Report

by the Comptroller
and Auditor General

Department for Work & Pensions

Rolling out Universal Credit

HC 1123 Session 2017–2019 15 june 2018

Our vision is to help the nation spend wisely.

Our public audit perspective helps Parliament hold government to account and improve public services.

The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Sir Amyas Morse KCB, is an Officer of the House of Commons and leads the NAO. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund, nationally and locally, have used their resources efficiently, effectively, and with economy. The C&AG does this through a range of outputs including value-for-money reports on matters of public interest; investigations to establish the underlying facts in circumstances where concerns have been raised by others or observed through our wider work; landscape reviews to aid transparency; and good-practice guides. Our work ensures that those responsible for the use of public money are held to account and helps government to improve public services, leading to audited savings of £734 million in 2016.

Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 12 June 2018

This report has been prepared under Section 6 of the National Audit Act 1983 for presentation to the House of Commons in accordance with Section 9 of the Act

Sir Amyas Morse KCB
Comptroller and Auditor General
National Audit Office

11 June 2018

This report examines the Department for Work & Pensions’ progress in implementing Universal Credit. We describe the evolution of the Universal Credit programme since the reset and evaluate the Department’s future plans.

© National Audit Office 2018

The material featured in this document is subject to National Audit Office (NAO) copyright. The material may be copied or reproduced for non-commercial purposes only, namely reproduction for research, private study or for limited internal circulation within an organisation for the purpose of review.

Copying for non-commercial purposes is subject to the material being accompanied by a sufficient acknowledgement, reproduced accurately, and not being used in a misleading context. To reproduce NAO copyright material for any other use, you must contact copyright@nao.gsi.gov.uk. Please tell us who you are, the organisation you represent (if any) and how and why you wish to use our material. Please include your full contact details: name, address, telephone number and email.

Please note that the material featured in this document may not be reproduced for commercial gain without the NAO’s express and direct permission and that the NAO reserves its right to pursue copyright infringement proceedings against individuals or companies who reproduce material for commercial gain without our permission.

Links to external websites were valid at the time of publication of this report. The National Audit Office is not responsible for the future validity of the links.

003314 06/18 NAO

The National Audit Office study team consisted of:
Chris Battersby, Kemi Duroshola, Caroline Harper and Ian Hart, under the direction of Joshua Reddaway, with assistance from Alex Brown, Paul Herbertson, Aileen Murphie and Andy Nichols.

This report can be found on the
National Audit Office website at
www.nao.org.uk

For further information about the National Audit Office please contact:

National Audit Office
Press Office
157–197 Buckingham Palace Road
Victoria
London
SW1W 9SP

Tel: 020 7798 7400

Enquiries: www.nao.org.uk/contact-us

Website: www.nao.org.uk

Twitter: @NAOorguk

Key facts

Summary

1 The Department for Work & Pensions (the Department) is introducing Universal Credit to replace six means-tested benefits for working-age households: Jobseeker’s Allowance, Income Support, Housing Benefit, Employment and Support Allowance, Working Tax Credit and Child Tax Credit. In doing so, it aims to:

encourage more people into work by introducing better financial incentives, simpler processes and increasing requirements on claimants to search for jobs;

reduce fraud and error; and

reduce the costs of administering benefits.

2 The Department started work on Universal Credit in 2010 with an original completion date of October 2017. However, the government reset the programme in 2013 after a series of problems with managing the programme and developing the necessary technology. In our 2014 report, Universal Credit: progress update, we reported that the Department had stabilised programme management, but had introduced a complicated overlapping set of systems and rules.1 In 2016 the Department announced a revised plan to complete in March 2022. On 7 June 2018 it announced a further delay to the completion of the programme to March 2023.

3 The delays to the programme and changes in scope mean Universal Credit cannot be easily compared with its original plans. The complicated legacy of early failings means the Department has adopted a more adaptive, iterative and incremental approach to implementation. In order to assess the value for money of the Department’s introduction of Universal Credit in this more incremental approach, we consider:

how the Department’s plans for Universal Credit have evolved (Part One);

whether its adaptive and incremental approach is ensuring Universal Credit works for claimants and the organisations supporting them (Part Two); and

ultimately, the prospects for Universal Credit achieving its aims (Part Three).

Key findings

Evolution of Universal Credit

4 Universal Credit is a highly ambitious reform programme that struggled with early development. The Department set out in 2011 that in return for £2.2 billion investment it would transfer eight million households to Universal Credit by 2017. It expected that 300,000 more people would move into work, that it would reduce fraud and error by £2.1 billion a year and that it would save £0.4 billion a year in administering benefits. However, the Department struggled with the early development, with problems with governance, contractors and developing a full working system. This led to the programme being reset in 2013 (paragraphs 1.4 and 1.5, and Figure 1).

5 Following the reset, the Department chose a twin-track approach to rolling out Universal Credit. From 2013, the Department chose to develop two different strands for Universal Credit. It started to build its long-term digital solution, known as full service over many years, while making use of the systems it had built before the reset for its live service. This dual approach was more expensive but the Department expected that rolling out live service would bring forward many of the benefits and reduce risks. The Department spent £837 million on live service, making it available to single claimants nationwide and to couples and families with children in north-west England from 2015. The Department closed live service to new claims in December 2017 and expects to decommission it in July 2019 (paragraphs 1.6 and 1.8 to 1.10).

6 The Department’s programme plans have changed several times since the reset. The agile approach to developing systems and managing the programme has allowed the Department to adjust its plans based on what it learns about what does and does not work, and to re-prioritise activities to allow policy and other necessary changes to be incorporated as the system is developed. However, in order to incorporate the changes, the Department has needed to delay or slow down the rollout of Universal Credit. For example, since July 2016 the Department has slowed the rollout of full service to jobcentres three times as a result of policy and other changes, and in early June 2018 it announced an additional year until the completion of migration. In addition, the Department has developed additional functionality in response to its iterative approach, which has delayed the automation of the full service (paragraphs 1.11, 1.12, 1.16, 1.18, 1.19 and Figures 2, 4 and 5).

7 Universal Credit is still at a relatively early stage of progress. The Department started to make its new full service system available to all claimants from 2016 and expects it to be available in all jobcentres by the end of 2018. It has spent £1.3 billion of its investment so far on creating Universal Credit, and £600 million on running costs. About 10% (815,000) of the eventual number of claimants are now claiming Universal Credit. Once the full service is available nationwide, and once regulations are in place, the Department will start to migrate existing claimants from legacy benefits on to Universal Credit. The Department now expects this to complete in March 2023 (paragraphs 1.20, 1.21 to 1.24, 3.7 and Figures 6 and 21).

8 The Department does not have a realistic alternative but to continue. Its incremental approach has led the Department to make many changes to its jobcentres, its digital systems and the working practices of the 12,000 people working on Universal Credit. As it has rolled out Universal Credit to more claimants and areas, these changes have become increasingly embedded across the Department. It would be both complex and expensive to revert to legacy benefits at this stage (paragraphs 1.12 and 1.13).

Current experience of Universal Credit

9 Some elements of Universal Credit are working well. By 12 April 2018 the Department had rolled out its digital system to 258 jobcentres. A survey of live service claimants found that claimant satisfaction levels were similar to those on legacy benefits and in our visits to jobcentres we observed good relationships between work coaches and claimants. The staff that we spoke to told us the systems had improved significantly since their first introduction (paragraphs 1.13, 1.17, 2.2 and Figure 7).

10 Some claimants have struggled to adjust to Universal Credit. We spoke to local and national bodies that, together, work with a significant minority of claimants. They showed us evidence that many of these people have suffered difficulties and hardship during the rollout of the full service. These have resulted from a combination of issues with the design of Universal Credit and its implementation. The Department has found it difficult to identify and track those who it deems vulnerable. It has not measured how many Universal Credit claimants are having difficulties because it does not have systematic means of gathering intelligence from delivery partners. The Department does not accept that Universal Credit has caused hardship among claimants, because it makes advances available, and it said that if claimants take up these opportunities hardship should not occur. However in its survey of full service claimants, published in June 2018, the Department found that four in ten claimants that were surveyed were experiencing financial difficulties (paragraphs 2.5 to 2.11).

11 One in five claimants do not receive their full payment on time. The Department paid around 113,000 new claims late in 2017, approximately 25% of all new claims. On average these were paid four weeks late. The Department improved payment timeliness from 55% to 80% over the course of 2017. However, it does not expect payment timeliness to improve significantly in 2018. It believes 100% payment timeliness is not feasible because the Department depends on claimants supplying information to verify the claim to ensure it makes payments in accordance with the law. We estimate that between 270,000 and 338,000 claimants will be paid late during 2018 (paragraphs 2.12 to 2.20 and Figures 9 to 12).

