Liza Dresner

Universal Credit Cut. A Letter to MP's

Sutton Voluntary Sector have sent a jointly signed letter to their MP's to detail exactly what the cut to Universal Credit will mean locally. They have suggested sharing it for anyone to adapt to their locality. Thank you to Steve from Sutton CAB for this:

Dear MP's Name

Universal Credit

As you will recall, we have previously exchanged correspondence and had a useful meeting about the ending of the Universal Credit Coronavirus uplift.  Over the last few weeks, there has been a lot of media coverage and commentary about the issue.  There is a lot of concern among staff and volunteers in Sutton voluntary sector organisations about how the ending of the uplift will impact on Sutton residents.  I am writing on behalf of the Sutton voluntary sector organisations listed at the bottom of this letter.  We all have concerns about the £20.00 per week reduction in Universal Credit; concerns that recently have been exacerbated by the impending increases in fuel costs and food price inflation.

We would be grateful if you would consider asking the government to reconsider its decision to end the uplift.  We hope that the information below, about the impact of the reduction in Sutton and the Universal Credit regulations will be helpful to you.

There were, according to official DWP figures, 15,493 Sutton households ‘on’ Universal Credit as of May 2021..

The government increased the Universal Credit ‘standard allowances’ in 2020 in response to the Coronavirus pandemic. A monthly ‘standard allowance’ is included in the calculation of every UC claim.  There are different standard allowances for people for single people, couples and people under and over the age 25. The standard allowances are, as you can see from this table, quite low.

We can illustrate the impact of the Universal Credit reduction with an example calculation. The client is an illustration, but the calculation is based on actual Universal Credit amounts.

The claimant is a lone parent with one daughter aged 14. Her current ‘maximum amount’ of UC for is £694.01 per month (plus housing costs). This maximum amount is comprised of the £411.51 standard allowance and the Child Amount of £282.50.

The claimant works part time. She earns £520 per month (net).  The calculation of her UC includes a ‘work allowance.’ She can earn £293 per month without her UC being reduced.  She has earnings of £227 over her work allowance. Every £1.00 of earnings over the work allowance reduces Universal Credit by £0.63 – i.e., earnings ‘taper’ UC entitlement at 63%.

The calculation of her UC entitlement compares her maximum UC - £694.01 (plus housing costs) with her income. She is treated as having income of £143.01 (63% of net earnings minus the work allowance).  She is therefore entitled to UC of £551 per month, plus housing costs. Child Benefit is paid in addition to Universal Credit.

From 6^th October, the claimants maximum Universal Credit is £607.34. This is comprised of £324.84 standard allowance and Child Amount of £282.50.  She will then be entitled to UC of £464.33 (plus housing costs).  This is a reduction of £86.67 per month.

As you can see from this example, Universal Credit is reduced by £0.63 for every £1.00 of earnings over the work allowance. Only people responsible for a child or people with a limited capability for work have a work allowance. Other people such as those without dependent children and carers (who do not otherwise qualify) do not have a work allowance.

Most claimants cannot therefore make up the £86.67 per month shortfall by working additional hours.  If the claimant in the above example increased her working hours and therefore her net pay by £86.00 per month, she would lose £54.18 from her Universal Credit, meaning that she would, despite earning £86 more per month, only gain £31.82 per month - so the claimant can clearly not make up the £86 per month reduction in benefit by earning an additional £86 per month.

Many people in receipt of Universal Credit do not have any realistic way of making up for the £86 per month reduction at all. Some 60% of people in receipt of Universal Credit are not in employment. People may for example have a limited capability for work, be caring for a severely disabled child or adult or be a lone parent with a young child.  Some people in receipt of Universal Credit are working full time (and need the benefit to help with rent), so cannot further increase hours and therefore cannot, in any way, make up the reduction.  We would like to stress, that even if people can increase their earnings, those earnings will reduce Universal Credit by £0.63 for every £1.00 of earnings.

You can see, from the above table, that the Universal Credit standard allowances are quite modest. The standard allowances are the basic entitlements for single people or couples.  Although these allowances are not designed to cover rent or council tax and claimants may also receive amounts for children, caring responsibilities and having a ‘limited capability for work- and work-related activity,’ the amounts are very low when compared to the ‘Standard Financial Statement’ ‘Trigger figures.’

Debt advisers, such as the Citizens Advice Sutton debt team use a Standard Financial Statement.  The Standard Financial Statement includes ‘trigger figures’ The trigger figures are pre-agreed levels for certain areas of discretionary household expenditure. The trigger figures help identify levels of monthly expenditure deemed reasonable when completing the statement. Debt advisers do not need to explain the financial statement to creditors unless the trigger figures are exceeded.

The Universal Credit amounts are inadequate to allow claimants even the trigger figure amounts of discretionary expenditure.  The Standard Financial Statement ‘allows’ a single adult to spend a total of £666 per month on ‘discretionary’ items – communications / leisure and groceries etc.  However, the Universal Credit Standard Allowance for a single adult (over 25) is currently only £411.51 per month and is due to decrease to only £324.84 per month.

The Standard Financial Statement ‘allows’ a single adult with a dependent child to spend a total of £885 per month on ‘discretionary’ items. However, a single parent with one child could receive Universal Credit of no more than £648.59 per month (due to decrease to only £562.92 per month) plus Child Benefit of £21.15 per week. Even including Child Benefit, the family’s income would total only £740.24 per month, decreasing to only £654.57 per month in October.

Furthermore, many people in receipt of Universal Credit have a shortfall between their rent and the amount of housing costs included in their UC calculation – the Local Housing Allowance only covers the 30^th percentile of local rents.

A very high proportion of Citizens Advice Sutton debt advice clients are in receipt of Universal Credit and have a ‘deficit budget’ – in other words, their incomes are inadequate to cover even essential expenditure such as rent, utilities and food.

We understand that the government introduced the £20 per week uplift as a temporary measure, in response to the pandemic.  However, many people need to claim Universal Credit for the long term. As we have said above approximately 40% of Universal Credit claimants are in employment and need Universal Credit to help pay rent. Many of these people have not seen any improvement in their situation since the introduction of the uplift – in fact their financial positions may have deteriorated due to rising food costs and will deteriorate further with increases in fuel costs. The Citizens Advice Sutton debt team has seen an increase in demand in recent months.

We hope that this information is helpful to you. We would be grateful if you would ask the government to reconsider their decision to end the Universal Credit uplift – a decision that will have significant adverse financial consequences for over 15,000 London Borough of Sutton households.

Yours sincerely

by Liza Dresner