“claimants are often left flummoxed by how much – or how little – universal credit they will receive from one month to the next” – Alison Garnham, CPAG chief executive
Working people claiming universal credit are having their benefits capped when they shouldn’t be, and losing the effects of ‘work allowances’ worth up to £258 per month simply because of the dates on which their paydays and universal credit ‘assessment periods’ happen to fall, according to new evidence from Child Poverty Action Group (CPAG).
Last month the Work and Pensions Secretary acknowledged the need to look at “ … payment cycles for those in work.” (3)
In the worst cases workers are losing hundreds of pounds each year simply because their paydays clash with the monthly ‘assessment periods’ in universal credit (UC). Far from offering much-vaunted simplicity, universal credit rules leave many workers unable to predict what their payments will be from one month to the next. People who happen to move house at the ‘wrong’ point in their assessment period can also lose hundreds of pounds in help with rent.
One in 20 cases coming in to the charity’s Early Warning System – which gathers case evidence from welfare rights advisers across the UK – indicates a problem with the monthly assessment system in UC.
Universal credit assessment periods run for a calendar month, starting from the date Universal Credit is awarded. At the end of each month, claimants’ circumstances and income are assessed to determine their entitlement to UC, with payment made a week later in arrears.
But where a claimant’s monthly payday is on or close to the first day of their assessment period and they are paid a day or two early some months, because their normal payday would fall on a weekend or bank holiday, they are then recorded as having had two paydays in one assessment period and none in the one after.
Two pay cheques in one assessment period can leave claimants facing unexpectedly low universal credit awards as well as losing the effect of one month’s work allowance (see below).
Claimants can even lose help with prescription charges or travel costs for NHS treatment because when paid twice they appear to earn more than they do. And if they appear to have no earnings in the following assessment period – because they received two pay cheques in the preceding one – then rather than seeing their universal credit increase to compensate for this they may find that they are in fact subject to the benefit cap (which was designed to limit how much support is paid to people out of work or with very low earnings) so their support for that month is reduced too. Had they simply received one paycheque in each assessment period they would have a consistent UC award and would be recognised as earning enough not to face the benefit cap.
Claimants whose assessment period start-date and payday are both close to the end of the month are especially likely to miss out, as bank holidays are often in the last days of the month.
A worker paid on the last working day of each month in 2018, with assessment periods dated 30th – 29th of the month will have:
§ 6 assessment periods with one payday
§ 3 assessment periods with two paydays
§ 3 assessment periods with no paydays.
People who are paid weekly, fortnightly or four-weekly will also have different numbers of paydays in different assessment periods over the course of a year, which makes budgeting challenging and also means that they may be eligible for passported help with health costs in some months but not others, or may be benefit capped in some months but not others, when their pay has not in fact changed at all.
For couples where both partners work on different pay cycles, the variability of their UC award month to month can make budgeting almost impossible – see case study Katie and Luke (page 9 of full briefing).
Benefit capped:
The benefit cap restricts total benefit awards for claimants who have earnings below £520 a month, which is equivalent to working 16 hours a week at the ‘national living wage’ for over-25s. The limits are £1,667 a month in benefits (£1,917 in London) for couples or people with children, or a lower amount for single people without children. In universal credit, the decision as to whether the benefit cap applies in each assessment period is based on monthly earnings.
CPAG has come across claimants who earn more than the £520 threshold, who are paid monthly but are sometimes paid twice in one assessment period and none in the next (simply because of when their paydays and assessment period dates fall), and who are being benefit capped because they appear to have no earnings in months when they have no paydays. Although such capping of benefits is likely to be an unintentional side-effect of the rigid monthly assessment period, it can cause significant hardship. For some, the effect is to compound difficulties caused by a very low Universal Credit payment in the preceding months when they are paid twice, because rather than their award rising in the following month to compensate, it is reduced by the benefit cap. See case study ‘Nancy’ (page 10 of the full briefing).
Other working claimants are benefit capped because they are paid on a non-monthly basis and do not always have earnings above the capping threshold in their assessment periods, even though if paid monthly their earnings would exceed the threshold and they would not be benefit capped. Some claimants are benefit capped almost every month of the year as a result. (See page 11 of the full briefing.)
In these cases, people are earning at least the equivalent of 16 hours/week on the minimum wage, i.e. they are not the intended target of the benefit cap, but this reality is being distorted by strict universal credit rules which cannot adjust to non-monthly pay cycles or variations in pay dates.
CPAG wants universal credit rules changed to allow earnings to be averaged in order to determine whether claimants earn enough to exceed the threshold for being capped, to better reflect the reality of different pay cycles or irregular earnings. There is already such a rule for establishing whether Universal Credit claimants earn enough to be exempted from requirements to look for more work if their earnings fall below a threshold.
