Universal Credit - teething problems or one big headache?
Sandie Lock considers common problems arising from some of the first Universal Credit claims
This article was originally published in the May/June 2016 issue of Adviser magazine and was correct at the date of publishing.
Universal Credit (UC) is being introduced to replace six means tested benefits and tax credits: Income Support, income based JSA, income related ESA, Housing Benefit, Child Tax Credit and Working Tax Credit. It is being rolled out slowly, initially with restrictions on who can claim and from which localities, to allow the UC system to bed in (by initially just dealing with the more straightforward claims).
As UC is rolled out more widely, an increasing number of advisers are beginning to deal with enquiries concerning its introduction. This article looks at some of the more common problems which advisers have been faced with.
Even when UC has been introduced into an area, clients may have to satisfy certain ‘Gateway’ conditions (which may differ from area to area) to be eligible to claim UC e.g. be single and have no children, be unemployed, have no disabilities or illnesses, be over 18 years of age, have no more than £6,000 in capital, not be an owner occupier, pregnant, a carer or a student. The Gateway conditions have been gradually changing since UC was first introduced in 2013, to allow more claimants to be admitted onto the UC benefits system.
Unsurprisingly, one of the main advice issues has been the Gateway conditions and whether the claimant is eligible to claim UC. Unfortunately, the legislation can be confusing and the DWP themselves have frequently been unclear about who can claim and have given confusing and incorrect advice to clients.
For example, ESA claimants who had failed the Work Capability Assessment and attempted to claim income based JSA whilst awaiting the outcome of a mandatory reconsideration request, were often wrongly advised to claim UC, when the Gateway conditions prevented anyone who was claiming or challenging entitlement to ESA from being eligible to claim UC.
Clients were similarly wrongly advised to claim UC when their (or their partner’s) earnings were above £338 pcm, they were students, not British, had not been in Britain for the last two years or were homeless.
As UC is rolled out more widely, more claims will come under the ‘digital service’ conditions(1) and the Gateway conditions will gradually be phased out.
Escaping the ‘lobster pot’ and reclaiming ‘legacy’ benefits
In most circumstances, once a client has claimed UC, they cannot reclaim ‘legacy benefits’ (IS, ibJSA, irESA, HB, CTC, WTC). This is known as the ‘lobster pot’ effect (once inside, you cannot escape).
However, if a claimant no longer satisfies the Gateway conditions which are applicable to the area in which they live (for example because they become a student or become pregnant), and comes within a group of claimants who are eligible to claim a ‘legacy benefit’, they may be able to ‘give up’ their claim for UC and make a new claim for legacy benefits. However, there is a risk of losing money (and of a delay in payments between claims) if they incorrectly time giving up the UC claim. UC is paid for an assessment period of one month and any changes which take place within the month, will affect entitlement for the whole month.
Where a claimant ceases to satisfy the Gateway conditions only because their earnings are too high, they remain within the UC system and are not eligible to claim a legacy benefit for the next 6 months (unless their earnings decrease again).
However, a claimant can ‘give up’ UC for a legacy benefit if they have a change in circumstances (other than an increase in earnings), which means they no longer meet the Gateway conditions for UC. For some clients this may be advantageous e.g. a claimant who is awarded PIP but does not have limited capability for work (LCW) would not be entitled to a disability element under UC; a claimant with LCW who becomes a carer would not be eligible for both the LCW and carer element under UC.
A Housing Systems Briefing(2) has stated that:
‘The DWP have confirmed in a Freedom of Information request that there is nothing in the Universal Credit Regulations to prevent a claimant on Universal Credit from ending their Universal Credit claim and making a claim for one or more ‘legacy benefits’ if, due to a change in their circumstances, they no longer pass the Universal Credit ‘gateway conditions’ applicable to the area in which they live. There will be a number of Universal Credit claimants who would be better off financially if they did this — but timing will be crucial.’
Each claimant’s UC ‘monthly assessment period’ may differ. It is the date of their claim which determines the ‘monthly assessment period’ applicable to their claim. If a claimant decides to end their UC claim, they will receive no UC for the ‘monthly assessment period’ in which it ends. They should therefore wait until the end of their current monthly assessment period before they do so (see Emma, below).
If Emma’s monthly assessment period starts on the 5th and ends on the 4th of the following month, she will be assessed each month based on her circumstances (apart from earnings) on the 4th of that month. Therefore, if she ends her claim on the 3rd July, she will not be paid for the period from 5th June to 3rd July. If she ends her claim on the 5th July, she should be paid for the whole monthly assessment period from 5th June to 4th July.
Change of circumstances
It is worrying that clients are not being advised when they claim UC about how changes of circumstances will affect their entitlement, as they can find that they lose out massively depending on when a change occurs.