12 Universal Credit is creating additional costs for local organisations that help administer Universal Credit and support claimants. Local authorities told us that they have faced additional burdens during the development of Universal Credit, such as through increased administration for processing Housing Benefit stop notices. Local authorities, housing associations and landlords have seen an increase in rent arrears since the introduction of Universal Credit full service, which can often take up to a year to be recovered. There has been an increase in the use of foodbanks in at least some areas where Universal Credit full service has been introduced, and a greater demand for advisory and advocacy services. The Department has acknowledged and compensated local authorities for some additional costs. It told us that it will pay for additional costs if authorities can prove them. The Department places the burden of proof on authorities, uses its discretion in assessing claims, and has not sought to systematically collect data on these wider costs. However, these extra costs are not included in the Department’s estimates of the programme’s costs (paragraphs 2.26 to 2.38, 2.43, 2.44 and Figures 14 to 17).

13 Organisations told us that the Department has been unresponsive to issues they raise. The Department holds discussion forums with external organisations, and attributes many differences to views about policy rather than the implementation of Universal Credit. It has responded to purely operational concerns – for example, by improving the wording of claim forms – but has not been clear about how it tracks and responds to the operational impacts of policy design choices. Where cumulative concerns have led to parliamentary interest and the government has announced changes to the policy, the Department has helped to design and implement changes (paragraphs 1.14, 2.39 to 2.44 and Figure 3).

Future prospects for Universal Credit

14 The Department has a lot to do to improve the efficiency of Universal Credit systems. So far the Department has provided enough functionality to run a basic system, but many processes are still manual and inefficient. For example, the Department significantly overestimated the number of claimants that would be able to confirm their identity online with only 38% (compared with its expected 90%) succeeding in using Verify, the government’s online identity verification tool. The Department intends to improve automation over the next few years, but until then it will need more staff so it can undertake work manually (paragraphs 1.15, 1.16, 3.18 to 3.22 and Figures 20 and 22).

15 The Department expects Universal Credit eventually to deliver £8 billion of net benefits a year, but this depends on some unproven assumptions. The Department now expects that an additional 200,000 people will move into work because of Universal Credit, that it will save £99 million a year in administering benefits, and will reduce fraud and error by £1.3 billion a year. These benefits remain theoretical (paragraphs 3.3 to 3.6 and 3.16). We have significant doubt about the main benefits:

It is not known whether the employment impact identified by early evaluation can be replicated across the programme. Early evaluation run by the Department found claimants on Universal Credit live service were four percentage points more likely to find work compared with claimants on Jobseeker’s Allowance at some point within the first six months of their claim. But these studies of offices that adopted live service early in the programme covered claimants with relatively simple needs and with more resources spent on them (paragraphs 3.11 to 3.15 and Figure 19).

It is not clear that Universal Credit will cost less to administer than the existing benefits system. Planned efficiency savings are negated by the extra costs of providing the benefit system to those that are in work and any local costs, the costs for which are not included in the business case. Furthermore, planned efficiencies are uncertain. Universal Credit currently costs £699 per claim. This is more than the target unit cost that the Department set itself in order to accelerate the rollout in October 2017, and four times as much as it intends when the systems are fully developed (paragraphs 3.18 to 3.23 and Figure 20).

The Department does not know whether Universal Credit is reducing fraud and error. The Department is developing a fully automated risk analysis and intelligence system for fraud and error. But it has not developed this enough to understand and assess fraud and error or to provide staff with effective reporting to allow them to identify potential fraud. The Department does not plan to finish developing its risk analysis and intelligence system or publish Universal Credit full service figures on fraud and error until spring 2019 (paragraphs 3.25 to 3.29).

16 The Department will never be able to measure whether Universal Credit actually leads to 200,000 more people in work, because it cannot isolate the effect of Universal Credit from other economic factors in increasing employment. The 200,000 is based on the Department’s modelling. Instead of measuring the exact number of additional people in employment as a result of Universal Credit, the Department plans to evaluate whether Universal Credit is more likely to get people into work compared with legacy benefits. However, it has yet to complete the evaluations of live service it had originally planned for families and couples without children (originally by December 2016) because the way it has rolled out Universal Credit means it lacks appropriate control groups of legacy claimants in its live service areas. It still hopes to set up evaluations when it has enough claimants on the full service. The Department has also started to develop alternative approaches, which provide a more rapid but less robust assessment of Universal Credit’s impacts. The £5.2 billion value of employment gains in the Department’s full business case remains uncertain, and sensitive to how it is modelled (paragraphs 3.15 and 3.16).

Conclusion on value for money

17 We think that there is no practical alternative to continuing with Universal Credit. We recognise the determination and single-mindedness with which the Department has driven the programme forward to date, through many problems. However, throughout the introduction of Universal Credit local and national organisations that represent and support claimants have raised a number of issues about the way Universal Credit works in practice. The Department has responded to simple ideas to improve the digital system but defended itself from those that it viewed as being opposed to the policy in principle. It does not accept that Universal Credit has caused hardship among claimants, because it makes advances available, and believes that if claimants take up these opportunities hardship should not occur. This has led it to often dismiss evidence of claimants’ difficulties and hardship instead of working with these bodies to establish an evidence base for what is actually happening. The result has been a dialogue of claim and counter-claim and gives the unhelpful impression of a Department that is unsympathetic to claimants.

18 The Department has now got a better grip of the programme in many areas. However, we cannot judge the value for money on the current state of programme management alone. Both we, and the Department, doubt it will ever be possible for the Department to measure whether the economic goal of increasing employment has been achieved. This, the extended timescales and the cost of running Universal Credit compared to the benefits it replaces cause us to conclude that the project is not value for money now, and that its future value for money is unproven.

Recommendations

19 The Department is now approaching the task of migrating existing benefit and tax credit claimants to Universal Credit. After that, Universal Credit needs to provide the basis for future development and refinement of the working age benefit system. To succeed it must ensure its flexible approach to delivery helps it learn from its own experiences, those of claimants, and those who support them. The Department should:

a Improve the tracking and transparency of progress towards Universal Credit’s intended benefits. It should set out clearly how it calculates those benefits and encourage third parties to review and monitor assumptions. The Department should assess the impact of Universal Credit on third parties and include this in its calculation and budgeting of the implementation costs.

b Ensure that operational performance and costs improve sustainably before increasing caseloads through managed migration. It should formally assess the readiness of automation and digital systems to support increased caseloads before migration begins, and ensure the programme does not expand before business-as-usual operations can cope with higher claimant volumes.

c Work with delivery partners to establish a shared evidence base for how Universal Credit is working in practice. The Department needs to ensure that delivery partners’ feedback on both implementation issues and the impact on claimants is considered alongside the existing feedback from frontline staff and programme managers. It needs to systematically collect, analyse and publish data and evidence from delivery partners and produce a shared understanding of what is happening on the ground and how it is addressing any issues raised.

d Make it easier for third parties to support claimants. This might include:

extending the concept of the landlord portal to simplify verification processes (for example, for childcare costs);

sharing, with the claimant’s consent, appropriate information with third parties, such as information on additional support requirements;

allowing the bulk upload and download of information helpful to the support of claimants, such as changes in rent; and

allowing those supporting claimants access to a version of the journal through which they can view appropriate shared information and communicate with the Department.

1 Comptroller and Auditor General, Universal Credit: progress update, Session 2014-15, HC 796, National Audit Office, November 2014.

Part One

The evolution of Universal Credit

1.1 This part of the report sets out:

Universal Credit’s aims and early history;

the development of the full service;

the current status of Universal Credit; and

the cost of implementing Universal Credit.

Universal Credit’s aims and early history

Universal Credit’s aims

1.2 The Department for Work & Pensions (the Department) is introducing Universal Credit to replace six means-tested benefits for working-age households: Jobseeker’s Allowance, Income Support, Housing Benefit, Employment and Support Allowance, Working Tax Credit and Child Tax Credit (legacy benefits).

1.3 Universal Credit’s overarching aims are to: encourage more people into work through better financial incentives, simpler processes and increasing requirements on claimants to search for jobs; reduce fraud and error; and be cheaper to administer than the benefits it replaces (Figure 1). It does this by introducing new features to the benefits system, including claimants:

receiving a single monthly payment covering all elements of their claim;

being responsible for maintaining their claim; and

making and maintaining their claim online.

