A DWP ‘fatal flaw’ could spell disaster for 1.4 million people

A storm and the DWP logo
Steve Topple

The chair of an influential committee has said there is a “fatal flaw” in the Department for Work and Pensions’ (DWP’s) response to the coronavirus (Covid-19) pandemic. But it seems that the DWP is still refusing to change course. Even though this inbuilt fault in its flagship benefit could spell disaster for 1.4 million people.

Universal Credit and coronavirus

Universal Credit is the DWP’s catch-all benefit, replacing previous welfare payments like Jobseeker’s Allowance. It has been constantly mired in scandal, from taking bonuses from Greggs staff to the DWP not knowing if it causes poverty. The issues with the benefit led UN special rapporteur on extreme poverty Philip Alston to call it “Universal Discredit”.

But coronavirus has put Universal Credit’s problems into even sharper focus. The Canary previously reported that the DWP’s response to the pandemic is riddled with dangerous faults. Not least among these are:

  • New claimants who can’t verify their ID online having to go into jobcentres. This is despite the UK government’s ‘stay at home’ order.
  • Sick and disabled new claimants still having to wait up to three months for extra money.

On Tuesday 14 April, work and pensions secretary Thérèse Coffey revealed that 1.4 million people had applied for Universal Credit since the coronavirus ‘lockdown’ began in March. Reuters reported that Coffey claimed:

We are capable of processing and managing those claims.

But one Labour MP is unconvinced by Coffey and the DWP’s rhetoric.

Rocketing advance payments

Stephen Timms is the chair for parliament’s Work And Pensions Select Committee. In an interview on 14 April with BBC News, he expressed concern over Universal Credit. Timms acknowledged that the DWP’s IT system “had coped” with the huge rise in claimants. But he expressed concern over whether people were getting the money they needed quickly enough.

BBC News host Victoria Derbyshire said that the DWP had “processed at least 365,000 advance payments”. The DWP gives advances to new Universal Credit claimants while they wait for their first payment, which normally takes five weeks. As the DWP notes:

You can apply for an advance payment of your Universal Credit if you are in financial hardship while you wait for your first payment, for example, if you can’t afford to pay your rent or buy food.

Advance payments are effectively loans from the DWP. Claimants make repayments for the advance, spread out over 12 months. But Policy in Practice has noted that these advances are often pushing already struggling people into debt.

Timms was unconvinced that the DWP was getting money to people quickly enough. He told BBC News:

The big question in my mind is are people who are asking for an advance, who need money urgently, are they getting it urgently or not? Now, the figure you’ve just given suggests that only quite a small proportion of people applying for Universal Credit have so far got an advance. Is that because they don’t need an advance? Or Is it because the department isn’t coping with the scale of the demand. I think the department probably is struggling to get the money out of the door as fast as they should do.

The five-week wait: a “fatal flaw”?

He also honed in on the five-week wait for a first payment. This is an inbuilt part of Universal Credit. Timms said:

The big problem about Universal Credit is that once you’ve applied you don’t get your first regular benefit payment for five weeks. I think that’s a fatal flaw in the whole system. You can ask for what they call an advance. In reality it’s a loan which should enable you to get some cash quickly.

Advance payments are controversial. In November 2019, 1,307,000 people were paying back advances or having deductions from their Universal Credit payments. The financial scale of advances is huge. As the Mirror reported, the DWP got £50m in one month from claimants paying back advances. Moreover, as of May 2019, the value of DWP advances had rocketed by 28.9% in just three months.

Also, as The Canary exclusively revealed, there has been a 35% increase since June 2017 in the percentage of new claimants having to have advances. But it took The Canary doing the maths to find this figure out. This is because the DWP does not publish precise or regular data on advance payments.

‘Cutting back on food’

Disability Rights UK reported that the charities StepChange Debt UK and the Trussell Trust produced a report into benefit payment reductions. They found that deductions from people’s payments, including advances:

are hugely significant for people on low incomes… A deduction of just 5% would push nearly half of StepChange clients on benefits into a negative budget situation, meaning they wouldn’t have enough money to cover essential costs.

Previous research among StepChange clients who had money taken from benefits to repay debt showed 71% saying it caused them hardship and a quarter had cut back on food spending.

Because repayments for advances don’t consider people’s ability to afford them, they will inevitably have a similar impact.

“Not acceptable”

Given that many of the current new claimants to Universal Credit may well be self-employed, the five week wait and advance payments could indeed prove a “fatal flaw”. Research from investment company Fidelity found that 30% of self-employed people are unable to put any money aside for savings. That’s around 1.5 million people with no financial back-up. So applying for Universal Credit, if they have lost work due to coronavirus, could be a disaster.

As Timms pointed out, the idea of the five-week wait:

was like getting your first salary cheque – you have to wait for a month… But it assumes that everybody’s got a month’s pay in the bank when they apply. And of course an awful lot of people have not. Ever since the 1940s we’ve had a social security system that’s been able to get people their first regular payment within a few days. And suddenly with Universal Credit you have to wait five weeks. It’s not acceptable. It will have to be changed…

But the DWP appears unwilling to budge on the issue. It’s only going to change the rules on advance payments to let claimants pay them back over 16 months, not 12.

So the wait for a first payment, coupled with these advances, could prove financially catastrophic for many of the 1.4 million new Universal Credit claimants. The full extent of just how bad this could get will probably not be known until it’s too late. But given Universal Credit has already been pushing people into poverty, and towards foodbanks, the chaos with the benefit is probably about to skyrocket.

Watch Timms’ full interview:

Featured image via pixabay – EliasSch2 / Wikimedia – UK Government

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