Report

by the Comptroller
and Auditor General

Department for Work & Pensions

Universal Credit: getting to first payment

HC 376 Session 2019–2021 10 July 2020

We are the UK’s independent public spending watchdog.

We support Parliament in holding government to account and we help improve public services through our high-quality audits.

The National Audit Office (NAO) scrutinises public spending for Parliament and is independent of government and the civil service. We help Parliament hold government to account and we use our insights to help people who manage and govern public bodies improve public services. The Comptroller and Auditor General (C&AG), Gareth Davies, is an Officer of the House of Commons and leads the NAO. We audit the financial accounts of departments and other public bodies. We also examine and report on the value for money of how public money has been spent. In 2019, the NAO’s work led to a positive financial impact through reduced costs, improved service delivery, or other benefits to citizens, of £1.1 billion.

Report by the Comptroller and Auditor General

Ordered by the House of Commons
to be printed on 8 July 2020

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

Gareth Davies
Comptroller and Auditor General
National Audit Office

2 July 2020

This report examines how the Department for Work & Pensions (the Department) is managing the process of getting to first payment in Universal Credit. We describe how the process is working and the impact on claimants.

© National Audit Office 2020

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.org.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.

007696 07/20 NAO

The National Audit Office study team consisted of:
Kemi Duroshola, Josie Kendall-Reed, Colm Molloy, Andy Nichols and Emily Stanyon, under the direction of Joshua Reddaway.

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

Foreword

1 We undertook the majority of our fieldwork for this report between November 2019 and February 2020. As we drafted the report, the immediate impact of COVID-19 and the government’s response, including through the benefits system, was becoming clearer. Impacts include:

dealing with a very high number of new benefit applications in a short space of time, particularly for Universal Credit;

reallocating thousands of staff to help process the surge of claims. All the Department for Work and Pension’s (the Department’s) staff are classified as key workers; and

changing Universal Credit and some of its key processes, such as by suspending face-to-face assessments and interviews, easing the sanctions regime and increasing the standard allowance.

2 This report does not cover the impact of COVID-19 on Universal Credit, or the Department’s management of the crisis. It is currently too early to evaluate the Department’s response. We will report on these issues in due course.

3 This report sets out what the Department was doing well in managing the process of getting to first payment, and where it had room to improve, before the COVID-19 pandemic. This includes consideration of the reasons for late payments and risks to maintaining performance as the caseload grows. As unprecedented numbers of people apply for and adapt to Universal Credit, these findings remain important.

Key facts

Summary

1 The Department for Work & Pensions (the Department) has rolled out 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 This is our fourth major report on Universal Credit. Previously we focused on the development, management and roll-out of the Universal Credit programme. In this report we focus on one key part of the Universal Credit process: getting to first payment. The initial wait for Universal Credit, officially known as the first assessment period and often referred to as “the five-week wait”, has been the focus of significant scrutiny from Parliamentarians and other stakeholders, such as charities that support claimants.

3 In common with all benefits, the Department must process new Universal Credit claims in a way that balances the need to make payments on time, efficiently, and in a way that minimises fraud and error. In this report we:

explain how the process of getting to first payment works for Universal Credit, and consider its impact on claimants (Part One);

assess the Department’s performance in paying first payments on time, cost-efficiently and without fraud and error, in the period before COVID-19 (Part Two); and

assess whether the Department supports claimants effectively through the initial claim process (Part Three).

4 We do not assess all aspects of the Department’s performance in rolling out Universal Credit and providing services to claimants, nor do we update the conclusion on value for money we reached in our 2018 report, Rolling out Universal Credit. We conclude on the Department’s performance specifically in managing and improving the first payment process before the COVID-19 outbreak. An assessment of Universal Credit policy and rules, including who is eligible and how much money they are entitled to, is outside the remit of the National Audit Office.

5 Our audit approach is set out in Appendix One, and the evidence we drew on is in Appendix Two. We also provide a short update on the Department’s overall progress in rolling out Universal Credit (Appendix Three) and its key actions against recommendations from our 2018 report (Appendix Four). We summarise themes from our consultation with stakeholders including charities, local authorities and claimants in Appendix Five.

Key findings

The cost and timetable for implementing the programme

6 The Department has extended the programme to 2024-25. When we last reported in June 2018, the Department expected all claimants on the legacy benefits Universal Credit is replacing to transfer to Universal Credit by March 2023. In July 2019 it extended the programme to September 2024, as a result of its new forecasts which showed claimants on legacy benefits were transferring to Universal Credit at a slower rate than expected (see paragraph 1.5, Figure 1 and Appendix Three).

7 As a result, before COVID-19, the Department forecast that the cost of implementing Universal Credit had risen from £3.2 billion to £4.6 billion. In March 2020 it reforecast the costs of implementing Universal Credit since the Full Business Case in the light of timetable changes:

The forecast programme cost rose by £834 million. This includes both the increased cost of the ‘Move to Universal Credit’ migration process and maintaining the full programme infrastructure up to 2024-25 instead of winding it down from 2022.

The forecast net cost of running Universal Credit in parallel to the legacy benefits during the implementation period up to 2024-25 rose by £570 million, mainly because more claimants are expected to remain on the legacy systems for longer so there will be fewer savings from winding these systems down during this period.

The Department expects to reforecast these costs and the timetable once it better understands the full impact of COVID-19 on the labour market and Universal Credit (see paragraph 1.6, Figures 1 and 2 and Appendix Three).