Early changes to the approach

1.4 The Department announced its plans to introduce Universal Credit in November 2010.2 In return for £2.2 billion investment it planned to transfer eight million households to Universal Credit by 2017. It expected that around 300,000 more people would move into work, it would reduce fraud and error by £2.1 billion a year and it would save £0.4 billion a year in administering benefits. But it struggled initially and the timetable was delayed. Problems included governance, contractors and system development.

1.5 In February 2013 the then Major Projects Authority expressed serious concerns in its project assessment review. This led to a reset of the programme between February 2013 and May 2013. In September 2013 we reported on the Department’s early progress in implementing Universal Credit, including events leading up to the reset.3

1.6 Following the reset, the Department proposed a twin-track approach comprising:

Live service. In April 2013 the Department started rolling out the Universal Credit service to limited claimant types. ‘Live service’ used IT assets developed largely before the 2013 reset.

Full service. In parallel the Department started to develop and test a new digital ‘full service’. This provides more features and functionality than live service operation, including allowing claimants to make online applications and to communicate with their work coach and case manager by an online journal.

1.7 The Department developed a ‘test and learn’ approach during the twin-track phase. It expected this approach to help it learn from the live running of Universal Credit, inform the development of the digital service and achieve the societal and employment benefits of the policy as early as possible.

1.8 We reported on this approach in November 2014.4 We concluded that the twin-track approach was more expensive than waiting for the digital service, but that, in principle, it should allow the Department to learn from experience, improve the design and readiness of services, and reduce risks.

The interim live service

1.9 In April 2013 the Department began rolling out Universal Credit to claimant groups whose claims were simple to manage – mainly single, childless, out-of-work adults with no housing costs – through its live service. This was available to single claimants in jobcentres nationwide, and extended to couples and families in north-west England from April 2016 until the end of December 2017, when live service stopped accepting new claims.

1.10 Live service remains open for ongoing claims until three months after the Department rolls out the digital service to an area. The Department currently expects to decommission live service in July 2019. Including running costs, the Department has spent £837 million on the live service up to March 2018 (see Appendix Three). It does not plan to reuse most of the systems it developed for live service. Nevertheless, some staff will have greater familiarity with the work coach role and with how Universal Credit works as a result of using live service.

The development of the full service system

1.11 The Department has used an agile approach for the full service.5 Universal Credit is the largest agile development attempted by the government. We checked the full service development against our assessment framework for agile projects, and found the Department’s agile team works well together and mainly follows good practice.

1.12 This approach has allowed the Department to adjust its plans based on what it learns about what does and does not work, and to reprioritise activities to incorporate policy and other necessary changes as it develops the system. It has allowed the Department to add functionality and improve processes in a controlled way, but has led to scope creep and delays in the automation of the service.

Feedback on the system

1.13 The Department’s agile development process focuses on getting feedback from start to finish (Figure 2). The Department now has 12,000 staff using Universal Credit, and those we spoke to were positive about the way the programme is being delivered and the programme’s response to feedback from staff. In April 2018 operational staff provided more than 1,500 pieces of individual feedback.

1.14 The Department includes input from claimants and third parties throughout the development stage. It recognises that it is not possible to collect feedback from the full user community owing to its sheer scale, but that it needs to continue to develop effective mechanisms for identifying and responding to issues as the programme is rolled out. We discuss the Department’s response to how the programme is working in practice in Part Two.

Current functionality of full service

1.15 The current system is not as automated as envisaged in the Department’s operating model for the start of transition. It expected that functions including payment calculation, appointment booking and management of advances would be fully automated by the start of the national rollout of full service. Much of the remaining development time will be spent replacing manual processes and achieving the automation required. The Department has not set out future milestones for delivering this automation and the remaining functionality. It believes this is in line with its agile approach and it does not need to tie down delivery dates for the system in this way (Figure 3).

1.16 Alongside planned work, the Department has developed additional functionality into the system in response to its test and learn approach. In 2017, the Department responded to feedback from social landlords and local authorities, and developed the landlord portal to speed up the verification of claimants’ social rent details. It has responded to policy requirements including reducing the waiting period for initial Universal Credit payments and changes requested by the Scottish Government to allow claimants to be paid fortnightly. The Department introduced these changes within the agreed timescales by reprioritising other work.

The rollout of the full service to all jobcentres

1.17 The Department has been rolling out full service since May 2016. This extends Universal Credit to all claimant groups previously eligible for the legacy benefits.6 As at 12 April 2018, it had been rolled out to 258 jobcentres. The Department plans to complete the rollout of its digital service in December 2018, when it will be available in 638 jobcentres.

1.18 Since the Department started rolling out full service, it has changed its rollout schedule four times (Figure 4).

In July 2016, it announced it would roll out full service more slowly, ending in September 2018. It also said it would complete the programme by March 2022, a year later than then expected. This was to accommodate policy changes announced in the summer Budget 2015. The Department also built contingency into its timetable to allow for further slippage.

The November 2017 Budget introduced several policy changes to Universal Credit and a further three-month delay to December 2018 to completing full service rollout. The Department used some of its contingency timing to accommodate these changes.

In March 2018, the Department announced a further change to its rollout schedule for jobcentres in Wales. This was because of delays completing its Welsh language service. This has not affected the Department’s plans to complete full service rollout to all jobcentres by December 2018.

On 7 June 2018, the Department announced that it would extend the timetable to completion of Universal Credit to March 2023, in order to adapt the system to accommodate changes to transitional protection, which is designed to ensure claimants moving from legacy benefits are no worse off (paragraph 1.21).

Current status

The current number of people on Universal Credit

1.19 As a result of all the above, the Department has repeatedly pushed back the rollout of Universal Credit (Figure 5). The Department originally planned to move all claimants to Universal Credit by October 2017.

1.20 In March 2018, 815,000 claimants received Universal Credit.7 This is about 10% of the total caseload expected when all claimants are migrated from legacy benefits. Claimants move to Universal Credit in three ways:

A new claim. This depends on whether full service has been rolled out to where they live.

Transition from existing benefits. This happens if an individual’s or household’s circumstances change and full service has been introduced to their area.

Managed migration from existing benefits, starting in 2019.

The next stage of managed migration

1.21 Managed migration is the transfer of existing claimants whose circumstances have not changed from legacy benefits to Universal Credit. The Department estimates they will migrate 3.95 million claimants. Claimants who move through managed migration will receive payment protection so they are no worse off than they would have been on legacy benefits.

1.22 The Department currently plans to migrate claimants onto Universal Credit from July 2019 through to March 2023. This timetable depends on:

Parliament passing enabling regulations, the timing of which is uncertain, before testing can begin;

the Department successfully testing the service, which it expects will take 12 months; and

the number of claimants remaining on legacy benefits and the speed with which the Department migrates them.

1.23 In May 2018 the Major Projects Review Group, which included officials from both HM Treasury and the Cabinet Office, noted that in order for Universal Credit to be successful, it is crucial that managed migration is not subject to significant policy changes. It asked the Department to:

work towards agreeing the exact plan for managed migration as soon as possible and communicate this with stakeholders;

agree a set of success criteria with stakeholders, which enables progress against the plan to be monitored regularly;

update the contingency scenarios described in the full business case; and

ensure that the consequences of any changes on the programme arising from the EU exit are fully analysed.

HM Treasury has made meeting these recommendations a condition of it approving the full business case (see paragraph 3.2).

1.24 On 7 June 2018, the Department announced four changes to its transitional protection rules:

individuals who live alone and receive the Severe Disability Premium (an extra amount paid to those that cannot work because of their disabilities or health) will not be moved to Universal Credit until they qualify for transitional protection. In addition, the Department will provide both an on-going payment to claimants who have already lost this Premium as a consequence of moving to Universal Credit, and an additional payment to cover the period since they moved;

it will ensure that the award of, or increase in, support for childcare costs will not erode transitional protection;

it proposes to re-award claimants’ transitional protection that has ceased owing to short-term increases in earnings within an assessment period, if they make a new claim to Universal Credit within three months of when they received the increased earnings; and

for tax credit claimants, it will disregard any of their capital in excess of £16,000 for 12 months from the point at which they are moved to Universal Credit.

In order to make the necessary changes to the system the Department announced it would extend the completion of Universal Credit to March 2023.

The cost of implementing Universal Credit

1.25 The Department plans to invest £2 billion in developing Universal Credit services. This has remained broadly stable since the outline business case from 2015 (Figure 6). To March 2018 it has spent £1.3 billion developing Universal Credit services, and £600 million on running costs.

2 Department for Work & Pensions, Universal Credit: welfare that works, Cm 7957, November 2010. Available at: gov.uk/government/uploads/system/uploads/attachment_data/file/48897/universal-credit-full-document.pdf

3 Comptroller and Auditor General, Universal Credit: early progress, Session 2013-14, HC 821, National Audit Office, September 2013.

