Covid 19 impact: The Universal Credit Scheme needs to be more effective, says the Lords’ Economic Affairs Committee report

The Lords’ Economic Affairs Committee published its report on universal credit on 31 July 2020. It said that the policy on universal credit is not well designed and needs to be reformed. It is leading to rising arrears of rents and dependence on food banks by people.

The government’s social security budget has been declining for the past decade, which has led to an increase in poverty and hardships for British citizens. This needs to be urgently attended to, lamented the committee report.

Currently, a claimant has to wait for five weeks before receiving his first payment. This condition leads to higher debts for the claimant and affects the vulnerable groups the most. To address this problem, the government should introduce a non-repayable two-week grant, added the report.

The prevalent method of calculating the universal credit payment also needs an overhauling, as it sometimes leads to fluctuating payments from one month to another. The report said that this anomaly needs to be rectified as people claiming the credit find it hard to budget their essential requirements, as a result of the wavering credit amount.

Universal Credit System in the UK: a brief history

The universal credit system in the UK was introduced in the year 2010. It was meant to replace six existing benefits with one single credit payment. It was meant to simplify the doles payment system across the nation. These six benefits were child tax credit, housing benefit, income support, working tax credit, the jobseeker's allowance, and employment & support allowance (the last three being income-based).

The universal credit is an amount paid to help someone cover his basic costs of living in the United Kingdom provided he does not have a job, or has a low income, or is unable to work.

By the end of December 2019, there were 3 million people claiming the UC benefit across the country. Another 3.95 million (who had been claiming one or more of the other six benefits mentioned above) were in the process of being completely migrated to the UC system.

The maximum amount that could be claimed under the universal credit system remains £20,000 per family for a year across Britain (calculated using a complex formula). The set amount has a higher figure for London, i.e. £23,000, being a city with relatively higher cost of living.

In most cases, the UC is credited to your bank or building society account every month. The first payment comes with a delay of five weeks (earlier it used to be a period of six weeks instead). Government says it takes this much of time to finish the related paper work.

You can claim UC for only one member per household, and not more.

UK government’s response

The UK government officials responded to the committee report. They said that they welcome the committee’s recommendations and will take a closer look at them.

At the same time, government informed that more than 3.2 million new claimants have been paid since the mid of March 2020, under its universal credit scheme. It further added that a higher number of people with urgent needs are being given advances to meet their day-to-day requirements.

According to government statistics, the amount of money spent on universal credit in Britain totaled £95 billion in the year 2019. The UK government has already surpassed this amount by £9.3 billion in 2020, as a result of increasing the disbursement of universal credit due to the coronavirus crisis.

Rising unemployment in the UK

According to latest government statistics, the number of people employed on company payrolls fell sharply by 0.65 million during the short period of April to June 2020. The prevailing unemployment rate in the country is close to 4 per cent, which is expected to at least double by December 2020.

Currently, close to 9.4 million people are put on the government’s furlough scheme. Under this scheme, the UK government is paying for up to 80 per cent of the salaries of these furloughed employees for companies under distress, and unable to pay for their own staff’s wage-bill. However, the scheme will be ending in October 2020 and it is likely that more people could be laid off, due to the ongoing bad health of the British businesses as well as the economy.

The latest government statistics also indicate that the number of weekly hours works dropped sharply by 175.3 million, since the beginning of the pandemic in the country. This was the biggest level of fall observed in the country’s history since the 1970s.

According to experts estimates, another alarming statistic is that almost one third of young people employed (in the age group of 18 to 24 years of age), were either put on the furlough scheme or have lost their job, as a result of the pandemic.

The total number of vacancies available are also at an all-time low level of 0.33 million across the country during the period of April to June 2020.

Also read: Dismal Employment Data for May All Set to Perturb the Government More

To conclude, the universal credit scheme of the UK government is a well-intended scheme and aims to provide the have-nots with enough money to cover their cost of basic living. These could be people who do not have a job, or are unable to work, or have a low level of income to support themselves. However, a recent analysis by the Lords’ Economic Affairs Committee suggests that the scheme has some limitations due to which it is not able to reach out to the most vulnerable sections of the society, especially in the wake of the crisis due to the corona-led pandemic. The committee has also pointed out that there is a five-week delay in the rolling out the first monthly UC payment, which should be attended to. Government has responded that though it is trying to provide relief to more people during the crisis, but it will surely look into the suggestions of the committee for any improvements.