Conservative Home: Universal Credit must be reformed to address the cost-of-living crisis

This article was written by John and originally published on

All through the pandemic, Universal Credit (UC) was the dog that didn’t bark. No matter what happened with furlough, ‘bounceback loans’ or dozens of other one-off schemes to minimise the economic damage of a once-in-a-century medical emergency, UC carried on quietly delivering lifeline benefits for people who lost their jobs. It didn’t fall over. It didn’t collapse. The waiting lists didn’t balloon. It just worked. If only the passport office, driving license renewals, and GP surgery appointments were half as good.

Just imagine what would have happened if we’d still been using its complicated and unpredictable predecessor systems, where six different benefits changed every time someone started or stopped a job, gained or lost a partner, worked a few extra hours or moved house. All those moving parts made the old system over-complicated and brittle in normal times: just imagine the collective meltdown if it had been asked to deal with a pandemic on top.

All that complexity wasn’t just brittle either. It destroyed work incentives, because most people had no idea whether they would be better or worse off once their benefits had been recalculated if they took a better job, or worked a bit more overtime. This destroyed work incentives and entrenched poverty because many people concluded (rather logically) that it was simpler and safer not to do anything which might disrupt their existing payments.

But even though Universal Credit proved it was strong and robust during the pandemic, it faces another huge stress test now as both energy and food bills balloon and the cost of living spirals upwards. Putting aside for one moment the crucial issue of uprating, there are still major problems to be solved.

The biggest one is the ‘five week wait’, because Universal Credit is paid a month in arrears, so anyone who isn’t already claiming and loses their job gets no benefits for the first five weeks.

For someone with even a modest savings cushion, a final monthly pay cheque from their last job or even a severance payment of some kind, this is manageable; they will be able to fund essentials like rent, food and even heating until the first benefits payment arrives.

But for anyone else, and who wasn’t being paid monthly and who therefore only has a final weekly or even daily pay cheque from their last job, sky-rocketing energy and fuel bills will be completely unaffordable because they have nothing to fall back on. The result is hardship, poverty, and debt: the cross-party House of Lords Economic Affairs Committee found ‘the five-week wait is the primary cause of insecurity in Universal Credit. It entrenches debt, increases poverty, and harms vulnerable groups disproportionately’ and that it makes people more likely to use food banks, miss meals, fail to heat their homes, and build up significant rent arrears.

Ministers have already cut the initial wait from seven to five weeks and introduced safer government-provided loans with easier repayment terms to try to bridge the gap. But the IPPR think tank’s recent report No one left Behind showed that many people don’t know the loans exist. And even when they do, IPPR found cases whose applications were turned down when they should have been approved.

More fundamentally still, loans are treating the symptoms of a problem which the benefits system itself has created, rather than solving the causes to make sure it doesn’t happen in the first place. Rather obviously for vulnerable people with no jobs, it is both economically and morally better to design a system which doesn’t deliberately push benefits claimants into poverty, hardship, and debt in the first place.

How do we do that? Well, for every new Universal Credit Claimant without enough savings to cover the five-week wait, we should start paying benefits at the same frequency as they were being paid in their previous job. So someone who was paid daily would get daily UC micropayments, weekly would get them weekly and so forth. Once they were safely up and running, the frequency could be lengthened slowly, in manageable steps, until it became monthly like everybody else.

It would mean software changes but, no matter how much benefits have to be uprated to keep pace with surging inflation over the coming months, these improvements wouldn’t add a single penny to the overall benefits bill. They would simply reschedule payments which were going to happen anyway, bringing them forward in time so they happen sooner.

So the costs to taxpayers ought to be no higher and, by helping more vulnerable benefits claimants avoid poverty, hardship and debt, both claimants and taxpayers would stop problems from spiralling downwards, and becoming more severe and expensive to fix as a result. Prevention is always better than cure, as the saying goes!