4 Comptroller and Auditor General, Universal Credit: progress update, Session 2014-15, HC 796, National Audit Office, November 2014.

5 ‘Agile’ is a software development approach characterised by the division of tasks into short phases of work and frequent reassessment of plans to reflect changes in priorities and feedback from customers testing and using the system. It differs from traditional ‘waterfall’ approaches in that it builds and releases software in phases instead of trying to deliver it all at once near the end.

6 From 6 April 2017 claimants with three or more children have been unable to make a new Universal Credit claim. From February 2019 the Department plans to accept claims from claimants with three or more children, but Universal Credit will not pay an additional amount for any third or subsequent child, unless special circumstances apply.

7 Of the 815,000 claimants on Universal Credit, 490,000 are on full service and 325,000 are on live service.

Part Two

The impact on claimants and third parties

2.1 This part of the report sets out:

the impact of Universal Credit on claimants;

its impact on third parties; and

the Department for Work & Pensions’ (the Department’s) response to the issues.

Impact on claimants

Claimant satisfaction

2.2 The Department’s most recent claimant satisfaction survey showed that 83% of Universal Credit claimants expressed satisfaction with the service, a similar level to those claiming other benefits (Figure 7). However, the survey only captured the views of live service claimants and did not show an increase in satisfaction above existing benefits. The Department set increased satisfaction as a measure of Universal Credit’s success in its outline business case.

Support available to vulnerable claimants

2.3 Universal Credit is an online means-tested benefit, designed to be “like work” and to “maximise claimants’ responsibility and self-sufficiency” by paying claimants monthly in arrears and paying all elements direct to the claimant, including housing costs. The Department assumed this design of Universal Credit would work for the majority, but recognised that some claimants would struggle. It sought to provide extra support to ‘vulnerable’ claimants as an additional safety net (Figure 8).

2.4 The Department states there are many definitions of vulnerability, or ‘complex needs’, including mental and physical health issues, life events, and poor skills or limitations such as literacy or language comprehension problems. It also recognises there are additional vulnerabilities that must be taken into account because of the policy or process design of Universal Credit, for example claimants with limited online access or skills, and those who struggle to budget.

Identifying vulnerable claimants

2.5 Identifying which claimants are vulnerable is important so that the Department can properly target support and set appropriate conditions on welfare (for example, reduced work search requirements). However, the Department’s research in October 2017 shows that some staff found it difficult to support claimants because they:

lacked the time and ability to identify claimants who needed additional support;

lacked the confidence to apply processes flexibly and make appropriate adjustments; and

felt overwhelmed by the volume of claimants reporting health problems.

Some jobcentres we spoke to had introduced resilience training to support work coaches to deal with the greater range and severity of health issues among claimants.

2.6 The Department has recognised the need to make changes to the way it identifies and provides support to vulnerable claimants. This includes making it easier for work coaches to record information about claimants’ needs. In 2017 the Department issued guidance to staff, instructing them to record information on a claimants’ needs using a text box in their journal. This followed research that showed that work coaches were often not aware that claimants were vulnerable before meeting them. The Department is developing an approach to allow work coaches to pin this text to the top of a claimant’s journal, so it is more obvious to staff picking up a claimant’s case. It has also provided more training to staff, for example mental health training. Each jobcentre has developed a complex needs plan which helps staff to direct claimants to third-party support.

2.7 The Department lacks the ability to monitor the treatment of vulnerable claimants nationally. It has not yet developed means to record different vulnerabilities in its data systems. Jobcentre managers told us the lack of vulnerability identification markers makes it difficult to understand the types of local provision needed. The Department has told us it is developing a text-mining approach to allow it to identify different vulnerability groups within the pinned information.

The impact of Universal Credit on claimants

2.8 The Department’s assumptions about how Universal Credit would work in practice underestimated the impact it would have on some claimants (see Appendix Four). For example, the Department at first assumed that most claimants would have enough money to manage over the initial waiting period. However, the Department’s most recent data show that 60% of new claimants ask for and receive a Universal Credit advance to help them manage as they wait for their first payment (Figure 13).

2.9 The local delivery organisations and national representative bodies that we met during this study gave us evidence of how Universal Credit was not working for all claimants, particularly the vulnerable, despite the support measures the Department has put in place. Issues they shared as evidence included claimants experiencing:

hardship because of not having savings to last the initial wait for payments;

problems with monthly budgeting because of fluctuating Universal Credit payments; and

difficulties making and managing a claim online, because of a lack of digital access and skills.

The Department has made several changes to accommodate the problems with its initial design (see Appendix Four).

2.10 We cannot quantify how many Universal Credit claimants are experiencing difficulties with Universal Credit or experiencing hardship as a result. The organisations we spoke to told us they have seen an increase in demand for support services and referred to sufficient numbers of individual cases to indicate at least a significant minority have been adversely affected.

2.11 The Department has not measured the impact on claimants or assessed how much hardship Universal Credit claimants suffer. It told us that the policy intent is to help people get used to monthly budgeting, and it does not accept claimants have suffered hardship as a result of Universal Credit. It said that there is no need for hardship in Universal Credit as it makes advances available, and that if claimants take up these opportunities hardship should not occur. However, in its survey of full service claimants, published on 8 June 2018, the Department found that four in ten claimants that were surveyed stated they were experiencing financial difficulties.

The Department’s ability to pay claimants their full payment on time

2.12 Delays in receiving the initial payment can exacerbate the hardship some claimants face. The Department considers payment timeliness to be a core indicator of its own performance, and thought that 74% was high enough to support accelerated rollout. It measures this for both the initial assessment period and for all later payments.

Delays in making an application

2.13 The Department’s measurement of payment timeliness starts after the claimant has made an application. Some claimants struggle to complete the stages required to make a claim or do not claim straight away (Figure 9). The Department’s survey of Universal Credit claimants found that only 54% of claimants reported that they could make a claim online without help; those with health conditions were significantly more likely to report difficulties than those without a condition. A further 21% could make a claim online with help. Twenty-five percent were not able to submit their claim online at all. Support agencies we spoke to told us that issues can include claimants:

being given the wrong information about which benefit to claim;

struggling to complete the requirements to submit a claim, for example, because of language barriers; and

not having a bank account or identification.

2.14 Claimants can access support to make their claim (Figure 8). Claimants can also apply to have their applications backdated in very limited circumstances, such as illness or because the Department’s systems were down, for a maximum period of one month. This compares with three months for Jobseeker’s Allowance.

Delays to payment

2.15 In March 2018 the Department’s latest forecast showed that it failed to pay 21% of claimants their full benefit entitlement on time following their initial claim.8 Around 13% did not receive any payment on time. In 2017, there were around 113,000 such late payments affecting around one quarter of new claims. Claimants also face delays in subsequent assessment periods.

2.16 The Department’s performance on paying claimants on time improved over the course of 2017 (Figure 10): in January 2017 it paid 55% of full service claimants in full on time after their first application; by September 2017, around 74% of payments were in full and on time. The Department decided that this was an acceptable level to increase the pace of rollout in October 2017; at the time this equated to around 7,000 full service claims not receiving full payment on time each month. In March 2018, this was around 15,000 claims.

2.17 The Department has said that it is unreasonable to expect that all claimants will be paid on time because of the need to verify each claim. The Department has told us there are various reasons why it might not pay a claimant on time and it is important that the claimant proves they are eligible for the benefits. Therefore, a claimant must verify their identity, sign a claimant commitment and prove that they reside in the UK. They must also prove they are eligible for each element they claim, such as housing or childcare. This means that claimants must provide information to the Department, and the Department must verify the information with third parties such as landlords or childcare providers. Where things go wrong operationally or claimants struggle with processes, they wait longer for payment.

2.18 Overall payment timeliness figures are lower for claims which include elements that need verification, as well as the standard allowance (Figure 11). The Department has struggled with many elements of verification, for example confirming rent or childcare costs. It has improved some of its verification processes. For instance, it has now developed a landlord portal so landlords can more easily verify some claimants’ rent details. From October 2017 to December 2017 payment in full and on time for claims including housing rose from 68% to 76%.

2.19 Claimants who do not receive full payment on time have faced average delays of four weeks in addition to the five- or six-week waiting period.9 From January to October 2017, of those new claims to full service that were not paid in full and on time, 40% (20,000 households, which equates to one in ten of new full service claims) waited in total around 11 weeks or more for full payment; and 20% (10,000 households) waited almost five months or more (Figure 12).

