HC 576 Progress towards the implementation of Universal Credit
Written evidence submitted by the Personal Finance Research Centre
The Personal Finance Research Centre is an independent not-for-profit research centre based at the University of Bristol. We have conducted a significant programme of social research on money management and decision making, financial exclusion, and financial confidence, capability and wellbeing. Much of our work focuses on low-income households.
1 On-line claims (CP9)
1.1Although it is undeniable that there will be people who will welcome and benefit from the move to on-line claims, there are many others for whom this will pose considerable problems either because they do not have access to the required broadband facilities in a private and secure environment or they lack the skills and confidence to complete and maintain a claim on-line.
1.2 Many claimants do not have access to a computer. Research shows that 30 per cent of people likely to be eligible for UC do not have a computer in their home, with the costs of buying a computer and a broadband connection being a significant barrier (Tu and Ginnis, 2012).
1.3 Moreover, 22 per cent of potential UC recipients have never used the internet with a further 30 per cent being only occasional users (Tu and Ginnis, 2012).
1.4 Broadband facilities are not yet available throughout the country: 31 per cent of people likely to be eligible for UC do not have broadband access in their home and 26 per cent do not have access to broadband at all (Tu and Ginnis, 2012). A recent report from the House of Lords Communications Committee shows that 14 per cent of existing broadband connections do not have broadband coverage at 2Mbps, defined as standard broadband (House of Lords, 2012). The people affected in this way are scattered throughout the country, but they most commonly live in rural areas.
1.5 Many people will therefore have to use a computer outside their home. Libraries are often cited as an option in such circumstances, but this is not the case in small and rural branch libraries. In addition, public expenditure cuts mean that many libraries operate more restricted hours or are closing altogether and some are now charging for internet access. Internet cafes offer another option, but these have even more restricted availability than libraries and are not free of charge. Public access computers will also not have the aids needed by people with sight impairments or other disabilities.
1.6 Both privacy and security are real issues for people using a public access computer to make their claim – and particularly if they are not experienced computer users. Research for the Department has shown that the security and privacy of on-line claims was a major concern among people likely to be eligible for UC (Adams et al, 2011; Rotik and Perry, 2012; Tu and Ginnis, 2012).
1.2 Skills and confidence
1.7 Having access to a computer, or even using it to access emails and check websites, does not ensure that a claimant has the necessary skills and confidence to complete a claim form on-line or to maintain that claim afterwards. In fact, 45 per cent of potential UC claimants said they would require help to apply on-line (Tu and Ginnis, 2012). There was widespread concern about making errors when completing the UC application form on-line even among those willing to do so (Adams et al, 2011; Rotik and Perry, 2012). And one in five of the general population (21 per cent) who had used the internet in the past three months said that they lacked the skills to protect personal data (ibid).
1.8 Consequently 36 per cent of potential UC claimants would be unwilling to apply online, citing lack of skills (32 per cent) and concerns about making errors or providing incorrect information (21 per cent) (Tu and Ginnis, 2012).
1.3 Who will be most affected?
1.9 Current recipients of JSA and WTC generally have much higher levels of access to the internet and fewer barriers to applying on-line than do recipients of IS, IB or ESA (Tu and Ginnis, 2012). Even so, in March 2012 just 19.6 per cent of new JSA claims were made on-line.  Research has also shown that there is a statistically significant association between social disadvantage and digital exclusion (Dutton and Helsper, 2008) and that internet usage by disabled people is 25 per cent lower than in the general population (British Social Attitudes Survey, 2011; Low Incomes Tax Reform Group,2012).
1.4 Assistance with on-line applications
1.10 It is very unlikely that the Government aspiration of 80 per cent of UC claims being made online will be realised in the short term. Consequently, the Department should avoid conveying the message that applications can only be made on-line, and well-resourced and robust alternatives will need to be put in place. Moreover, research for the Department has concluded that many people who are willing to try applying on-line will require personal assistance and support to do so, ideally at a Jobcentre Plus office (Adams et al, 2011; Rotik and Perry, 2012).
1.5 Maintaining an award and notification of changes in circumstances by claimants (CP5)
1.11 Even if a person makes their claim for UC online, it cannot be assumed that they have ready access to a computer to maintain it. Someone who has used a public access computer may not have an email account and, even if they do, they may not check their emails regularly. Failure to do so could result in them missing a work-focused interview and being sanctioned for not providing the information requested to ensure that their award remains correct.
1.12 Difficulties will also be faced by public access computer users, such as self-employed people, those with employers that do not use RTI and parents who are claiming childcare costs, who need to provide regular information to maintain their claim.