The initial wait for Universal Credit and the impact on claimants

8 Universal Credit’s design means all claimants must wait a minimum of five weeks for their first payment, which is longer than the minimum wait for the benefits it replaces. Universal Credit is paid based on a household’s costs and earnings, which the Department monitors over monthly ‘assessment periods’. The first assessment period begins when a claimant submits a new claim. At the end of the assessment period, the Department assesses entitlement and makes a payment, which can take up to a week. This means a five-week wait is an inherent part of the Universal Credit design. During the first assessment period, the Department also verifies the claimant’s identity and other aspects of their eligibility. If this verification takes longer than a month, the claimant will be paid some or all of their Universal Credit late. The benefits Universal Credit replaces did not have similar assessment periods. They were paid as soon as the claim was processed and although, like Universal Credit, these benefits were not necessarily paid on time, they had processing targets of between five days (Income Support) and 22 days (Tax Credits) (see paragraphs 1.7 to 1.10 and Figures 3 to 5).

9 In the six months to February 2020, 57% of households making a new claim received a Universal Credit advance payment to help bridge the gap between their claim and their first payment. Advances allow claimants to access up to 100% of their estimated first payment, typically seven days after making their Universal Credit claim.1 This means that Universal Credit claimants can get access to money faster than claimants on the benefits it replaces. Advances do not affect the claimants’ overall entitlement and are normally repaid through deductions from future Universal Credit payments. This can cause claimants difficulties if they spend the advance and are not able to manage the reduced monthly payments. Claimants moving to Universal Credit from legacy benefits can also continue to receive some of their old benefits for two weeks, while they wait for their first Universal Credit payment (these are known as ‘run-ons’) (see paragraphs 1.11 to 1.14, 1.23, 1.24 and Figure 6).

10 Many claimants are in financial difficulty before they apply for Universal Credit, with some delaying making their claim until they are in difficulty. The Department’s analysis of earnings data found that nearly half of claimants (49%) had no earnings in the three months before they apply for Universal Credit. The Department also found that one fifth of claimants it surveyed (22%) did not claim as soon as they became eligible because, for example, they did not know what to do or thought they would get another job quickly. Our stakeholder consultation also identified a level of fear around applying for Universal Credit, with some people worried about how they will cope, having heard about bad experiences from friends, family or through the media. In a situation where people are already in financial distress, delayed claims can exacerbate the pressure they are under (see paragraphs 1.18 and 1.20 to 1.22).

11 The initial five-week wait can exacerbate claimants’ debt and financial difficulties. Despite the availability of advances, claimants and representative organisations that responded to our consultation told us that the wait for the first payment caused financial hardship and debt. It is not possible to say exactly how many claimants experience increased debt or hardship as a direct result of waiting for their first Universal Credit payment. However, the Department’s own research with eight housing associations showed that rent arrears generally start before a Universal Credit claim but then increase more rapidly until the first payment. Similarly, research by the Trussell Trust found that Universal Credit is one of the reasons behind the increasing use of food banks, with 27 additional food parcels distributed for every additional 100 claimants on Universal Credit rather than legacy benefits. While limitations in the data available to the Trussell Trust mean we do not know whether this is directly due to the wait for the first payment, the Trussell Trust cited the wait as a key issue arising from its qualitative work and the Trussell Trust’s recent research (conducted by Heriot-Watt University) with more than 1,000 people referred to food banks found that 27% said they attended the food bank because of a “long wait for Universal Credit” (see paragraphs 1.15 to 1.17, 1.19, 1.27 to 1.29 and Figure 7).

12 Disabled claimants and people on low incomes are more likely to claim advances and have other debts to repay from their Universal Credit. Repayments of advances, combined with other deductions such as court orders and other debts, can mean that claimants receive less than their monthly entitlement until these are repaid. In line with the proportion of claimants taking advances, 61% of claimants have a deduction applied to their first Universal Credit payment, rising to 70% by their fourth payment (after which people cannot defer advance repayments). Some claimant groups are more likely to claim advances or have existing debts that can be repaid through Universal Credit, than others. This includes:

low-income households (80% had a deduction from their first payment);

claims including someone who has limited capability for work because of a disability or health condition (67%); and

claims including a disabled child (70%).

(See paragraphs 1.23 to 1.26 and Figures 8 and 9).

The Department’s performance and management of the first payment process

13 The Department has a clear process for identifying and approving potential improvements to the Universal Credit system. There is a limit to how many changes the Department can make to the Universal Credit system at any one time without overloading its digital development capacity and front-line teams. To prioritise planned changes, the Department gathers feedback from its staff, external stakeholders and claimants. It then considers the impact of any changes to Universal Credit systems and processes on the timeliness of payment, fraud and error, and cost-efficiency (see paragraphs 2.2 to 2.5).

14 The Department’s approach has been very effective in improving the proportion of claims paid on time, from 55% in January 2017 to 90% in February 2020. The Department’s performance monitoring and management, including formal reports and meetings between local and national staff, have focused heavily on improving payment timeliness. The Department has also improved processes that impact payment timeliness and apply to large numbers of people. For example, it has:

automated many of the processes which were slowing payment processing. This includes introducing a landlord portal to allow social housing providers to verify housing costs more quickly; and

improved some of its communication with claimants, such as by sending reminders to attend appointments by text message, to quicken the verification process.

(see paragraphs 2.6 to 2.8, 2.16 to 2.19 and Figures 10 and 11).