2.20 The Department does not expect its payment timeliness performance to improve significantly above 80% in 2018. The Department’s most recent management information suggests that payment in full and on time declined slightly in recent months to the beginning of April 2018.10 The Department has told us that the performance had declined because payment timeliness is sensitive to staff availability. It believes the lower performance can be attributed to:

poor weather leading to office closures;

February being a shorter month and therefore incorporating fewer working days to administer payments; and

the Easter bank holidays.

If payment timeliness does not improve, we estimate that during 2018 around 270,000 to 338,000 new claims will not be paid in full at the end of their first assessment period.

Advances

2.21 The Department has increased the availability of advances to claimants. The Department provides new claim advances to support claimants who cannot manage financially until they receive their first payment, regardless of whether that payment is on time.

2.22 Take-up of advances has increased over time. Throughout the earlier parts of 2017, between 30% and 40% of claimants received an advance. However, organisations that support claimants commented that the Department had not been routinely making claimants aware of the availability of advances. In October 2017 the Department updated guidance for its staff about informing claimants of advances. Following this, the take-up of advances increased sharply, rising to around 60% by February 2018 (Figure 13).

2.23 Initially claimants could receive an advance of up to 50% of their estimated Universal Credit payment, repayable within six months. In November 2017, the Department announced changes which made it easier for claimants to claim an advance. It also changed its rules so that claimants can now: receive up to 100% of their estimated award, repayable within 12 months; request an advance prior to verification; and, in extreme cases, receive the advance the same day.11

2.24 The changes to the rules regarding advances creates some challenges for the Department. Some people request an advance at a very early stage in the claim process. However, having received the advance, they do not continue with their claim and the claim is closed. This can make it harder for the Department to ensure the advance is repaid. The Department’s research found some individuals have made multiple claims, including one individual who has received 18 advances without following through to a fully completed Universal Credit claim.

2.25 While advances can help claimants manage financially in the very early stages of a claim, they are loans, which are usually repaid to the Department through deductions from future Universal Credit payments. These deductions start in the first month after receiving the advance. In 2017, average new claim advance repayments were around £43 per month, or around 8% of the average monthly payment. However, claimants may also face deductions for other reasons, for example rent arrears, utility repayments and repayment of tax credit overpayments. Total deduction rates can be up to 40% of the claimant’s standard allowance – at which point the Department normally caps deductions.12

Impact on third parties

2.26 External organisations face increased demands for their services supporting Universal Credit claimants. To understand how Universal Credit is working for those supporting claimants we spoke to national representative bodies and visited five local authority areas. In each area we carried out a range of interviews with: local authority officials; housing providers; jobcentre staff; and advisory services. Our analysis of the impact on third parties is based on what we heard during these interviews, and subsequent data provided by these organisations. Examples of the issues are given in Appendix Five and we set out more details below. We acknowledge that the views may not necessarily be extrapolated to all areas. The Department believes that much of this evidence was provided by organisations which are facing funding constraints and are lobbying for policy changes.

Universal Support delivered locally

2.27 The Department recognised at an early stage that it would need to engage with local authorities and other organisations to provide a safety net for claimants who need help adapting to Universal Credit. Following pilot tests, the Department developed its ‘Universal Support delivered locally’ strategy. Under this it has allocated £170 million over the implementation period to local authorities to deliver Assisted Digital Support and Personal Budgeting Support (Figure 8).13

2.28 Universal Support providers told us that the Department’s funding does not cover their full costs, and that Universal Support does not meet the needs of claimants. Issues include insufficient time to assist claimants, the limited nature of the support that can be provided, and a lack of funding for encouraging claimants to engage (Figure 14).

Advice and support

2.29 Local authorities, advisory and advocacy service providers have seen demand for advice rise since Universal Credit was introduced in their area. Support agencies expressed concerns to us that the current level of support they provide to claimants will not be sustainable as the caseload increases. Some have invested in additional resources to support claimants. The Department does not include these wider costs to the system in its Universal Credit business case.

2.30 The Department’s decision to make claimants responsible for their own claim has made it difficult for providers to support claimants. The Department removed ‘implicit consent’, which allowed external bodies to act on a claimant’s behalf without the need for written authority or the claimant being present.14 We spoke to a range of such providers who explained that while they understood the Department’s rationale for this it hindered, and increased the burden on, external bodies that provide support to claimants. For example, while the Department allows some advocacy, it is on a short-term basis (one assessment period) only. Claimants must renew their consent monthly to allow advocacy to continue on their behalf.

Rent arrears

2.31 Local authorities, housing associations and landlords have seen an increase in rent arrears since the introduction of Universal Credit, which can take up to a year to recover. The Department has not undertaken any national, representative analysis of whether Universal Credit is creating additional rent arrears but has produced a very limited analysis with one housing association. It found there is an increase in average rent arrears as claimants move on to Universal Credit (Figure 15). This increase starts to accelerate before they make their Universal Credit claim, indicating that there could be a delay before they make their claim. Arrears rise starkly as claimants wait a month for their first payment. On average this starts to plateau 10 to 12 weeks following a claim, after which individuals start to repay their arrears. The Department has told us that it intends to extend its analysis to an additional five housing providers to gain a greater understanding of the impact of Universal Credit on rent arrears.

2.32 As a result of the delay in receiving rent payments the private landlords and their representatives that we spoke to told us that from a business perspective there is increasing reluctance to rent to Universal Credit claimants. For example, during our research, a private landlord, who had previously worked closely with his local council to house people, told us he no longer rented to Universal Credit claimants because of delays in getting payments and the loss of certainty of income. He felt that given the demand for rental accommodation in his local area that it was no longer cost-effective to rent to Universal Credit claimants. In the Hastings area, a property agent told us that only one in 10 private landlords using their agency in the town will rent to benefit claimants. The precise impact will vary depending on the local area and the housing economy.

2.33 Universal Credit has also led to a loss of information-sharing with local authorities on the status of a tenant’s benefit claim. This information would previously have been available to the local authority as they processed the claimant’s Housing Benefit. While the Department has now developed a landlord portal, currently this is a means by which social landlords can provide information to the Department, rather than a means of two-way communication. The Department has said it intends to add this functionality in the future.

2.34 The Department has acknowledged that claimants who had previously received Housing Benefit were facing difficulties when they transferred to Universal Credit. Therefore from April 2018 those already on Housing Benefit continue to receive their award for the first two weeks of their Universal Credit claim. This means claimants’ housing costs are now paid twice in that period, which will cost an additional £540 million up to 2022-23. It is too early to assess the impact of this change. The Department has also made it easier for private landlords to request a direct payment to them.

Foodbank use

2.35 A report by the Trussell Trust suggested foodbank use had increased by 30% in the six months after Universal Credit full service rolled out in an area, compared with 12% in non-Universal Credit areas.15 In three of the four areas we visited for which we have data, the use of foodbanks increased more rapidly once full service had rolled out. Hastings foodbank saw an increase of 80% following the rollout of full service in the area (Figure 16). There were also increases prior to full service being rolled out, which aligns with the Trussell Trust’s analysis of a general increase nationwide.

Additional administration requirements on local authorities

2.36 Local authorities told us they have seen an increase in administrative requirements for Universal Credit claimants (Figure 17). While local authorities receive some funding from the Department, it is insufficient to cover the workload required to administer the necessary changes under Universal Credit.

2.37 Local authorities receive funding from the Universal Credit programme for the administration of Universal Credit requirements. At the same time the Department is reducing the amount it provides to support Housing Benefit administration, as the number of Housing Benefit claims reduces. The Department now provides just over one-third of the costs of Housing Benefit administration to local authorities. The Department recognised in 2017 that it was claiming too much in savings from Housing Benefit subsidy and has since slowed the rate at which it is removing funding for future periods.

2.38 In some cases the administrative burden stems from the Department’s prioritisation of system enhancements, meaning that the systems to automate more of these processes are not yet available. For example, the Department told us that it is developing a solution to make payment and administration of alternative payment arrangements easier and expects this to be available by the end of 2018.

The Department’s response to the issues

2.39 The Department’s view of the success of Universal Credit contrasts sharply with those of the external organisations we spoke to. Over the summer of 2017, several organisations told us they had concerns about the impact Universal Credit was having on both claimants and delivery partners, including local authorities and housing associations. Our local visits found the same issues between January and March 2018. Some of these organisations said that they had raised these issues early, but felt the Department had not initially taken them seriously (see Appendix Four). The Department has pointed out that many of the issues raised were extensively debated and voted on during the passage of the welfare reform legislation. Where cumulative concerns have led to parliamentary interest and the government has announced changes to the policy, the Department has helped to design and implement changes.