For example, a client had been receiving UC since January 2015 and received the housing element from February 2015 when he moved into a rented room. His tenancy (and payment of rent) ended on 07/09/15 and he moved back to live with his parents. As he moved within his assessment period (14/08/15 to 13/09/15), no housing costs (for rent) were payable for any of the monthly assessment period in which he moved. Had he moved out on 14/09/15, he would have received housing costs up to 13/09/15.
Deductions from Universal Credit
Another problem area has been around deductions being made from UC for rent arrears.
The DWP has been telling UC claimants that they cannot make direct deductions for rent arrears of less than 20% of the claimant’s UC standard allowance, even where a court has decided that a repayment rate of £5 per week is reasonable. Unfortunately social security law provides for deductions at a rate higher than a court order.
Regulation 60 and Schedule 6 paragraph 7 of the UC, PIP, JSA & ESA (Claims & Payments) Regs 2013 state that the DWP ‘may’ (not must) make deductions of between 10% and 20%, thus implying it is discretionary and so the DWP could decide not to make the deductions or to make them at a rate lower than 20%, if for example the client could show hardship. The decision about the rate of deduction is also not a decision which is excluded from having a right of appeal(3).
Therefore advisers should:
● Challenge the DWP’s decision to impose a 20% UC deduction
● Submit evidence of the client’s personal circumstances e.g. other debts or details of extra expenditure due to disability needs
● Consider appealing the decision and making a complaint if the DWP appear to be acting unreasonably.
N.B. Deductions cannot be made if the claimant’s earned income (or for joint claimants, their combined earned income) equals or exceeds the appropriate work allowance for the three previous monthly assessment periods(4).
Reg 4 of Fines (Deductions from Income Support) Regs 1992 (S.I. 1992/2182) was amended in 2013(5) to allow for certain deductions to be made from UC. Reg 4(1A) now states:
‘(1A)….where the Secretary of State receives an application from a court in respect of an offender who is entitled to universal credit, the Secretary of State may deduct from the universal credit payable to the offender an amount permitted by paragraph (1B) and pay that amount to the court towards satisfaction of the fine or the sum required to be paid by compensation order.
(1B) The amount that may be deducted under paragraph (1A) is any sum which is no less than five per cent of the appropriate universal credit standard allowance for the offender for the assessment period in question under regulation 36 of the UC Regulations but no greater than £108.35’.
As this provision states that the Secretary of State ‘may’ deduct an amount from UC, this means that that decision is discretionary, i.e. the DWP do not have to make any deduction at all. If they do decide to make a deduction, then the amount must not be less than 5% of the standard UC allowance, and it must not be more than £108.35. So the DWP can decide whether to make a deduction and if they do decide to make a deduction, it must be for an amount between those two figures.
The DWP cannot reduce a claimant’s standard allowance by more than 40% altogether (i.e. including any other debts which are being repaid(6). But the 40% figure is the maximum amount the DWP can take, so they can deduct a lesser amount if they wish.
So a client can ask the DWP to either not make a deduction for the fine at all, or ask that they reduce the amount deducted for the fine to the lowest figure of 5% of the UC standard allowance. (Unfortunately, if the DWP refuse to change the deduction, the client does not have a right of appeal(7), so is merely left with submitting a complaint or potentially taking judicial review action against them.)
UC overpayments are always recoverable, but the DWP has the discretion not to recover if that will cause hardship(8).
In some cases, clients have been overpaid as a result of HB being paid at the same time as UC housing costs. Unfortunately, if the overpayment is taken to be for UC rather than HB there is little that can be done to challenge recovery of the overpayment that has occurred in this way. If the overpaid benefit is HB, the client could appeal on the grounds that the overpayment was caused by official error, to which they did not contribute and of which they could not reasonably have been aware. To succeed, the client would need to show that they did not fail to tell the local authority that they had made a claim for UC.
Housing costs (rent) - Lodgers/non-dependants
Income from lodgers or sub-tenants is treated differently under UC. Whether an occupier is treated as a non-dependant for calculating UC entitlement depends on whether they have a commercial agreement to pay the client for occupying the property. If they count as non-dependants a ‘housing costs contribution’ (non-dependant deduction) will be deducted from the client’s housing costs element. If they have a commercial agreement, they are not included as occupiers (so the client may have an ‘under-occupancy’ reduction) but no housing costs contribution is deducted and the amount they pay towards rent etc. is ignored as income.
UC housing costs element (for rent) is worked out by considering the number of people in the claimant’s ‘extended benefit unit’ (EBU). An EBU is made up of the claimant, any partner, any child or qualifying young person for whom the client is responsible and any non-dependants.
For example, Joe’s friend Mary and her 19 year old son are living with Joe; they do not have a commercial agreement. No non-dependent deduction is made for a person aged under 21 so the son will not attract a housing contribution deduction (but Mary will); however Mary and her son will both be included as occupiers when working out the number of bedrooms which Joe is allowed.