15 Despite the improvement in payment timeliness, the number of people paid late has increased with the increase in Universal Credit claimants. In 2017, 113,000 claims were not paid in full and on time, out of 162,000. This increased to 226,000 claims in 2018 and 312,000 claims in 2019. Claimants with claims due for payment in 2019, who were not paid on time faced average delays of three weeks in addition to the five-week wait. Some 6% of households (105,000 new claims) waited around 11 weeks or more for full payment. Some of those paid late were waiting for processes in other areas of the Department such as a Work Capability Assessment. The main reason for late payments appears to be that claimants had not provided sufficient evidence for the Department to verify the claim. We discuss this further in paragraph 20 below (see paragraphs 20 and 2.9 to 2.15).

16 The Department has reduced the cost of administering each Universal Credit claim as the number of claimants has risen, but it is still not certain that Universal Credit will be cheaper to administer than the benefits it replaces. The cost of each claim largely reflects the amount of effort the Department’s staff need to put into each claim, and therefore how many claimants they can deal with. The overall administrative cost per Universal Credit claim reduced from £699 when we last reported in June 2018 to £301 in February 2020, but this remains higher than the £277 the Department forecast it would be at this stage. The Department told us that this is because the number of claimants moving from existing benefits to Universal Credit was lower than it expected. In its business case for Universal Credit, the Department forecast that the cost per claim would fall to £173 when Universal Credit is fully rolled out, so that it will be £99 million a year cheaper (9%) to administer than the benefits it replaces (see paragraphs 2.27 to 2.29 and Appendix Three).

17 The Department has made poor progress in reducing fraud and error. More than one in £10 paid through Universal Credit is incorrect. The Department estimates that £1,730 million (9.4%) of Universal Credit payments were overpaid in 2019-20. This is the highest recorded rate of overpayments for any benefit other than Tax Credits (administered by HM Revenue & Customs), which peaked at 9.7% in 2003-04. The Department also underpaid 1.1% of total payments. The Department had expected Universal Credit to increase fraud and error because Universal Credit payments have to adjust to claimants’ actual income every month, whereas Tax Credits can be reconciled to claimants’ actual income at the end of the year. However, it had forecast that the level of overpayments would be 6.4% in 2019-20. We believe that the test and learn approach used by Universal Credit should enable the Department to address some of the fraud and error control weaknesses in the benefit, but only if the Department starts to prioritise reducing fraud and error (see paragraphs 2.20 to 2.26 and Appendix Three).

18 The Department had identified the need to manage signs of increasing pressure on its staff before the impact of COVID-19. The number of cases each of its case managers handles has increased from 154 at March 2018, to 573 at February 2020, in line with the Department’s plans. When we last reported, the Department expected to increase this caseload to 919 per case manager by 2024-25. The Department told us that, in its view, many staff were already spending more time than expected to ensure claimants were paid on time. It has also raised concerns around the volume of telephone calls case managers are receiving and noted signs of stress including increased absence levels and ongoing threats of industrial action (see paragraphs 2.28, 2.33 to 2.37 and Appendix Three).

19 The Department can reduce pressure on staff and improve its customer service further by continuing to make improvements to the efficiency and administration of new claims. Despite the Department’s progress in automating aspects of the new claims process, we found that some administrative processes remain inefficient. For example, issues with the Habitual Residency Test process for assessing people’s right to claim benefits in the UK caused unnecessary delays in some cases we reviewed. We also found examples where the Department missed opportunities to progress a claim because it focused on a specific issue or request from the claimant, rather than looking at the case as a whole (see paragraphs 2.30 to 2.32).

Support to claimants

20 Claimants with more complex needs and circumstances can struggle to engage with the claim process or provide the evidence required, leaving them at greater risk of being paid late. The majority of late payments appear to result from claimants not engaging with the claim process or providing evidence in a timely manner. Stakeholders expressed concern that some vulnerable groups, such as people with learning disabilities, people with chaotic lives and people with low digital skills may find it particularly difficult to make a claim and provide the evidence required. Our review of 26 cases identified communication as an issue. For example, people who struggled to understand or communicate in written English found it more difficult to understand what the Department was asking of them or complete their claim form correctly. In some cases, the Department’s communication with the claimant was unclear or not sufficiently tailored to the claimant’s ability to engage (see paragraphs 3.2 to 3.8 and Figures 12 and 13).

21 The Department has overhauled the support it offers to claimants who need extra help to make a claim. It has launched a ‘Help to Claim’ service, which aims to provide claimants with “enhanced, free, confidential and impartial” support to help them make a claim. In 2019-20, the Department made available grant funding of up to £39 million to the charities Citizens Advice and Citizens Advice Scotland to deliver this service. The Department’s data indicate that between 1 April 2019 and 22 October 2019, 130,853 people accessed the service. The Department awarded the grant to Citizens Advice and Citizens Advice Scotland without competition. It is working towards a potential competitive tendering exercise for the next round of funding once the current agreements come to an end in 2021 (see paragraphs 3.9 to 3.14).

22 The Department does not have all the information it needs to track vulnerable claimants and ensure its support is effective. The Department provides a range of support for vulnerable claimants, particularly at local level, and staff can make notes on individual claims. However, it does not use data ‘flags’ or markers to highlight claimants’ vulnerabilities or complex needs within the Universal Credit digital system. This means it cannot produce national-level management information on vulnerable claimants, and its front-line staff cannot use data within the system to easily identify all those people who might struggle with the process. Nor can the Department currently track within its systems all claimants that may have accessed the Help to Claim service, particularly where these claimants are not referred directly by the Department. As such, it lacks a complete picture of who is accessing this support and how it affects outcomes, including payment timeliness. We also found that the Department’s data on claimants’ diversity characteristics are incomplete. For example, it does not have sufficient data on areas such as claimants’ ethnicity to carry out meaningful analysis on whether particular groups are more likely to be paid late (see paragraphs 2.14 and 2.15, 3.15 and Figure 11).

