Nigel Keohane and Ryan Shorthouse, Sink or Swim? The impact of the Universal Credit

Nigel Keohane and Ryan Shorthouse, Sink or Swim? The impact of the Universal Credit, Social Market Foundation, 2012, 1 904899 79 X, pbk, 130 pp, £10

This report from the Social Market Foundation, published in 2012, evaluates the proposals for Universal Credit in relation to its finding that low income households experienced low financial resilience before the financial crisis, and that it is now lower still.

Universal Credit combines existing means-tested benefits into a single payment; shifts claimants from weekly and fortnightly payments to monthly ones; replaces the tax credits flexible annual assessment period with a fixed monthly assessment; pays Housing Benefit to social tenants rather than to their landlords; pays each household’s Universal Credit into a single bank account; and takes account of savings when Universal Credit is assessed, whereas previously the level of savings did not affect tax credit claims. As the authors show, the shift to monthly payments, and the payment of the housing element to claimants rather than to landlords, will pose problems for many vulnerable households. In addition, payment monthly in arrears could make life difficult for claimants who lose their job near the beginning of a month; in a small number of households, payment into a single bank account will cause tension; and 600,000 families could lose all or some of their means-tested benefits through the savings rule being extended to all claimants.

The aim of monthly payments, and the housing element being paid to claimants, is to encourage families to take responsibility for budgeting, and to prepare those out of work for employment, because in employment they will generally be paid monthly: but the policy could propel many vulnerable families into increasing debt at high rates of interest, thus increasing their financial insecurity. The authors propose a ‘budgeting portal’ that claimants could access online. This would enable them to choose their own payment period, to pay the housing element directly to their landlord, and to divide the payment between different bank accounts. Where families are in rent arrears, use of the portal to pay the housing element to landlords could be enforced so as to avoid evictions.

There are lessons here for anyone proposing reforms of the benefits system. Take, for instance, a Citizen’s Income. There is no reason why payments of Citizen’s Income should not be on a monthly, weekly, or even daily basis; and if a continuing means-tested Housing Benefit were to be paid, there is no reason why that could not be separately assessed and then paid to one of the members of a household via the same portal. One of the reasons for suggesting a budgeting portal for Universal Credit would not apply to a Citizen’s Income. A Citizen’s Income would be paid to individuals, and not to households, so there would be no need for a portal to enable the payment to be split between different members of a household.

The Social Market Foundation and the authors have given us a most useful piece of research, and have drawn some relevant conclusions from it.