Study shows ‘catastrophic’ potential of Universal Credit in its current form

With parliament emergency debate on UC due – two London borough councils say how high the stakes are.

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With parliament’s emergency debate on the effect of Universal Credit (UC) set for this afternoon (Oct 24) a new report reinforces the impact of the roll-out on recipients.

London’s Southwark Council has released an in-depth study of the circumstances UC has created for tenants.

Southwark Council – which last month stressed its UC concerns to the Work and Pensions Select Committee – partnered Croydon Council and Peabody in launching the report by the Smith Institute at an event at the House of Lords.

The event was chaired by Lord Kerslake, chair of Peabody, who led a panel discussion on the findings of the report and the wider impact of Universal Credit.

Warning bells have already been ringing loud and clear for Southwark Council, one of the first boroughs nationally to see the full roll-out of the new system.

The Safe as Houses report looks at tenants’ experiences, not just statistics, and the actual rent accounts show real evidence of the cycle of borrowing and debt.

Together, Southwark and Croydon manage almost 50,000 council homes and both councils have raised concerns about the number of tenants claiming UC falling into significant rent arrears.

The evidence Southwark has already submitted to Parliament shows that the average council rent account in Southwark sits at £8 in credit, but for UC recipients, it’s at £1,178 in arrears meaning that rent arrears for those claiming Universal Credit are worse than under the previous housing benefit system.

Southwark has already seen a £5.8m debt from arrears for those on UC and this only represents 12% of residents – full roll-out could be much more impactful.

More worrying still, Pecan Foodbank, which operates in Southwark, reports an increase in numbers of referrals of 94% – mainly due to welfare reform and Universal Credit between Q1 2016 and Q1 this year and an even bigger increase among families with children (179%).

The council’s own local welfare fund (Southwark Emergency Support Scheme – SESS) reports a big increase (34%) in the numbers of food parcels issued in Q1 2017 compared with same quarter in 2016.  Among those applying online for support during Q1 this year, more than one in 10 cited delays in receiving UC payment as the reason for doing so.

Cllr Fiona Colley, cabinet member for finance, modernisation and performance at Southwark Council, said: “This report’s stark evidence is why we need to lead this debate. I implore the government to listen to how this is affecting the poorest and most vulnerable people in our borough, and the potential effects reverberating nationally.

“Universal Credit, in its current form, has the potential to be catastrophic, not just for residents at an individual level, but for councils’ HRA budgets for housing.

“The arbitrary delay in receipt of money – particularly for those already in difficult situations such as temporary accommodation, could mean a spiral of debt, poverty and people not being able to afford to eat.

“I cannot think of a more compelling reason to push for change on this.”

Cllr Alison Butler, Croydon Council’s deputy leader and cabinet member for homes, regeneration and planning, said: “This report underlines the major flaws in Universal Credit, which is placing more and more Croydon and Southwark families in rent arrears and at risk of losing their home.

“The government needs to fix this policy now or risk devastating thousands more people not only in Croydon but nationwide.”

With Universal Credit full service due to be rolled out to around 50 new areas across the country per month, this event has been an opportunity to discuss the wide-reaching impact of the new benefit system and the wider welfare reform debate.

Safe as Houses – Key findings:

  • Rent arrears for those claiming Universal Credit are worse than under the previous housing benefit system. Arrears were greater for those on UC than HB: by week 20, UC tenants were on average £156 in arrears while HB tenants had actually overpaid by 4% of rent due
  • Big underpayments and under-payers contributed most to arrears: 69% of the value of underpayments was from those failing to pay more than 75% of rent owed. The top fifth of those in arrears collectively owed over half of the level of arrears
  • Arrears accrued early are paid down, but stabilise with time: There is a pattern of arrears accumulating each week for 11 weeks. After around week 11 arrears do start to be paid down, but not enough to pay back all arrears accumulated
  • Participants in this research almost universally experienced financial hardship as a result of transitioning onto UC, particularly as a result of the significant delays to payment
  • The qualitative evidence demonstrates the significant impact UC is having on individuals – delayed UC payments have put many into debt and rent arrears, causing considerable stress. Many people are struggling to manage money on UC – for some it’s adapting to a single monthly payment, but for others it’s simply not having enough money.

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