Conclusion

23 Many people claim Universal Credit at a challenging time in their lives. As such, the initial wait, which is an inherent part of Universal Credit’s design and operational processes, does not cause all the issues that claimants may face but, in the context of many claimants’ existing financial difficulties, can exacerbate their problems.

24 Since we last reported, the Department has improved the proportion of people getting their first Universal Credit payment on time and in full to around 90%. It deserves credit for its organised approach to making changes and its improved performance. Although the cost of administering each claim is still higher than expected, the Department has demonstrated an ability to gradually make Universal Credit claims more cost-efficient by automating and improving processes. It needs to demonstrate a similar determination to tackle the high levels of fraud and error.

25 The Department has succeeded in improving payment timeliness so far by improving processes that affect large numbers of people. However, as the Universal Credit caseload has grown, a large number of people still do not receive their full payment on time. Vulnerable people may be particularly likely to struggle with their claim. The Department needs to better understand and address the needs of vulnerable people and those with more complex claims, who may be at greater risk of struggling under the Universal Credit regime.

Recommendations

26 Our recommendations are designed to help the Department and other organisations support claimants as effectively as possible through the process of getting to their first Universal Credit payment. Some of these recommendations address how the Department engages with and supports vulnerable people and those with complex claims. The Department will need to work with organisations that support claimants, such as local authorities, charities and housing associations to implement these recommendations effectively. The Department should:

a work in partnership with organisations that support Universal Credit claimants to:

develop a more evidence-based understanding of why some people delay their claim for Universal Credit;

develop communications and other proposals to encourage people to claim earlier when it is in their interest to do so;

develop a better data-based understanding of the numbers of vulnerable claimants – and any direct or indirect diversity impact of its payment performance – and use this to support the needs of people who continue to struggle with making a claim for Universal Credit; and

deliver significant improvements in the clarity of its claimant communications, ensuring these are clear, appropriately tailored, and contain all necessary information.

b develop detailed plans to reduce fraud and error in Universal Credit;

c prioritise improvements to the Universal Credit digital system to help front-line staff identify and support claimants who need more help;

d assess the delivery and funding model for its Help to Claim service based on results from its planned evaluation and explore ways to use data to assess the impact of the service on outcomes including payment timeliness; and

e ensure that it continues to monitor variances in the whole-life cost of its major programmes against their business case and updates Parliament on major changes when they are identified.

1 Claimants can request that the advance be paid on the same day it is requested.

Part One

The initial wait for Universal Credit and the impact on claimants

1.1 This part of the report covers:

the aims and design of Universal Credit;

what happens in practice during the initial wait for Universal Credit; and

the impact of the initial wait for Universal Credit on claimants.

Universal Credit

1.2 The Department for Work & Pensions (the Department) introduced 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). 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.

1.3 In February 2020, before the impact of COVID-19, 2.9 million claimants received Universal Credit. This was around one third of the total caseload expected when all claimants have moved over from legacy benefits. Claimants can move to Universal Credit in three ways:

a new claim;

‘natural migration’, when existing benefit claimants’ circumstances change; and

‘Move to Universal Credit’, for existing benefit claimants whose circumstances have not changed. The Department was piloting these arrangements in Harrogate. It has temporarily suspended this to help manage the impact of the coronavirus outbreak on the benefits system.

1.4 Universal Credit is paid to both people who are working and people who are out of work, depending on their income, needs and costs. Claimants receive a standard allowance and may also be entitled to additional payments if, for example, they have children or qualify for help with their rent.

The cost and timetable for implementing the programme

1.5 Universal Credit was rolled out for new claims nationwide in 2018. When we last reported on Universal Credit, in June 2018, the Department expected all claimants on the legacy benefits to move across to Universal Credit by March 2023. Since then it has changed this forecast twice:

In October 2018, partly as a result of our recommendation, the Department decided to slow some of the transfer of claimants to Universal Credit and extended the programme to December 2023.

In July 2019 it reforecast the number of people joining Universal Credit. This showed people were transferring to Universal Credit from legacy benefits as a result of changes in their circumstances at a slower rate than it had expected. It thus decided to extend the programme to September 2024.

1.6 The Department reforecast the total cost of implementing Universal Credit based on the new timetable and forecast caseloads in March 2020. This showed the total cost of implementing Universal Credit had risen from £3.2 billion in the 2018 Final Business Case to £4.6 billion. This was made up of:2

£834 million extra programme costs (Figure 1)

The cost of managing the change programme and establishing the new benefit and its digital infrastructure rose from £2,016 million at the time of the Full Business Case to £2,850 million. This includes £342 million of increased staff costs for Move to Universal Credit. The remainder is mostly the additional cost of managing the programme to support both that migration and Universal Credit’s test and learn approach through to September 2024, instead of winding the programme down in 2022; and

£570 million higher operational costs up to 2024-25 (Figure 2)

The net cost of running the programme in parallel with the legacy systems rose from £1,219 million at the time of the Full Business Case to £1,789 million. Universal Credit is now expected to cost less to run during the implementation period. However, it will achieve fewer savings from winding-down the legacy systems during this period. We discuss the efficiency of the Universal Credit process in paragraphs 2.27 to 2.29.

The recent increase in claims and the change in the labour market as a result of COVID-19 will have a significant impact on these costs. The Department expects to recalculate its forecasts later this year once the impact of COVID-19 is better understood.