If Joe’s friend Mary had a commercial agreement with him to pay rent, Joe would be under occupying the property so the housing costs element would be reduced but there would be no housing costs contributions and the income he received from Mary would be ignored. Only specified income is taken into account when working out UC and rent paid by lodgers is not specifically included. The only heading it could come within is ‘miscellaneous income’ which is any income taxable under Tax Act ‘sweeper provisions’. Income up to £7,500 a year (from April 2016) from letting a room in your home is ignored for tax purposes under the ‘rent a room scheme’.
Housing costs (mortgage interest) waiting periods
The housing costs waiting periods for old style benefits such as Income Support, income based JSA and income related ESA has gone back up to 39 weeks from April 2016. For UC, the waiting period was previously three monthly assessment periods but this has also increased to nine assessment periods from April 2016.
The UC housing costs rules and waiting period rules have some crucial differences compared with the current benefits rules:
● The main difference is that someone on UC would not qualify for any help with mortgage costs if they have any earnings.
● Furthermore, if there is a break in entitlement to the housing costs element (e.g. due to having any earnings during an assessment period) the waiting period applies anew each time the housing costs are re-qualified for. This means that if a client was on UC and had some earnings in one month, they would not get any help towards their mortgage for that month nor for the following 9 months.
● For the first UC claim, there are linking rules which say that no waiting period would apply if the claimant has been awarded a housing costs element e.g. with IS or ibJSA, in the month before the UC claim.
● On a more positive note, there are no deductions for housing costs contributions (non-dependant deductions) from the housing costs element for mortgage interest.
Conditionality for carers
Under the old benefits system, IS can be payable whilst a person is caring for someone who receives a qualifying benefit (DLA/AA/PIP) or for someone who has claimed DLA/AA/PIP but whose claim has not yet been determined (for up to 26 weeks). The carer premium would only be payable once the claimant was entitled to carer’s allowance (CA).
Under UC, the system is similar in that a client can claim UC before the disabled person has been awarded DLA/AA/PIP. However, the difference is that the client will be subject to conditionality within that UC claim until the disabled person has been awarded the qualifying benefit.
However, if the client can show that they are a ‘relevant carer’ i.e. a person who has caring responsibilities for someone who has a physical or mental impairment(9)(this does not require that the disabled person be receiving a qualifying benefit), then then the hours that they are expected to look for work can be reduced to whatever the DWP think is ‘compatible’ with those caring responsibilities(10).
Once the disabled person has been awarded a qualifying benefit, the UC claimant can become classed as a person with ‘regular and substantial caring responsibilities’(11), if they satisfy the conditions for entitlement to CA or would do so but for the fact that their earnings exceed the limit for getting CA. They do not need to have claimed CA. The UC carer element then becomes payable(12). Once the claimant meets this definition, they become a person who is not subject to any work-related requirements as a condition of claiming UC(13).
N.B. A claimant cannot qualify for the carer element as well as the LCW or LCWRA element. However, if one member of a couple qualifies for the carer element and the other qualifies for either the LCW or LCWRA, both elements can be included in their joint UC award.
These are just a small selection of the enquiries which advisers are currently facing. As Universal Credit rolls out more widely and to a broader cross section of clients, no doubt the range of problems will also increase.
Sandie Lock works in the Welfare Benefits Expert Advice Team at Citizens Advice.
(1) Universal Credit Digital Servicehttps://dwptechnology.blog.gov.uk/2016/02/18/universal-credit-digital-service-building-new-skills/
(2) Universal Credit — better off situations for some claimantshttp://www.housingsystems.co.uk/SummarySheets/Briefing012015.aspx
(3) ‘Decisions against which no appeal lies’ Schedule 3 UC, PIP, JSA & ESA (Decisions & Appeals) Regs 2013 (S.I. 2013/381)
(4) Schedule 6 para 7(7) UC, PIP, JSA & ESA (Claims & Payments) Regs 2013 (S.I. 2013/380)
(5) Fines, Council Tax & Community Charges (Deductions from UC & Other Benefits) 2013 (S.I. 2013/612)
(6) Schedule 6 para 4 UC, PIP, JSA & ESA (Claims & Payments) Regs 2013 (S.I. 2013/380)
(7) Schedule 3 para 10 UC, PIP, JSA & ESA (Decisions & Appeals) Regs 2013 (S.I. 2013/381)
(8) COP1 leaflet: ‘What happens if you are overpaid UC, JSA or ESA,https://www.gov.uk/government/publications/what-happens-if-you-are-overpaid-universal-credit-jobseekers-allowance-or-employment-and-support-allowance
(9) Reg 85 UC Regs 2013 (S.I. 2013/376)
(10) Regs 88 and 97(2) UC Regs 2013 (S.I. 2013/376)
(11) Reg 30 UC Regs 2013 (S.I. 2013/376)
(12) Reg 29 UC Regs 2013 (S.I.2013/376)
(13) Section 19(2(b) Welfare Reform Act 2012