1.13 Clarification is needed about how the Department proposes to communicate with people who cannot maintain their award on-line and the extent to which they will contact a claimant by other means if they do not respond to an on-line direction. Ideally there should be a safeguard to ensure that communications are only made by email if the claimant indicates on their claim form that they are able communicate with the Department in that way.
2 Joint claims (CP10)
2.1 While research has not identified such widespread problems relating to joint claims this will never-the-less cause problems for a minority of people living as a couple. Safeguards will therefore need to be put in place if real hardship is to be avoided. These problems include circumstances where:
· One partner is willing to sign the claimant commitment but the other is not;
· One partner provides incorrect information without the knowledge or endorsement of the other;
· A claimant has left a violent partner and does not want them to have access to details of where they are living.
3 Backdating of claims (CP22)
3.1 The proposed list of circumstances in which backdating will be allowed is more restrictive than the current rules for IS and JSA and has the potential to cause hardship.
3.2 It is, however, the reduction in the time period for the backdating of the housing element that will cause the greatest difficulties – leading to rent arrears that will affect tenants and landlords alike.
3.3 One further potential difficulty is that the date of on-line claims will be when the completed form is submitted – rather than the date of the initiation of a claim, as is the case now. This will adversely affect people who have difficulties completing an on-line application whether through lack of access or lack of skills.
4 Monthly payments (CP44)
4.1 Research shows that proposals to make monthly payments will almost certainly disrupt the budgeting of a large proportion of claimants and undermine one of the key objectives of UC – namely to smooth transitions into work.
4.2 A large proportion of potential UC claimants are normally engaged in weekly-paid employment and budget weekly. Secondary data analysis for this submission shows that 28 per cent of all employees are paid weekly, rising to 42 per cent of those in the lowest two income quintiles. HMRC statistics show that 49 per cent of all CTC/WTC recipients have opted to receive their tax credits weekly, rising to 58 per cent of those receiving CTC at or about the family element. So a large proportion of people claiming UC will either already have a weekly income from employment or will normally be paid weekly when they are in work.
4.3 Shifts in payment frequency cause major disruption to household budgets, so those leaving weekly waged employment will face disruption if they are paid UC monthly. Our research also shows that many people on low incomes receive their incomes from different sources and with different frequencies, which makes budgeting more difficult. So paying UC monthly to a weekly waged worker will create disruption. Consequently, while the proposals will assist the transitions into work for people moving into monthly waged employment they will complicate the transitions for people moving into a weekly waged job.
4.4 Around half (48 per cent) of potential UC claimants budget weekly or daily while just three in ten (29 per cent) budget monthly (Tu and Ginnis 2012). Research we undertook to inform the introduction of ACT payment of benefit showed that the lower the income someone has, the shorter the time period over which they choose to budget. When people left (generally low-paid) work and started claiming benefit, they retained the budgeting period they had used while in work (Kempson and Whyley 2001). So the determinant of a household’s budgeting period is not their economic activity status but their level of income. Qualitative research consistently shows that people budget over short time periods in order to keep tight control over their finances.
4.5 When asked directly, 42 per cent of all potential UC recipients said that they would find it harder to budget with monthly payments, only 10 per cent said it would be easier. The remainder said either that it would make no difference (40 per cent) or they already received their benefits or tax credit monthly (7 per cent) (Tu and Gennis 2012). People with higher incomes (WTC and CTC recipients) were least likely to say they would find it harder. Among other groups, over half would find it harder to budget with monthly payments – and most of these a lot harder. Most of the people anticipating difficulties expected to run out of money before the end of the month (80 per cent). An indication of the difficulties some claimants will experience can be seen in research with lone parents who moved from weekly IS to fortnightly JSA (Peacey 2009).
4.6 In view of this evidence we believe that the potential risks associated with moving to monthly payment (in association with other changes discussed below) outweigh the potential benefits. It is highly likely that it will lead to greater financial difficulties which could, in turn, undermine the likelihood of claimants being able to focus on finding and keeping work.
4.1 A single payment
4.7 In contrast to monthly payments, recent research shows that fewer potential recipients of UC (17 per cent) felt that the receipt of a single payment would make it harder for them to manage their money while 18 per cent thought it would make it easier (Tu and Ginnis 2012).
4.8 The main difficulty is likely to be the inclusion of housing costs within that single payment. We are aware that there is widespread concern among social landlords and, in particular, by those offering supported accommodation to people likely to struggle with monthly payments and as a result fall into rent arrears. The potential knock-on effect to the viability of these landlords should they experience a rapid rise in rent arrears is a matter for real concern.