The initial wait for Universal Credit

The practical implications of Universal Credit design

1.7 Universal Credit is managed on the basis of ‘assessment periods’, which the Department has set as a one-month period during which it:

works out the amount that each claimant is entitled to, based on their needs and costs; and

reduces this amount to take account of the claimants’ earnings.

1.8 The first assessment period begins when a claimant submits their claim. Because this first assessment period only starts after a claim is made, claimants must wait at least five weeks before their first payment. The Department views this first assessment period as an inherent part of Universal Credit’s design, reflecting both its policy intent and practical operational considerations (Figure 3). In practice, once a claimant submits a claim for Universal Credit, the Department does three things (Figure 4):

assesses claimant’s costs and income over a month, starting on the first day of the claim;

processes the claim to verify claimant’s eligibility for the benefit, ensure payments are accurate and minimise the risk of fraud and error; and

pays the claimant. At the end of each assessment period, the Department makes a single payment to each eligible household. The Department allows around a week to make payments to claimants’ accounts following the first assessment period.

The claimant is not given an estimate of what they will receive until the statement a few days before the first payment is made.

1.9 Late payment happens when the claim is not fully processed within the first monthly assessment period. Universal Credit covers a range of costs, so processing can involve several checks. Some, such as identity checks, apply to all claimants, while others, such as the Habitual Residency Test, only apply to specific groups. Some checks involve third parties, such as landlords verifying claimants’ housing costs. Failure to complete certain processes results in the whole claim not being paid. This can include, for example, failure to verify the claimant’s identity or UK residency, or the claimant not signing a claimant commitment. Failure to verify specific costs, such as housing costs, results in that specific element of the claim not being paid.

How the wait for Universal Credit compares to legacy benefits

1.10 Overall, claimants’ minimum wait for Universal Credit is likely to be longer than the equivalent minimum wait for each of the benefits it replaces. The Department could not provide sufficient comparable data to make a robust comparison of payment timeliness performance for legacy benefits against Universal Credit. While the benefits Universal Credit is replacing were not necessarily paid on time, they all had a processing target shorter than five weeks, even allowing a week for payment on top of target processing periods. This means it was possible, if the claimant provided all the correct information, to receive payment more quickly under legacy benefits, but this would not have been the case for all claimants. Under Universal Credit, claimants are also waiting for what may previously have been several different benefits, rather than having some income to draw on from one benefit while they claim another (Figure 5).

Mitigating the impact of the longer wait for Universal Credit

1.11 The Department is aware of the potential impact the initial wait for Universal Credit has on claimants and has put financial mitigations in place to help claimants cope. The mitigations (Figure 6) are:

advances: Claimants can receive up to 100% of their expected Universal Credit award once they have submitted their claim. Advances are repayable to the Department through reductions to future Universal Credit payments; and

benefit ‘run-ons’: Some claimants who already receive certain benefits can continue to receive those benefits for a limited time while they wait for their first payment of Universal Credit. The Department estimates that it will spend £750 million on benefit run-ons from 2018-19 to 2023-24.

1.12 In the six months to February 2020, 57% of households making a new claim received an advance. The Department’s survey of claimants in 2018 found that the main reason claimants chose not to take an advance was because they “did not want to” (40%). Wider research found that one of the main reasons people did not apply was a concern about not being able to make repayments and accruing debt.3

1.13 Universal Credit claimants who take an advance can access money faster than claimants on other benefits. In theory this should mitigate the impact of having to wait longer for the first official payment. Claimants who take a full advance (100% of their estimated entitlement) remain ‘ahead’ in pure cash terms for around four months compared with a claimant who received the same overall amount of benefit fortnightly after a two-week initial wait.

1.14 However, this type of cashflow modelling assumes people are able to budget well over multiple months and manage the impact of future reductions to repay advances. Claimants who take and spend a large advance – for example, to repay existing debts or to pay for immediate essentials – may struggle to cope with reduced future Universal Credit payments. We assess the impact of advance repayments in paragraphs 1.23 and 1.24 below.

The impact of the initial wait for Universal Credit on claimants

1.15 Despite the availability of advances and run-ons, the transition to Universal Credit is clearly a challenging time for many claimants. Both charities and claimants responding to our consultation told us that the initial wait for Universal Credit can makes it difficult for them to afford utilities, rent and even food. It can also establish a longer-term pattern of falling behind in paying bills (Appendix Five).

1.16 Assessing the impact of the initial wait for Universal Credit is complicated because it is hard to separate its effect from a range of wider factors. For example, there are various differences between Universal Credit and legacy benefits, which include:

absolute amounts of Universal Credit. Some groups are entitled to more money than they were under legacy benefits and some less. The overall amount households receive is also affected by wider benefits policy such as the benefits cap;

managing finances. For example, in most cases Housing Benefit was previously paid to landlords, but Universal Credit is usually paid directly to claimants; and

variable payments. For some claimants it is less clear how much money they will receive until a few days before they receive their payment because Universal Credit can vary each month.

1.17 The evidence available, however, indicates that the wait for Universal Credit is an important source of pressure on new claimants when combined with:

existing debts and financial distress;

the fact that some claimants delay making their claim for Universal Credit; and

the longer-term impact of managing deductions from Universal Credit to repay advances and other debts.

Existing debts and financial distress

1.18 Many households join Universal Credit after experiencing a financial shock, such as losing a job, and they may already be in financial difficulty at the point they make their claim. The Department does not have data on claimants’ total levels of personal debt, but its analysis of earnings data found that almost half (49%) of households who claimed Universal Credit in the four years to mid-2018 had no earnings in the three months before they claimed Universal Credit.

