The government’s ambitious change to the benefits system, universal credit, fails to deliver promised financial savings or employment benefits and leaves thousands of vulnerable claimants in hardship, according to the public spending watchdog.
The National Audit Office effectively demolishes ministerial claims for universal credit, concluding that the much-delayed flagship welfare programme may end up costing more than the benefit system it replaces, cannot prove it helps more claimants into work and is unlikely to ever deliver value for money.
The NAO report paints a damning picture of a system that despite more than £1bn in investment, eight years in development and a much hyped digital-only approach to transforming welfare, is still in many respects unwieldy, inefficient and reliant on basic, manual processes.
Amyas Morse, the head of the NAO, said: “We think the larger claims for universal credit, such as boosted employment, are unlikely to be demonstrable at any point in future. Nor for that matter will value for money.”
Opposition politicians and campaigners seized on the report to renew calls for universal credit to be delayed and its multiple design flaws fixed before the government continues its rollout to millions more claimants over the next four years.
Margaret Greenwood, the shadow secretary for work and pensions, said: “This report shows just how disastrously wrong the government has got the rollout of universal credit. It has shamelessly ignored warning after warning about the devastating impact its flagship welfare reform has had on people’s lives.
“The government is accelerating the rollout in the face of all of the evidence, using human beings as guinea pigs. It must fix the fundamental flaws in universal credit and make sure that vulnerable people are not pushed into poverty because of its policies.”
Quick GuideWhat is universal credit and what are the problems?
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What is universal credit?
Universal credit (UC) is the supposed flagship reform of the benefits system, rolling together six benefits into one, online-only system. The theoretical aim, for which there was general support across the political spectrum, was to simplify the system and increase the incentives for people to move off benefits into work. With a huge influx due to the economic impact of the coronavirus, in September 2020 there were 5.6 million people claiming UC.
How long has it been around?
The project was legislated for in 2011 under the auspices of its most vocal champion, Conservative MP Iain Duncan Smith. The plan was to roll it out by 2017. However, a series of management failures, expensive IT blunders and design faults mean it is now seven years behind schedule, and full rollout will not be complete until 2024. The government admitted that the delay was caused in part by claimants being too scared to sign up to the new benefit.
What is the biggest problem?
The original design set out a minimum 42-day wait for a first payment to claimants when they moved to UC (in practice this is often up to 60 days). After sustained pressure, the government announced in the autumn 2017 budget that the wait would be reduced to 35 days from February 2018. This will partially mitigate the impact on many claimants of having no income for six weeks. The wait has led to rent arrears and evictions, hunger (food banks in UC areas report notable increases in referrals), use of expensive credit and mental distress.
Ministers have expanded the availability of hardship loans (now repayable over a year) to help new claimants while they wait for payment. Housing benefit will now continue for an extra two weeks after the start of a UC claim. However, critics say the five-week wait is still too long and want it reduced to two or three weeks.
Are there other problems?
Plenty. Multibillion-pound cuts to work allowances imposed by the former chancellor George Osborne mean UC is far less generous than originally envisaged. According to the Resolution Foundation thinktank, about 2.5m low-income working households will be more than £1,000 a year worse off when they move to UC, reducing work incentives.
Landlords are worried that the level of rent arrears accrued by tenants on UC could lead to a rise in evictions. It's also not very user-friendly: claimants complain the system is complex, unreliable and difficult to manage, particularly if you have no internet access.
And there is concern that UC cannot deliver key promises: a critical study found it does not deliver savings, cannot prove it gets more people into work, and has plunged vulnerable claimants into hardship.
Frank Field, who chairs the Commons work and pensions select committee, said the report exploded constant assertions by ministers that all was well with universal credit. The Labour MP said a culture of ministerial denial about the project’s problems over the years meant it was now “mega-costly” to either continue or halt it.
“The universal credit we have seen is a shambles, leaving a trail of destruction in its wake. Sadly this report will make little difference if the senior officers running universal credit remain firmly entrenched in la-la land,” he said.
Although £2bn has been spent on creating and running universal credit, IT and contractor problems mean it is now running six years behind schedule. While an estimated 8 million people are expected to be on the benefit by the time it is fully rolled out in 2023, just 850,000 are presently claiming it.
Despite evidence that universal credit is failing to deliver on its core promises, the NAO concludes that it is too complex and would cost too much to halt the programme at this stage. “There is really no practical choice but to keep on keeping on with the rollout,” said Morse.
The Department for Work and Pensions launched a vigorous defence of its flagship welfare reform, insisting it was operating effectively, and represented an improvement on old-style benefits. It said the NAO was incorrect to conclude the benefits of the programme could never be demonstrated.
A DWP spokesman said: “Previous administrations poured billions into an outdated system with a complex myriad of benefits, which locked some people into cycles of welfare dependency. We are building a benefit system fit for the 21st century, providing flexible, person-centred support, with evidence showing universal credit claimants getting into work faster and staying in work longer.
“Universal credit is good value for money and is forecast to realise a return on investment of £34bn over 10 years against a cost of £2bn, with 200,000 more people in work. Furthermore 83% of claimants are satisfied with the service and the majority agree that it ‘financially motivates’ them to work.”
However, the DWP came in for strong criticism from the NAO, which characterised the approach to managing the programme as defensive, insensitive to claimants and dismissive when alerted to practical problems in the system by delivery partners such as landlords and welfare advisers.
“This has led it too often dismiss evidence of claimants’ difficulties and hardship instead of working with these bodies to establish and evidence base for what it actually happening,” the report says. “The result has been a dialogue of claim and counter claim and gives the unhelpful impression of a department that is unsympathetic to claimants.”
Universal credit rolls six major working-age benefits into one monthly payment, including job seeker’s allowance, tax credits and housing benefit. Its central aims are to simplify the benefits system, make it more efficient and to provide incentives for claimants to enter work, or work more hours.
But the NAO says it has “significant doubts” that these aims can be achieved. Ministerial claims for universal credit are in some cases are theoretical and based on “unproven assumptions”. It says that a central ministerial claim, that the system will lead to 200,000 more people in work, cannot be measured or proved.
Ministers were forced to make changes to the benefit last year after a revolt by Tory backbenchers shocked by the hardship endured by many claimants. Its handling was even criticised by its political architect, the former work and pensions secretary Iain Duncan Smith, who called on ministers in March to reverse cuts to the benefit.
Gillian Guy, the chief executive of Citizens Advice, said: “The government must take action to fix these unacceptable problems with universal credit, ensuring people are paid on time and that adequate support is in place. This is especially important as the pace of the rollout increases.”