‘Serious flaw’ in Universal Credit worsens council tenants’ debts, new research shows
22 July 2020
The roll-out of Universal Credit is leading to a growing number of council tenants falling behind on rent payments, according to new research from the independent think tank the Smith Institute using data from London local authorities.
The report – Falling behind: The impact of Universal Credit on rent arrears for council tenants in London – warns that the five-week wait between making a successful Universal Credit claim and receiving the first payment is contributing to a spike in rent arrears.
Commissioned by Southwark Council on behalf of the cross-party group London Councils, the research investigated rent account data from 12 London boroughs who collectively own over 210,000 homes – or 13 per cent of England’s total council housing stock.
The Smith Institute found that almost two-thirds of tenants saw a significant increase in rent arrears after claiming Universal Credit, with tenants accumulating an average of £240 in rent arrears in the 12 weeks after they first claimed.
London boroughs are urging the government to address the five-week wait as a “serious flaw” in Universal Credit’s design. They point to this research as the latest evidence of the wait worsening debts among many low-income households and exacerbating the financial pressures faced by social landlords – particularly in light of Covid-19.
Prior to the coronavirus pandemic (from when the latest figures are available) there were around 135,000 working-age council tenants in London still claiming Housing Benefit. If they were all moved to Universal Credit, in line with the government’s planned next steps, the Smith Institute expects that their rental arrears would cost London boroughs more than £23 million.
This comes at a time when London Councils is warning that boroughs collectively face a funding shortfall totalling £1.3bn this year due to Covid-19’s impact, with boroughs’ income falling fast while spending has increased.
Since the start of the Covid-19 pandemic, the number of people claiming Universal Credit across the UK has risen from 2.9 million in February to 5.3 million in May. Almost half a million more Londoners have now claimed Universal Credit, with boroughs concerned that growing unemployment will lead to even more households relying on Universal Credit and building up rent arrears.
Cllr Muhammed Butt, London Councils’ executive member for welfare, empowerment & inclusion, said: “The five-week wait is a serious flaw in Universal Credit’s design.
“This important research clearly shows that claiming Universal Credit is accompanied by a significant spike in rent arrears for the majority of council tenants. The five-week wait leads to low-income households piling up debts, which undermines Universal Credit’s effectiveness as a welfare support measure but also contributes to the serious finance pressures faced by councils and other social landlords.
“We’re calling on the government to fulfil its pledge to ensure Universal Credit works for the most vulnerable, which must surely include every claimant unable to afford their rent due to the five-week wait. Addressing the problems caused by the five-week wait should move to the top of the policy priority list – especially since the devastating economic impact of Covid-19 means more and more households are relying on Universal Credit to pay their bills.”
Southwark Council was one of the very first places in the country to see the full roll-out of Universal Credit.
Cllr Victoria Mills, Southwark Council’s cabinet member for finance, performance and Brexit, said: “Southwark Council is leading on this piece of work because, with one of the largest number of council homes in the country, we are acutely aware of the negative impact of Universal Credit on those who pay council rent. Simply put, when tenants transition to Universal Credit they almost always fall into debt and poverty, usually without recovery.
“This report highlights what was a worrying problem even before we were hit by a global pandemic, which has destroyed the livelihoods of hundreds of thousands of people who were already struggling. This unprecedented pressure on household finances has seen a hugely increased reliance on welfare and especially Universal Credit.
“We have long pressed the government to reduce the minimum five-week wait for people claiming Universal Credit to ensure they get money before they fall into serious new arrears. We have also called for deductions from Universal Credit for old debt to be further reduced or scrapped completely. But the urgency for these changes has never been greater than it is now. The number of households in Southwark claiming Universal Credit has already risen by 60% and we expect that number to rise much further.
“Some of the temporary actions taken by the government to strengthen and improve Universal Credit are welcome but these need to become permanent. Should the government fail to act now, local authorities will be left to bear the brunt of a crisis in poverty and unemployment.
“These are extremely tough times for those on the lowest rung financially, and it is imperative that we support them before we hit a deeper crisis, where we could see an exponential rise in homelessness across the country.”
Although the report focused on council tenants in London, the five-week wait for Universal Credit payments is pushing people in other housing tenures and in all parts of the UK towards debt and higher risk of homelessness.
Iain Porter, policy & partnerships manager at the Joseph Rowntree Foundation, said: “Families who make a Universal Credit claim often have little or no savings to live on while they wait for their first payment. While there are advance payments available, our recent polling indicates around 70 per cent of recipients faced difficulties or significant difficulties as a result of taking out advances, potentially leading to arrears, debt or food bank use.
“These figures show why the government must end the five-week wait – so that people are not pulled deeper into poverty and debt. The five-week wait was not a compassionate policy before the pandemic and as unemployment grows, we urgently need to ensure that families have the support they need to stay afloat.”
Because Universal Credit is paid monthly in arrears, claimants have to wait one calendar month from the date they submitted an application before the first Universal Credit payment is made. This is called the ‘assessment period’. Claimants will then have to wait up to seven days for the money to reach their bank account, which is why there is a five-week wait for payment to begin.
London Councils believes the simplest and fairest way to nullify the negative financial consequences of this waiting period would be for the government to introduce a non-repayable grant for new claimants. This grant would be based on an estimate of the claimant’s Universal Credit entitlement and could be paid immediately – boosting the claimant’s financial security and helping them avoid an accumulation of rent arrears and other debts.
Page last updated: 22 July 2020