1.19 The Department’s research with eight housing associations showed that many claimants who claim Universal Credit have pre-existing debt in the form of rent arrears (Figure 7). These arrears increase more rapidly after people make their Universal Credit claim, peaking around 13 weeks following the claim, after which they begin to decline. It takes around a year for claimants’ arrears to return to the level they were at the start of a claim. More recent Universal Credit claimants (in the period April 2017 to March 2018) had lower arrears, both before and after their claim than earlier claimants (April 2016 to March 2017). The Department does not know whether this improvement is due to an increase in the availability of advances, benefit run-ons or other factors, such as landlords intervening to help claimants make a new claim.

Delayed claims

1.20 Claimants who are already in debt or have no income may experience further financial difficulty if they delay making their Universal Credit claim. The Department’s survey of Universal Credit claimants in 2018 asked respondents with experience of claiming legacy benefits (66% of all claimants surveyed) if they had delayed making a claim to Universal Credit.4 Just over one fifth (22%) of these claimants reported that they had not made a claim for Universal Credit as soon as they became eligible.5 The main reasons claimants reported delaying a claim were: they did not know what to do (28%); and they thought they would get another job quickly (27%).

1.21 Our consultation with claimants and support organisations indicated that a “fear factor” about Universal Credit is also likely to play a part in some people delaying a claim, or not claiming at all. This may result from people hearing about bad experiences from friends, family or the media, for example. Some respondents told us they were worried about whether they would be able to cope during the wait.

1.22 Some stakeholders told us that any fear factor may be compounded by the fact that deciding when to apply for Universal Credit is not always simple. Claimants may need to make rational personal calculations, such as:

considering the timing of the last payment from a previous job. Final payments, such as payment for outstanding holiday pay, that are made in the assessment period could reduce the amount of Universal Credit claimants receive; and

working out whether they are better off on existing benefits. Some people are entitled to less money under Universal Credit and, if they move over before they need to, may lose their entitlement to transitional protection (a top-up payment to ensure there is no change in their income).

The impact of advance repayments and deductions for other debts

1.23 Advances can help claimants in the short term but are repayable. These repayments are usually made from future Universal Credit payments and can therefore reduce already low incomes and increase households’ risk of accruing further debt. Claimants may also have to repay a range of other debts from the Universal Credit payments, such as historic overpayments of other benefits.

1.24 Some claimants who take advances struggle to understand the implications of taking an advance on their future payments. The Department’s research in 2019 found that those with poorer financial management skills were likely to have a less clear understanding of how they would repay their advance payment. They lacked clarity about how much they would repay each month, the timeframe over which they would make the repayments or for how much longer they would be making repayments. Stakeholders told us that some people, who may already be in debt or have no income, use advances to pay immediate bills such as utilities and food. They also said that advance deductions make it difficult to get out of the debt accrued during the initial wait period.

1.25 Our analysis of the Department’s data from January to September 2019 (Figure 8) shows that, excluding sanctions and fraud penalties, 61% of new claims due for payment had deductions applied to their first payment, rising to 70% by the fourth payment. Claimants can delay repayment of their advance for up to three months. A higher proportion of claimants with low incomes or a disability (or a disabled child) were repaying advances and other debts.6 This suggests that they are more likely to claim an advance and join Universal Credit with existing debt. These groups are therefore more likely to have deductions in place. For example:

80% of claims from low-income households had a deduction in place in the first assessment period, compared with 61% of all claims; and

67% of claims that include a limited capability for work element and 70% of claims which included the disabled child element had deductions in place.

1.26 The scale of deductions can be significant in the context of the core amounts of money the Department considers claimants need to live on (the standard allowance). A claimant’s standard allowance is designed to cover their food, bills and daily living costs. Claimants with no additional income from employment must also cover any shortfall in their rent created by the cap on the local housing allowance. Figure 9 shows that, excluding sanctions and fraud penalties:

27% of all claims had deductions of more than 20% of the standard allowance (equivalent to a loss of at least £64 a month for a single claimant over 25); and

16% of claimants had deductions of more than 30% (a loss of at least £95 a month).

Use of food banks

1.27 There is some evidence that has linked Universal Credit with significant hardship. In its November 2019 report The State of Hunger,7 the Trussell Trust found five benefit system-related factors that increased demand for food banks after allowing for contextual factors and an increase in the number of food banks. The roll-out of Universal Credit was statistically associated with distributing 27 additional food parcels for every additional 100 claimants on Universal Credit rather than legacy benefits.8

1.28 It is not clear how much of this increase is directly attributable to the initial wait for Universal Credit rather than people delaying claiming, the amount of Universal Credit they receive or their longer-term financial difficulties. However, in the Trussell Trust’s recent research with more than 1,000 people who have been referred to food banks (conducted by Heriot-Watt University) more than one quarter (27%) of households reported “a long wait for Universal Credit” as the reason for their visit. The Trussell Trust found that most people referred to a Trussell Trust food bank (around 60% of respondents to its survey) had not received a benefit advance or other discretionary benefit. Interviews it conducted suggested that this was due to a lack of awareness of these schemes and claimants not wanting to go into debt.

1.29 The Department told us it is keen to better understand the relationship between food bank use and Universal Credit. In order to do so, it wants to explore linking data on the provision of food bank parcels to specific Universal Credit claims. It thinks that this approach, similar to that used to analyse rent arrears (Figure 7 on page 26), would enable it to assess what it is about the claim that leads to the use of the food bank.