2.40 The Department holds a number of forums to discuss Universal Credit. For example, through the local authority partnership forum, the Department engages with local authority chief executives. However, in February 2018 the Department told its programme board that the forum had not met since September 2017 due to low attendance on both sides. Where forums do go ahead, some local organisations told us that these meetings sometimes felt like a public relations exercise and they did not routinely receive a response from the Department on the issues that they raised.

2.41 The Department has responded quickly to some purely operational concerns, for example by improving the wording of claim forms. It has not always been able to examine and respond promptly to wider concerns raised by these organisations. This is because it does not systematically capture the views of external organisations and has not been clear about how it tracks and responds to the operational impacts of policy design choices. The Department told us that there are some cases “where the anecdote is stronger than the management information”. It told us that it could not publicly comment on the accounts given by stakeholders of specific claimants’ experiences because of claimant confidentiality, but that the facts as presented were incorrect and misrepresented.

2.42 Communications with external organisations have started to improve. The Department told us it has started to recognise the needs of third parties and work more closely with organisations such as local authorities and Citizens’ Advice. This improvement was recognised by some of the organisations we spoke to, who also acknowledged the importance of building a strong relationship with the area partnership manager within the jobcentre.

2.43 In March 2018, the Department provided a one-off payment of £4.7 million to local authorities where full service was rolled out before August 2017. In its letter the Department stated that while it could debate the case that Universal Credit had created additional costs, it would provide a one-off payment.

2.44 The Department informs us that it has told local authorities that it will pay them for additional costs associated with administering Universal Credit if they provide evidence of the expenses. The Department places the burden of proof on the local authorities, and uses its discretion on assessing claims and has not sought to systematically collect data on wider costs. It will therefore have no means to assess the full monetary impact that Universal Credit is having.

8 The Department uses a forecast measure to calculate payment timeliness for recent months. This estimates the proportion of claims that will or will not be eligible for payments outstanding. It considers figures to be stable eight weeks after a claimant’s payment due date.

9 Claimants originally had a six-week wait for payment or five weeks if they were within the ‘All work-related requirements’ conditionality group, with several exemptions such as those with certain vulnerabilities. In February 2018 the Department reduced the initial wait to five weeks for all claimants.

10 The Department has told us that the figures in its management information may not be accurate.

11 The rules for maximum advance amount and repayment months vary by advance type. The ‘benefit transfer’ advance could already be paid over 12 months. The ‘new claim’ advance went from 50% to 100% and from six months to 12 months, and the ‘benefit transfer’ advance went from 50% to 100%.

12 The standard allowance (£317.82 a month for single claimants over 25 and £498.89 a month for couples over 25) does not include extra amounts that claimants receive if they have children, a disability or receive help paying their rent. Where a claimant is already facing high deductions, for example through a conditionality sanction, fraud penalty or ‘last resort deduction’, such as repaying mortgage interest or rent arrears, deductions can exceed the 40% maximum in certain circumstances.

13 Some local authorities commission other providers to provide these services.

14 In March 2017 the Department reinstated implicit consent for MPs helping constituents claiming Universal Credit, but stated that this approach will not be extended to other bodies.

15 Trussell Trust, Left Behind: is Universal Credit truly universal?, April 2018. Available at: https://s3-eu-west-1.amazonaws.com/trusselltrust-documents/Trussell-Trust-Left-Behind-2018.pdf

Part Three

The long-term aims of Universal Credit

3.1 In this part we look at:

the evolution of the Universal Credit business case; and

the future prospects of achieving Universal Credit’s objectives.

The evolution of the business case

3.2 The Department for Work & Pensions (the Department) submitted its full business case for Universal Credit to HM Treasury in March 2018, which HM Treasury approved on 31 May 2018. The Department sought funding for the period to July 2019, so this will not cover managed migration (see paragraphs 1.21 to 1.24). The full business case should have been the final check on the decision to invest in a major programme, but it was produced at a time when the government was already committed to rolling out the programme using an agile approach. HM Treasury approved funding up to the start of migration in 2019 and noted that:

while the full business case sets out a strong case for Universal Credit, significant progress is needed on monitoring and evaluating the benefits of the programme going forward; and

the Office of Budget Responsibility has set out concerns the Department’s “monitoring and forecasting architecture for Universal Credit is less than ideal”. HM Treasury expects the Department to update it on how these concerns have been addressed ahead of the start of forecasting for the autumn 2018 Budget.

Comparison of the full and outline business cases

3.3 In the business case the Department estimates large economic benefits for Universal Credit. The outline business case in 2015 included net benefits of £20 billion over the 10 years from 2015-16 to 2024-25.

3.4 The full business case now includes net benefits from Universal Credit of £34 billion over 10 years from 2017-18 to 2026-27. The effect of including two additional steady-state years in the business case is to increase the net benefit by £17 billion. HM Treasury has confirmed that this is in line with its Green Book guidance.

3.5 Figure 18 compares the expected benefits of a single year once Universal Credit is fully implemented. The estimate of net benefits includes large differences driven by policy changes and amendments to the way the net benefits of the programme are calculated.16

3.6 Apart from the timing of the programme, changes in the method of calculation increased the business case benefits over 10 years by around £4 billion. Policy and other changes then reduced benefits by around £7 billion.17 The main changes are:

the full business case includes fraud, error and in-year tax credit overpayments savings, whereas the outline business case only included fraud savings. This change increases net benefits in the full business case by more than £1 billion each year in steady state;

changes to the way the economic impact of employment is calculated, which increases the net benefit assumed for each additional person in work;18

a reduction in the number of people expected to move into work, which lessens the expected economic benefit of Universal Credit. This has fallen to 200,000 people, driven by: reduced work allowances and incentives, particularly for lone parents; and policy changes.19 The combined impact of this and the preceding point is an increase in net benefits of £0.9 billion each year in steady state;

a reduction in the generosity of Universal Credit relative to legacy benefits, which will reduce net benefits because of how transfers to low income households are weighted.20 This reduces net benefits by £0.7 billion each year in steady state; and

the Department no longer includes the cost for recovering debt transferred from legacy benefits in its full business case.

3.7 The outline business case included managed migration from July 2018 to March 2021, whereas the full business case included managed migration from July 2019 to March 2022. On 7 June 2018 the Department announced changes to its transitional protection rules. As a result of this, it extended the completion of managed migration by one year to March 2023. The impact of this change is not included in the full business case costs and benefits. The Department told us that the policy changes are designed to be cost neutral. We were not able to verify this as the information was provided on the day this report was agreed with the Department.

Debt recovery

3.8 In the full business case the Department assumes that it will recover debt at the same rate as on legacy benefits. However, the Department expects that Universal Credit will enable it to recover more debt, more efficiently than legacy benefits. These debts pass to the Department as Universal Credit is implemented, and it estimates they will total £9.8 billion once all claimants have transferred.21 The Department recognises that this will affect its debt profile and introduce new factors and risks, and that it needs to develop its use of data analytics and automate its processes further to ensure debt is targeted and managed effectively. The Department expects to have some of the technology and processes it will need in place by 2020-21.

3.9 The Department is currently discussing with HM Treasury how it will fund these additional debt management activities, and it plans to undertake further work to establish what its future debt management and resourcing requirements will be. In May 2018 the Major Projects Review Group asked that within the next two months the Department urgently develops a forecast for Universal Credit debt recovery that sets out: how it expects debt stock in the Department will change as the programme rolls out; how that debt will be recovered; what impact that has on the debt stock; and what will need to be written off. This is to demonstrate that performance will be as good as in legacy benefit systems with the resource levels identified in the business case. HM Treasury has made meeting this recommendation a condition of its approval of the full business case.

Future prospects of achieving Universal Credit’s objectives

3.10 The Department had committed to demonstrating the benefits of Universal Credit in practice by the time it submitted its full business case. However, while the Department has made some progress in understanding the impacts of Universal Credit, these findings have been limited and have not led to major changes in the evidence underpinning the business case.

The employment effect

3.11 The overall net present value in the business case is highly sensitive to the assumption about how many additional people Universal Credit will put into work. This is because it drives the gains from increased employment, which is the largest benefit in the business case.

3.12 The Department expects that Universal Credit will get an additional 200,000 people into work through financial incentives, a simpler and smoother system, and applying conditionality to more claimants. The Department also estimates that claimants already in work will work an additional 113 million hours each year, and that working mothers will account for 95% of this.22

3.13 The Department says it cannot measure whether it is achieving 200,000 additional people in work because of Universal Credit (the employment impact). This is because it cannot isolate the effect of Universal Credit from other economic factors in increasing employment. It does, however, seek to evaluate whether individuals who receive Universal Credit are more likely to then go on to employment than those receiving legacy benefits (the individual’s employment outcome). This is not the same as it does not fully capture the net impact on the nation’s employment rate.

