt
When her daughter turned five in November, Alexa Clarke couldn’t afford to celebrate. Nor could she afford to heat her house, put healthy food on the table, or buy her daughter new shoes for school. The five-year-old’s birthday had seen Clarke’s benefits halted and her transition on to universal credit (UC), the government’s flagship welfare reform that rolls six benefit payments, currently paid weekly or fortnightly, into one monthly lump sum. It took seven weeks for Clarke’s first UC to arrive, and she had only an advance of £447, which she had requested as an emergency interest-free loan to live on, as the bills piled up.
“I was scared to even pick my daughter up from school sometimes because I felt like I was failing her,” says Clarke, whose name was changed for this story. “Everyone else was carrying Christmas shopping and I couldn’t even keep my house warm.”
Tameside, in Greater Manchester, was the first local authority to initiate the welfare reform programme in 2013. Clarke, 24, had been living on weekly and fortnightly benefit payments since her daughter was born before being moved on to UC last year. She had never missed a rent payment, and had mastered the art of budgeting her benefits. But just as her daughter started school and Clarke began applying for restaurant jobs, everything fell apart. In the wait for initial payment, the heating shut off, then the electricity failed, Clarke’s phone credit ran out, and she had no choice but to approach a nearby foodbank.
At the same time, an adviser at Tameside’s Jobcentre Plus insisted she spend 25 hours each week looking for work, or risk sanctions, a condition of the new UC. Clarke couldn’t even afford the bus fare she needed to hand out her CV to local restaurants.
In May, UC will extend to all new claimants of jobseeker’s allowance, employment and support allowance, income support, housing benefit, working tax credit and child tax credit. It is currently paid to more than 175,000 claimants who are registered at 550 jobcentres across the UK and full transition is scheduled for completion by 2020.
The government says UC will encourage personal budgeting, improve incentives to work, and respond flexibly to the transition into work. But research by citizens advice bureaux and social housing landlords has found that the wait for initial payment, usually five or six weeks, can throw claimants like Clarke into short-term crisis that often spirals into long-term debt.
Sixteen citizens advice branches found that up to June 2015, almost 30% of their clients on UC had waited more than seven weeks for the first payment. When the money arrives, the bills get paid, but the debt continues to take its toll.
When Clarke’s first cheque for £935 arrived on January 13, a monthly sum of £74 had been skimmed off as a partial payment for the advance she had received. She owed £1,000 in rent, so she handed over £400 to her social landlord. A recovery proceedings letter from Tameside council had arrived in the post, too. She had missed council tax payments and it threatened to take her to court.
“It’s like it’s set up for you to fail,” Clarke says. “I want to get into work, but they now want me to spend money searching for jobs within 90 minutes of home, for 25 hours each week, when they’ve deducted my money and I’m worse off than ever – when I’m in arrears.”
Nigel Morgan, the chief executive of the Tameside Citizens Advice Bureau, says that since the expansion of UC in the area, rent arrears and other forms of debt have snowballed. “People are borrowing money to cover short-term losses and then struggling to pay it back,” he says. “And, anecdotally, loan sharks are hitting the most vulnerable people.”
When the National Federation of Almos (NFA), surveyed its members, who manage more than 500,000 council homes across England, on arrears in October and November last year, the policy director Chloe Fletcher had to doublecheck the figures. They showed that 89% of UC claimants in social housing had fallen into rent arrears, compared with 31% of all social tenants. “In my time researching rent arrears, I’ve never seen figures like that for a cohort of tenants,” says Fletcher. She has worked in housing policy for 19 years.
The arrears often plague tenants for months, or even years, and they also pose an extra burden on social landlords and housing associations. New Charter Group, Clarke’s social landlord, found that tenants on UC have seen arrears grow 14% on average since they transitioned onto UC. New Charter also estimates that once universal credit is rolled out to all its 7,500 eligible tenants, it could see a 25% increase in overall debt. Fletcher says that the financial stress of these arrears could mean cuts to new building plans, repair and maintenance services, or tenant support work.
In Sutton, south London, where a small digital pilot of universal credit is now under way, the council’s social landlord is trying to mitigate major arrears. It tracks tenants who are moving on to UC, identifying those with a history of late payments, and advising them to request that housing fees be paid direct to the landlord upfront. In this setup, the claimants also forfeit 10%-20% of their remaining monthly allowance to gradually pay landlords back for existing arrears.
While Monica Prempeh, 57, was waiting for her first UC payment in Sutton, she borrowed cash from each of her three daughters. She was already late on her rent payments, and she would now miss council tax, gas and electric bills, too. She needed to use a baffling computer service to search for jobs and log her hours, but she barely understood it. The stress debilitated her, and for days at a time she couldn’t leave the house. Her doctor wrote her a prescription for anti-anxiety medication.
It wasn’t until Paul Vandi, the income manager at Sutton Housing Partnership, told her not to fear eviction that she began to relax. Together, they submitted a request to the DWP to redirect housing payments and an additional small monthly arrears payment to SHP. Once they had scheduled an automated payment on her debt, Sutton’s social landlord had no reason to take her to court.
Vandi, for one, sees this as the silver lining to UC. The wait for the initial payment is a problem, he admits, but tenants who set up rent and payback plans for landlords are protected from eviction, even if they live on tighter budgets in the meantime.
But for most, the glint of a silver lining is barely visible. Before UC, housing benefit automatically transferred to social landlords and a tiny sum for rent arrears could, too. Now, tenants like Prempeh have to jump through extra hoops before they can set up the same arrangement. And intensive support from staff like Vandi won’t be possible once UC expands to hundreds of thousands of new claimants.
Citizens Advice staff and housing providers agree that the initial payment delay has emerged as the major stumbling block in UC’s implementation. Withholding payment for at least five weeks rests on a faulty assumption that claimants have last month’s money in the bank. But benefit claimants lived on money coming in weekly and fortnightly, and only half of low-income workers in Britain receive earnings monthly.
Stunned by the figures on rent arrears, Fletcher and her team at the NFA are pushing for a policy change that expedites that first UC payment to protect tenants from long-term debt and landlords from a loss of income.
A spokesman for the DWP challenges the research findings and says there is no evidence of systemic delays in payments. “For anyone who is having difficulties, we provide budgeting help and benefit advances, as well as stronger support for vulnerable people,” he says. “And under universal credit, claimants are more likely to move into work and earn more.”
In Tameside, Clarke wonders how any parent can withstand even the standard wait for UC. “It nearly broke me,” she says. “Who can ask a mother to go without income for seven weeks when her child needs clothes and food?” Clarke can finally afford the bare necessities. But paying off her debt to her landlord, the council, and the friends and relatives who helped her with Christmas has only just begun.