2 The Department’s forecast costs are nominal cash costs and include inflation. The baseline 2018 costs are restated from those set out in our 2018 report Comptroller and Auditor General, Rolling out Universal Credit, Session 2017–2019, HC 1123, National Audit Office, June 2018, where the costs were stated in real terms.

3 The Trussell Trust, The State of Hunger: a study of poverty and food insecurity in the UK, November 2019, available at: www.stateofhunger.org

4 The Department did not ask claimants who had no previous experience of legacy benefits if they had delayed making a claim to Universal Credit.

5 Department for Work & Pensions, Universal Credit Full Service Omnibus Survey, February 2019. Base: All who claimed benefits before claiming Universal Credit (956), all who delayed making a claim (219).

6 The Department classes a couple with no children as having low income if their total income from Universal Credit and all other sources (excluding their housing costs, childcare costs, disability benefits, Discretionary Housing Payments and Hardship Payments) is under £395.20 per month. This equates to the Universal Credit standard allowance for a couple under 25. Households of different sizes are assessed as low income at their equivalent rates.

7 The Trussell Trust, State of Hunger: a study of poverty and food insecurity in the UK, November 2019 available at: www.stateofhunger.org

8 The other four factors associated with higher food bank use were the number of benefit sanctions; the number of households subject to the removal of the spare room subsidy (‘the bedroom tax’); the number of failed Personal Independence Payment assessments; and the benefit freeze and cap on benefit uprating.

Part Two

The Department’s operational performance and management of the first claim process

2.1 In this part we set out the Department for Work & Pensions’ (the Department’s) approach to managing and improving the new claim process and how it attempts to balance four key indicators of quality:

customer experience;

fraud and error;

cost-efficiency; and

sustainability.

The Department’s approach to improving Universal Credit

2.2 The Department uses a ‘test and learn’ approach to deliver Universal Credit.9 Although the Universal Credit digital system was rolled out across the country in 2018, the Department continues to use this agile approach to continuously improve and automate the system and supporting administrative processes.10

2.3 The Department gathers feedback from its staff and stakeholders and uses research with claimants to identify necessary improvements to the customer experience, countering fraud and error, and cost-efficiency. The stakeholders we spoke to were generally positive about the improvement, since we last reported, in the Department’s engagement and willingness to listen to their concerns. However, many would still like to see changes to both Universal Credit policy and how it operates.

2.4 The Department prioritises planned improvements into development phases, which last around six months each. The number of improvements or changes the Department can make to its digital system at any one time is limited. This is because teams must test each change to make sure it is working and delivering value before they can alter other areas. The Department also needs to avoid overloading its front-line team with changes and new processes.

2.5 Unplanned changes, such as changes in government policy, cannot always be made immediately and may require the Department to reprioritise and push back planned work. For example, following changes announced in the 2018 Budget, including the introduction of legacy benefit run-ons, the Department had to deprioritise certain changes, including a reduction in the surplus earnings threshold. This is the amount claimants who leave Universal Credit can earn before their recent earnings are taken into account, in the event they restart their claim.11 The Department estimated this change would have saved it an estimated £100 million if it had been delivered as planned in 2019.

Customer experience

2.6 The Department monitors various aspects of customer experience including payment timeliness, claimants’ ability to communicate with its staff and the number of claimants able to verify their identity online. The Department has focused on payment timeliness – particularly of first payments – as the key indicator of the customer experience.

2.7 The Department’s most recent satisfaction survey showed that 80% of claimants expressed satisfaction with the service, a slightly lower level to those claiming other benefits. Just over one third (34%) of claimants reported that they were “very satisfied” and 10% reported they were “very dissatisfied”.

Payment timeliness

2.8 The Department has improved payment timeliness significantly in the past few years. Payment of new claims in full and on time (that is, claimants paid all the elements they are entitled to within the five weeks) improved from 55% in January 2017 to 90% in February 2020. Similarly, 94% of claims received at least part of their payment on time in February 2020, compared with 71% in January 2017 (Figure 10).

2.9 Although the percentage of claims the Department pays late has fallen, late payments continue to affect a large number of people. 113,000 claims in 2017 were not paid in full and on time; this increased to 226,000 claims in 2018 and 312,000 claims in 2019.12 This is because the number of new Universal Credit claims each month that go on to payment has increased: in 2018 there were 1.33 million new claims for Universal Credit, almost five times the number in 2017 (290,000). People who are not paid on time can face long waits for payment. For claims due for payment in 2019:

those not paid on time faced an average delay of three weeks in addition to the five-week wait;13 and

6% of all claims waited 11 weeks or more in total for full payment (105,000 households).

2.10 Backlogs and slow or lengthy processes in other parts of the Department can affect the timeliness of Universal Credit payments. For example, new claims which include the limited capability for work and work-related activity element, paid to people who cannot work because of a disability or health condition, require claimants to undergo a Work Capability Assessment (WCA). On average, it takes around four months from a claimant declaring a health condition until the WCA decision is due.14 These claims are not classed as being paid in full and on time in the payment timeliness data the Department publishes.

2.11 A fairer way to assess the underlying performance of Universal Credit as an operational system is to focus on those aspects that are not reliant on other processes. The Department calculates a ‘core’ measure, which includes only the standard allowance, and the child and housing elements, to understand its performance in processing claims. In February 2020, using this measure, 92% of claims were paid in full and on time.

Which claimants are affected most by late payments

2.12 The Department is more likely to pay claims late if they include elements or characteristics that need verification, such as claims with childcare costs and claimants who are self-employed (Figure 11). However, the gap in its performance in paying these claims and more basic claims has narrowed over the past year.