3.14 The Department believes that evaluation of the employment outcomes for claimants at jobcentres that were early adopters of live service in north-west England supports its estimated employment impact. These early adopters showed promising results (Figure 19). The most recent analysis, based on claims made up to April 2015, found that Universal Credit claimants are four percentage points more likely to have been in work at some point in the six months after making their claim than they would have if they were on legacy benefits. However, the evaluation only compared single claimants, without children, making new claims to Universal Credit and Jobseeker’s Allowance.

3.15 The employment outcomes for different groups of Universal Credit claimants will vary because work incentives differ from group to group.23 The Department had intended to assess the employment outcomes of Universal Credit live service for families and couples without children by December 2016.24 It has not done so. It now believes that it cannot extend its current method of analysing the employment outcomes in the live service to other claimant groups because it needs a control group of legacy claimants. These are becoming unavailable as full service rolls out.

3.16 The Department acknowledges that it must look at other ways to measure Universal Credit’s performance, and has begun to develop a number of different approaches. Alongside its formal evaluation of employment outcomes, the Department is developing a suite of measures which will allow it to assess the impact of Universal Credit more rapidly. The Department recognises that these alternative approaches will not be as robust as its original methodology. It has started to compare measures from the Labour Force Survey, such as unemployment and earnings, across areas with and without Universal Credit. While this method does not take account of the local economy and sample sizes are currently small, initial findings from this approach do not show an impact of Universal Credit on employment or earnings. The Department plans to extend its analysis to include earnings data from HM Revenue & Customs’ Real Time Information system in the next year, to give more timely analysis. It intends to start publishing results for this from autumn 2018.

3.17 In May 2018 the Major Projects Review Group said that in the next two months the Department should work with HM Treasury and the Infrastructure and Projects Authority to develop and agree a clear plan that sets out the empirical evidence it will gather, and when, and what this will be compared with in order to demonstrate that the labour market and fraud and error benefits (see paragraphs 3.25 to 3.29) are continuing to be delivered. HM Treasury has made meeting this recommendation a condition of its approval of the full business case.

Efficiency savings

3.18 The Department believes that Universal Credit will cost £99 million less a year to administer than legacy benefits. This requires Universal Credit to save £335 million through automation of processes and streamlining six benefits into one. The Department then expects to reallocate about £237 million of this to spend as support for work searches for up to one million additional claimants who are not subject to conditionality under legacy benefits.25

3.19 However, we cannot be certain that Universal Credit will ever be cheaper to administer than the benefits it replaces. Achieving the overall efficiency savings depends on:

reducing the running costs of each claim from an average of £1,077 in 2017-18 to £173 by 2024-25 (Figure 20). In March 2018 the unit cost, excluding training, was £699. The Department rated this as ‘red’ because it was more than 5% greater than the target. The Department plans to reduce unit costs by increasing the number of claimants each case manager deals with to 919. The Department anticipates that changes in the conditionality caseload mix and future automation will help it achieve this.26 The current average caseload for each case manager in the back office operation centres is 154, and at the best performing sites it is 277. Work coaches in jobcentres are expected to increase their caseload from an average of 85 claimants now to 373 in steady state;

no additional costs for local bodies. However, as we discuss in Part Two (paragraphs 2.29 and 2.36, and Appendix Five), local bodies told us that Universal Credit was creating additional costs. The Department has said it will not measure these additional costs until local organisations can demonstrate they are being caused by Universal Credit;

Universal Support delivered locally not extending beyond the implementation period, during which it will cost £170 million. However, as we set out in Part Two (paragraphs 2.28 to 2.30), local bodies and vulnerable claimants are likely to require some support beyond this period; and

debt recovery not costing more than it does under legacy systems (see paragraphs 3.8 and 3.9).

3.20 There are additional running costs during the implementation of Universal Credit, because legacy systems will continue until all claimants migrate to Universal Credit, and Universal Credit will not be efficient until case managers manage more cases.

3.21 These additional running costs have risen from £571 million to £857 million since the outline business case (Figure 21). This increase is mainly because Universal Credit has not achieved the efficiencies that it expected at this stage, because its processes are not as automated as anticipated. For example, only 38% of claimants who attempt to use the GOV.UK Verify online system to confirm their identity are able to do so, against the Department’s plan of using it for 90% of claimants (Figure 22). The total proportion of claimants that successfully use the service is lower, as around 30% of claimants do not attempt to use the system. The Department is now reducing its ambitions for online verification. It estimates that manual verification could cost in the region of £40 million over 10 years.

3.22 The Department expects to increase automation and efficiency over the next few years, but in the meantime Universal Credit will be more expensive to run during the rollout than previously anticipated. The Department set itself a target of achieving a unit cost of £603 by October 2017 (the point at which it increased the pace of the full service rollout), but it did not achieve this. In 2017-18 it used £46 million contingency funding to bring forward recruitment.

3.23 The business case efficiencies are very sensitive to these additional running costs during implementation. The Department estimates that if Universal Credit achieves only 90% of the intended efficiencies during the implementation period, it will cost an additional £1.2 billion to run between 2018-19 and 2024-25.

3.24 In May 2018 the Major Projects Review Group said that within the next two months the Department should set out numerically what each of the key drivers of this efficiency are expected to deliver, and set out the metrics that it will use to track performance, so it can respond if required in the event of significant deviations from assumptions. HM Treasury has made meeting this recommendation a condition of its approval of the full business case.

Fraud and error

3.25 The Department expects that Universal Credit will reduce fraud and error by £1.3 billion a year, including by:

using automated Real Time Information from HM Revenue & Customs to provide monthly information about PAYE earnings and non-state pension payments, in order to adjust Universal Credit entitlement according to monthly earnings;

in-work claimants reporting changes of circumstances that affect their eligibility throughout the year, replacing the tax credit annual renewals process; and

claimants not over-declaring their hours as Universal Credit entitlement is calculated on earnings rather than hours worked.

3.26 The Department estimates that approximately £470 million of the assumed £1.3 billion savings in fraud and error comes from eliminating some of the in-year overpayments from tax credits. We disagree that this is a reduction in fraud and error. Tax credits are awarded on an annual basis. HM Revenue & Customs makes a provisional award based on the information it holds and then calculates the final amount after the end of the year. Differences between the provisional award and the amount due at the end of the year are designed into the tax credit system and are not included in the reported fraud and error statistics issued on tax credits. We calculate that this misclassification of tax credit overpayments means that steady-state savings are overstated by approximately £462 million each year.

3.27 The Department recognises that Universal Credit also creates some new fraud and error risks. It is sensitive to any change in claimants’ monthly income. The Department relies mainly on Real Time Information to provide this figure, but not all income is captured by it, such as earnings from self-employment. Furthermore, employers sometimes supply information that is late or which contains errors. The Department also expects fraud and error to arise due to claimants failing to declare capital over the £16,000 threshold.

3.28 The Department has begun to measure fraud and error in Universal Credit, although the initial estimates produced cover live service only and it does not plan to publish separate Universal Credit full service estimates until spring 2019. The Department’s preliminary estimates for 2017-18 indicate overpayments of 7.2% and underpayments of 1.3% (2016-17 preliminary estimates: 4.8% and 1.2% respectively).27 It is likely the level of fraud and error in Universal Credit will fluctuate as claimants increase, systems and procedures continue to roll out, and the methodology for estimating fraud and error develops.28 It is therefore too soon to comment on trends, but we have previously commented that the Department must understand the causes of Universal Credit fraud and error identified to date and respond to these promptly.

3.29 Fraud and error systems and reports are not yet complete. The Department intends to develop a fully automated risk analysis and intelligence system on fraud and error. But it has not developed this sufficiently to understand and assess fraud and error or to provide staff with effective reporting to enable them to identify potential fraud.29

16 For example, the Department now bases increased economic activity on the additional employment it creates, calculated as the market value of wages and employers’ National Insurance contributions.

17 The Committee of Public Accounts recommended that the Department should update the outline business case in light of the policy and programme changes that had already been announced at the time (Committee of Public Accounts, Universal Credit: progress update, Nineteenth Report of Session 2015-16, HC 601, February 2016). The Department has not provided this calculation, using the outline business case methodology. As a result it does not have a complete comparative baseline.

18 See footnote 16.

19 In 2011 the Department estimated that Universal Credit would reduce workless households by around 300,000. In 2014 the Department revised this to 250,000. The Department says there are three main reasons why it has reduced this estimate: policy changes, such as the reduction in work allowances, has reduced incentives to work; economic changes, because by 2018 employment has increased and unemployment fallen compared to when it made its previous estimates, meaning it is now harder to get people into work; and changes to the methodology calculating this number, to align it with revised HM Treasury guidance.