Losing work allowances:
For claimants who are parents, disabled or ill, being paid twice in one month means losing the effect of one month’s work allowance every time it happens – a loss of £125 if claiming housing costs or £258 if not. See case study Suma page 14 of full briefing.
The work allowance (at £198 per month if claiming housing costs, £409 if not) is the amount of earnings claimants can keep in full before universal credit is tapered away at a rate of 63p in each pound. Only one work allowance can be applied per month so if claimants (with housing costs) are paid twice in one month, £198 of their pay in the assessment period where they are paid twice will be subject to the taper which wouldn’t have been tapered if paid in the next assessment period. They lose 63% of £198, ie £125 each time this happens. Those not claiming housing costs lose £258 every month they are paid twice (63% of the higher work allowance of £409).
CPAG wants DWP to use claimants’ monthly pay – where it is demonstrably regular – to determine universal credit awards (currently it uses real-time information on pay from HMRC which means any pay received in an assessment period affects that month’s UC award, regardless of when the work the pay relates to took place). Allowing claimants to change the date of their assessment period dates so that the start date is not too close to their payday would also eliminate the problem.
Loss of passported benefits:
Claimants who are ‘passported’ to help with health costs can lose out if they are paid twice in one UC assessment period. Universal credit claimants are exempted from health charges such as prescription charges, sight tests, wigs, fabric supports and glasses as well as help with travel to NHS treatment, if their earnings are below £435 in an assessment period (£935 if they are long term sick or disabled or a parent) in which the cost was incurred. If a claimant who would usually be eligible for this help is paid twice in an assessment period their income is likely to exceed the threshold and they will be forced to pay for treatment costs. By contrast, in tax credits, the earnings limit for accessing passported benefits is an annual figure so if claimants are paid early or paid more frequently than monthly, fluctuating income does not affect their entitlement. Budgeting is potentially more difficult for claimants if they are sometimes eligible for help with health costs but sometimes not, depending on when their pay day falls. We are also concerned that people might be forced to delay medical care.
CPAG wants universal credit rules changed to allow for the averaging of earnings over three months to determine entitlement to passported benefits. Such a system is already in place for assessing entitlement to free school meals.
Back pay and tax rebates
If people claiming universal credit receive a lump sum of back pay or holiday pay, or a tax rebate for a previous year’s work, this is treated as income for the assessment period in which it falls even if it relates to a period before they ever claimed universal credit. This means that universal credit is withdrawn at the rate of 63p in the pound against this income.
People who have previously overpaid tax or who are owed pay from a time when they were not claiming universal credit would have kept the money in full if they had been taxed correctly or paid on time by their employer. But because the money is only received after they have claimed universal credit, almost certainly for reasons beyond their control, they instead lose almost two-thirds of this money (see case study Kelly, Page 16 full briefing).
CPAG wants income from pay or tax rebates relating to a period when a claimant was not receiving UC to be disregarded for the purposes of calculating their entitlement to UC.
Monthly assessment of housing: and other circumstances
Housing costs payable through UC are determined for each assessment period based on the claimant’s monthly rent for the accommodation they are in on the last day of the assessment period. So if a claimant moves from a higher-rent to a lower-rent home during an assessment period, they may not receive enough money to cover their rent for the first part of the month.
People responding to the benefit cap or bedroom tax by moving to a smaller home may find that they lose out. And for people moving to temporary accommodation, supported housing or a refuge midway through an assessment period, or moving in with family where they don’t have to pay rent, the losses can be worse. UC doesn’t cover the cost of these forms of accommodation at all and will pay no housing costs at all for those months.
Someone who is made homeless and moves into temporary accommodation close to the end of their ‘assessment period’ month will receive no help at all with rent for their previous home, while housing benefit will only pay for the few days spent in temporary accommodation that month. This problem is leaving people in rent arrears unexpectedly.
A similar issue arises if other circumstances change during the month, for example if a child moves out of home on the penultimate day of the assessment period, no child element will be paid for the whole preceding month.
CPAG wants housing costs to be paid based on the number of days spent at each address or actual rents incurred, and for child elements to be paid up to the day children leave on a pro rata basis.
Commenting on the findings from CPAG’s Early Warning System, the charity’s Chief Executive Alison Garnham said: “Universal Credit isn’t working for working people. Our Early Warning System shows claimants are often left flummoxed by how much – or how little – universal credit they will receive from one month to the next.
“But we believe most of the problems created by the monthly assessment system can be fixed relatively easily if the political will is there. The mass migration of families on to universal credit should not begin until these fundamental problems are resolved.”
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