4.2 Payment to one person in a couple
4.9 Likewise, most potential UC recipients did not see payment to one person in a couple as a problem. Only 9 per cent said it would make it harder for them to manage their money; 14 per cent said it would be easier. For most, however, it would make no difference at all (Tu and Ginnis 2012). That said, they acknowledged that it could be very problematic for a minority of claimants and women in particular, as they often receive Child Tax Credit payments, giving them a small degree of financial autonomy (see also Sutherland et al, 2006).
4.10 Research with potential UC claimants identified a concern that joint payments would be unworkable where a relationship was unstable and more transient or in households where there are specific problems such as drugs or alcohol abuse, problem gambling or domestic abuse (Rotik and Perry 2012).
4.3 Exceptions to single monthly payments
4.11 The successful implementation of UC will depend on not disrupting the finances of claimants. In view of the evidence cited above, the Department’s intention to allow some exceptions to monthly payments is welcome. However, we do not yet know the criteria on which this decision will be based, how many people the Government expects to accept as exceptions or for how long.
4.12 We would challenge the underlying assumptions of this policy that monthly budgeting is the ‘normal’ way of managing a household budget and that most ‘normal’ households have a single source of income. The second is rarely the case and the first – as we demonstrate above – is not, and never has been, the normal period over which people with lower incomes budget. This is not because they are ‘deviant’ but because they are, for the most part, very prudent budgeters. Faced with a lower income, most people with a higher income who currently budget monthly would do the same.
4.13 Consequently, and given the very large numbers of households that could potentially be adversely affected, we urge the Department to accept the situation for what it is and rely on the principles of ‘nudge’ to allow people to opt out of monthly payments if they wish – and making them aware of this possibility. This will be administratively simpler and less costly for the Department than a complex set of ‘vulnerability’ criteria and will support people to take responsibility for managing their money in the most appropriate way, given their circumstances. A criterion-based approach could to be retained for determining when to allow separate payments to people living as a couple and when to make rent payments direct to landlords.
4.14 We note the Government’s intention to provide education and assistance to enable people to move from weekly to monthly budgets. This is, we believe, misguided. People budget over short time periods because they are good money managers not bad ones. Moreover, it would be extremely costly to do this well, as many people would require personal assistance. And there is very limited evidence (even worldwide) of the efficacy of financial education in this area.
4.15 Where people budget and would normally be paid weekly, it is consistent with the UC philosophy of independence and personal responsibility to allow them to opt out of monthly payments in order to keep control over their finances. Where people want to make the transition to monthly payments, the most effective form of help is likely to be peer-to-peer advice and practical hints on how to budget weekly with a monthly income. Sure Start children’s centres would be one obvious place for this kind of assistance to be fostered.
5 Payment methods (CP43 and CP44)
5.1 Our recent review of financial inclusion showed that about 5 per cent of households lack a transaction account; but only 1 per cent of households lack an account of any kind (Kempson and Collard, 2012). But a revolving door is emerging, whereby many people on low incomes close their bank account after they have incurred penalty charges for failed direct debits, only to open another account at a later date. For these people, the penalty charges they incur far outweigh any cost savings they achieve by paying household bills by direct debit. Others with low incomes use their account simply to hold their income but budget entirely in cash to avoid the risk of incurring penalty charges.
5.2 We concluded in our research that most bank accounts are inappropriate for day-to-day money management by people on low incomes who need to keep close control over their finances. None of them offers a bill-payment service that is as responsive to their needs as the one provided by PayPoint, for example. New accounts (so-called ‘jam jar’ accounts) offering the sorts of budgeting facilities that Ministers hope will help people on lower incomes to manage their money are beginning to become available but it will be some considerable time before they reach any sort of scale. Experience in the United States shows that Government can play a pivotal role in creating a climate within which the development of suitable accounts becomes a commercial proposition. We would welcome the Department playing an active role in this area.
5.3 Until more suitable accounts become available it is important that people on low incomes who open bank accounts receive adequate information and guidance both to help them to choose a provider and an account that meets their needs and circumstances, and also at account-opening to help them get the most out of account, and avoid pitfalls such as penalty charges. This is a role for the Money Advice Service in conjunction with account providers.
5.4 It will also be important for the Department to ensure, before making payments into anything other than a conventional ‘bank’ account, that the deposits it holds are protected. This is not invariably the case.
6 When claimants are paid (CP42 and CP44)
6.1 We have real concerns about the payment date being fixed in relation to the date of the claim. Our recent research has shown that many originators of direct debits are inflexible about the date on which payments can be made (Kempson and Collard, 2012). A serious mis-match between the dates on which UC payments are made and direct debits are taken from bank accounts will inevitably lead to financial difficulties. The lack of flexibility by originators of direct debits is an area that needs urgent action.
14 August 2012
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