Universal credit has passed its first test in the coronavirus crisis ‘but tougher challenges lie ahead’, says Resolution Foundation

New report calls on government to prepare universal credit for highest unemployment levels in over a quarter of a century

Universal credit has passed its first test in the coronavirus (COVID-19) crisis test 'but tougher challenges lie ahead', according to a new report from the Resolution Foundation.

In This time is different - Universal Credit’s first recession, published today, the Resolution Foundation sets out an evaluation of how well universal credit is coping with the crisis based on a survey of more than 6,000 working-age adults (250 of whom had recently claimed universal credit); in-depth interviews with people who had recently made a claim for universal credit; and statistics from the DWP and Office for National Statistics.

The report finds that, despite an unprecedented surge in demand, universal credit has stood up well to the challenge, with -

• the vast majority of average payments being made within 72 hours, and more than 90 per cent being paid in full and on time; and
• 74 per cent of new claimants reporting that they were satisfied, or very satisfied, with the way the DWP handled their claim.

However, the report also finds that only one in three new claimants asked for an advance payment and that, while 45 per cent of those surveyed said they had enough income or savings of their own to draw on, two in five said that the decision not to ask for an advance was driven by being too scared to take on more debt.

Turning to the future, the Foundation argues that, while universal credit has successfully navigated the first phase of the crisis, the challenge families face from the generosity of universal credit will grow as the crisis goes on, with the majority (54 per cent) of new claimants surveyed having less than £1,000 of savings, and 80 per cent expressing concern about the state of their family finances.

The Foundation also highlights that there is 'a huge gap' between the generosity of universal credit compared to the Coronavirus Job Retention Scheme (CJRS), meaning that, as the scheme is reformed during the second half of this year, any workers who are then made redundant may experience a large fall in their family income.

With the UK set to face the highest unemployment in over a quarter of a century, and many households set to spend prolonged periods with universal credit as their main income source, the Foundation says that the government should prepare universal credit for the next phase of the crisis by -

• suspending the capital rules that taper away support for households with £6,000 of savings, and remove it entirely for those with £16,000 of savings;
• delaying repayments of advances by six months to make it easier for claimants to bridge the five-week wait for first payments;
• significantly increasing staffing levels in jobcentres so that the DWP can manage a second claims surge when the CJRS is phased out, alongside stepping up 'back to work’ support;
• making permanent the £20 weekly increase to universal credit which would otherwise expire in April 2021;
• suspending the benefit cap for the duration of the crisis, or at least increase its value in line with the £20 a week increase in universal credit entitlement; and
• prioritising couples and families with children in any further increases in generosity.

Commenting on the report, Senior Economist at the Resolution Foundation Karl Handscomb said -

'Universal credit has been on the frontline in fighting the UK’s economic shock. More claims have been processed in the first four weeks of the coronavirus crisis than in the first nine months of the financial crisis.

The benefits system has proved remarkably resilient in the face of such demand, with three quarters of claimants satisfied with the process. But even tougher challenges lie ahead. The typical employee loses close to half their income if they enter unemployment and move onto benefits. This will pose significant challenges for those facing long periods without work.

As well as strengthening our safety net, the government now need to reprioritise labour market programmes to bring down what may be the highest levels of unemployment since the early 1990s.

Universal credit has been a success of the crisis so far - but government should act now so it can repeat those successes in the months and years ahead.'

For more information, see Universal Credit has passed its first Coronavirus crisis test - but tougher challenges lie ahead from resolutionfoundation.org