20 The Department calculates the value to society of spending or saving an amount of money on Universal Credit, as opposed to on another government programme. This figure is the net of: the positive impact of claimants taking up their full entitlement to benefit, facilitated by combining six working age benefits into one; the negative impact on claimants of changes to entitlement when Universal Credit is compared to legacy benefits; and the negative impact on claimants of removing the income disregard that operates in tax credits.

21 The estimated value of outstanding debt transferring over time to the Department for claimants migrating to Universal Credit is: £5.9 billion from HM Revenue & Customs for tax credits; £1.8 billion from local authorities for Housing Benefit; £1.5 billion from Employment and Support Allowance, Jobseeker’s Allowance and Income Support; and £0.6 billion from Social Fund loans.

22 The Department estimates that lone mothers will work an additional 78 million hours, women in couples with children 29 million hours, and single women without children six million hours.

23 Institute for Fiscal Studies discussed the impacts on incomes and incentives of introducing Universal Credit in its Green Budget 2016, available at: www.ifs.org.uk/publications/8136.

24 Comptroller and Auditor General, Universal Credit: progress update, Session 2014-15, HC 796, National Audit Office, November 2014.

25 These include claimants who had previously claimed only Housing Benefit or Child Tax Credit, claimants’ partners, and claimants awaiting or appealing against work capability assessments.

26 The Department says that currently 49% of the caseload is subject to full conditionality, but it expects this to reduce to 17% by March 2024. Conversely, at present only 36% are not subject to any intervention, because they are either above conditionality or are subject to no conditionality; the Department expects this to increase to 64% by March 2024.

27 In November 2017 the Department published its final 2016-17 estimates for fraud and error in the benefit system. These reported overpayments of 5.5% and underpayments of 1.3%, available at: www.gov.uk/government/statistics/fraud-and-error-in-the-benefit-system-financial-year-2016-to-2017-estimates.

28 Comptroller and Auditor General, Department for Work & Pensions 2016-17 Accounts: Fraud and error in benefit expenditure, National Audit Office, July 2017, available at: www.nao.org.uk/report/department-for-work-and-pensions-accounts-2016-17/

29 The Department is currently planning to develop the Risk and Intelligence Service in three stages: the first stage from April 2018 to October 2018, the second from October 2018 to April 2019, and the third from April 2019 onwards.

Appendix One

Our audit approach

1 This report examines the Department for Work & Pensions’ (the Department’s) progress in implementing Universal Credit. We describe the evolution of the Universal Credit programme since the reset and evaluate the Department’s future plans.

2 In order to assess the value for money of the Department’s introduction of Universal Credit, we consider how the Department’s plans have evolved, whether its adaptive and incremental approach is working for claimants and organisations supporting them, and ultimately how likely it is to achieve the aims of Universal Credit. In particular, the report covers:

the evolution of Universal Credit;

how well Universal Credit is working in practice; and

the likelihood of achieving Universal Credit’s long-term aims.

3 Our audit approach is summarised in Figure 23. Our evidence base is described in Appendix Two.

Appendix Two

Our evidence base

1 We completed our independent review of the Universal Credit programme after analysing evidence that we collected between August 2017 and April 2018.

2 We used an evaluative framework to consider the implications for value for money by reviewing how the Department for Work & Pensions’ (the Department’s) plans have evolved and progress against plans. We also examined whether Universal Credit is working well for claimants and those organisations that support them, and assessed whether the Department can demonstrate that it is on course to deliver the expected benefits from the programme. Our audit approach is outlined in Appendix One.

3 To assess how the Department’s plans have evolved and its progress in rollout:

we reviewed the Department’s documents to understand how its policy and plans for Universal Credit evolved, and how this impacted on implementing the programme;

we interviewed Department officials to understand how the programme has developed and the progress of both live service and digital service;

we reviewed the Department’s use of agile methodology to deploy Universal Credit, including a deep dive into the development of two aspects of its system: the additional flexibilities requested by the Scottish Government and the development of the landlord portal;

we reviewed programme board papers and minutes, to examine how well senior officials engage with the decision-making process, and if they have sufficient information to make informed decisions;

we interviewed Department staff and reviewed documents to understand how much the Department has spent on implementing Universal Credit to date, and any areas which may require additional funding;

we analysed Department data to assess how far the Department had progressed in moving claimants to Universal Credit from legacy benefits;

we reviewed documents and interviewed staff to assess the Department’s plans for the managed migration phase of the programme; and

we interviewed staff within the Infrastructure and Projects Authority, the Cabinet Office Implementation Unit and HM Treasury to understand their views on the progress of implementing Universal Credit.

4 To assess whether Universal Credit is working in practice for claimants and those who support them, and how well the Department learns from experience:

we reviewed and analysed Department data relating to payment accuracy, payment timeliness, advances, support for vulnerable claimants and alternative payment arrangements;

we reviewed departmental management information to look at what and how information is shared on Universal Credit’s progress. We also reviewed documentation relating to the programme’s ‘deep dives’ into specific areas, for example support to claimants with complex needs;

we undertook visits to five case study areas: Croydon; Hastings; Newcastle; Rugby; and Sedgemoor. We chose these areas on the basis that: they have been using full service for at least one year, and therefore were well-established in supporting claimants on Universal Credit; and there was a range of types of area: London borough; metropolitan city; rural area; coastal area; and a smaller urban area. This allowed us to examine whether differing areas face different challenges with Universal Credit’s implementation;

in each case study area, we spoke to a range of organisations involved in the delivery of Universal Credit, including: local authorities; Citizens Advice; foodbanks; advisory and advocacy services; Credit Unions; funding providers for advisory services; housing associations and landlords. In total we have spoken to 20 organisations across the case study areas;

we collated information from our five case study areas on the impact that Universal Credit has had on the area, in terms of costs and demand for services;

in each of the five areas we also visited the central Jobcentre Plus office. We observed claimant interviews and interviewed jobcentre staff, including: work coaches; work coach managers; self-employment leads; service innovation leads and partnership directors;

we acknowledge the views we heard in the five case study areas may not be extrapolated to all areas;

additionally we have interviewed more than 20 organisations about their interactions with Universal Credit. These include the London Boroughs of Hounslow and Southwark, Shelter, Crisis, the Trussell Trust and the National Landlords Association. We spoke to these organisations to develop a greater understanding of how Universal Credit affects the wider support systems for claimants;

we visited a service centre where we listened to telephone calls from claimants and interviewed staff involved in case management, decision-making and operational control. Additionally, at the service centre we examined its use of management information to assess progress of case managers; and

we reviewed programme board minutes and assurance reports to examine whether the Department was acting on recommendations regarding governance and programme management.

5 The Department has struggled to provide us with some of the information we requested in a timely manner. In August 2017 and October 2017 we requested provision of data or analysis relating to payment timeliness; payment accuracy; alternative payment arrangements; use of advances; and analysis of waiting days. Additionally, we requested access to its data systems to allow us to undertake our own analysis. In late November 2017 the Department informed us that it would not be able to provide the information we had requested until January 2018 because of challenges in extracting the information we required and due to other work commitments. The analysts provided analysis in January 2018 and updated this in May 2018. We also asked the Department to provide us with all available management information. We received limited access to information in December 2017 but did not receive much of the data requested until March and April 2018.

6 On 8 June 2018 the Department published a survey based on full service claimants.30 The Department did not provide us with access to this analysis prior to its publication. We have therefore been unable to fully incorporate its findings into our report.

7 To assess if the Department is on track to achieve its long-term aims:

we reviewed departmental documents and modelling to understand how the business case for Universal Credit has been developed and changed over time;

we interviewed key analytical staff within the Department to understand how the benefits in the business case have developed and have undertaken analysis to assess how and why these have changed over time;

we analysed Department data to assess the strength of evidence to support Universal Credit’s objectives;

we have reviewed Department documents and modelling against its progress to date to assess the likelihood of achieving the intended outcomes of the programme; and

we reviewed the Department’s progress in developing some of the essential functions for the full service, such as automation, the use of Verify for identity verification and assessing fraud and error.

30 Department for Work & Pensions, Universal Credit Full Service Survey, June 2018, available at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/714842/universal-credit-full-service-claimant-survey.pdf

Appendix Three

Programme spend 2011-12 to 2017-18

Appendix Four

The impact of Universal Credit design

Appendix Five

The impact on third parties

Design and Production by NAO External Relations
DP Ref: 003314-001