2.13 People of certain age groups and family types are more likely to have their claims paid late. The Department’s data on claims due for payment between January 2017 and August 2019 showed that:

payment in full and on time decreased as the age of the claimant increased: some 82% of claimants aged 25–29 were paid in full and on time, compared with 74% of claimants aged 60–65;15 and

82% of claims for single claimants were paid in full and on time compared with 72% for couples.

2.14 Disabled people are also less likely to be paid on time, but the Department does not hold data on whether a claimant is disabled. It uses proxies such as claimants’ entitlement to limited capability for work elements of Universal Credit, which are paid to people who the Department assesses as not fit for work due to a disability or health condition, or who receive disability benefits such as Personal Independence Payment (PIP) or Disability Living Allowance (DLA). The Department’s latest available data show that, in March 2019, 75% of claims from people receiving PIP or DLA were paid in full and on time, compared with 82% of claims not in receipt of PIP or DLA. However, 84% of claimants in receipt of PIP or DLA were paid their core elements in full and on time. The Department’s data suggest that delays in full payment for disabled claimants are due to long waits for Work Capability Assessments (see paragraph 2.10).

2.15 The Department has less data on other claimant characteristics, which limits its ability to assess any direct or indirect diversity impacts of late payments. For example, it does not collect data on specific claimant vulnerabilities, such as how many people have mental health issues, or literacy or language comprehension problems. It does collect some data on ethnicity through an equality questionnaire, but only 50% of claimants complete this. At the time of our fieldwork, an issue with the Universal Credit IT system meant that it held only 40% ethnicity data for people who had made new claims since January 2017.

The Department’s approach to improving payment timeliness

2.16 The Department has succeeded in improving its payment timeliness over the past three years due to three key factors:

A clear operational focus

We observed a clear focus on payment timeliness within the Department’s performance data and weekly operational meetings. We found that the Department makes effective use of a range of performance metrics at local and national level to manage the customer experience. This includes close monitoring of lead indicators for late payments (such as verifying identity within the first 10 days of a claim).16 Data are available at both a national and local level, and senior managers challenge local service providers on local variations and investigate problems where necessary.

Improving systems in problem areas that affect large numbers of people

The Department has focused on developing its systems in areas where large numbers of people were experiencing delays. For example, in spring 2017, the Department introduced a ‘landlord portal’, an online tool that allows social landlords to upload data on rent details for their properties, which is then used to verify the information that tenants provide about their rent. Previously, the Department verified claimants’ rent with landlords via an email inbox, which led to backlogs and delays. Following the introduction of the landlord portal, social rent verification in the first assessment period rose from around 82% in May 2017 to more than 90% by 2018. This corresponded with a rise in overall payment timeliness from 66% to around 80% over the same period.

Better behavioural insights

The Department has carried out research to identify issues with the claimant journey and tests solutions to ‘nudge’ claimant behaviour. For example, the Department found that claimants were missing appointments or were not bringing the correct evidence to their initial evidence interviews, meaning they had to make multiple visits to the jobcentre. The Department ran trials to test the impact of sending claimants text message reminders of the time of their appointment and the evidence they needed to bring. Results from the trials showed that appointment attendance rates increased by four percentage points and the failure to attend rate decreased by two percentage points.

Contacting the Department

2.17 While claimants are encouraged to manage their claims online, they can also contact the Department, and in some cases their own case manager (who helps claimants to create and maintain their claim) over the phone. From October 2018 to September 2019, the Department answered 88% of claimants’ calls. Those who were able to get through waited four minutes on average.

2.18 The Department has had to reduce its ambitions for the numbers of claimants that would be able to verify their identity (ID) online. It had originally expected that 90% of claimants would be able to verify their ID this way but, following problems with the government’s Verify service, it has recognised this will not be achieved.17 In January 2020, 20% of new claimants verified their ID online. Of those who attempted the online process, 40% were successful. Claimants who do not verify their ID online must usually do so at the Jobcentre.

2.19 Our review of a sample of cases (see paragraph 3.5) showed that some claimants had different expectations around the use of the Universal Credit digital journal. The journal is an online system linked to each claim which claimants and the Department’s staff can use to exchange messages. In some cases we reviewed, claimants had attempted to use the journal as a messaging service, seeking advice on issues such as their payment amount or timing, or evidence required for their claim. Some journal messages from claimants went unnoticed because the Department was not expecting the claimant to contact them about their new claim using the journal. The Department intended the journal to have various uses including: documenting the claim history; allowing claimants to provide updates on their work search activity; and contacting work coaches. However, it told us that the journal has been used more heavily for messaging than it had foreseen.

Fraud and error

2.20 As with any benefit, fraud and error is a particular risk at both the initial claim stage and when claimants’ circumstances change. The Department’s data from 2019-20 indicate that around one fifth (22%) of fraud and error enters Universal Credit at the new claim phase, a higher proportion than for the other benefits the Department measures continuously (9%). Most of the rest is because the Department is not informed of, does not accurately record, or fails to act on a change in the claimant’s circumstance.

2.21 The Department estimated the total monetary value of fraud and error in Universal Credit, arising from both new claims and changes in circumstances, as 10.5% of all Universal Credit payments in 2019-20.18 This was made up of 9.4% (£1,730 million) overpayments and 1.1% (£200 million) of underpayments. Universal Credit has the highest rate of fraud and error of any benefit the Department measures and the highest ever recorded rate of overpayment for any benefit other than Tax Credits (administered by HM Revenue & Customs), which peaked at 9.7% in 2003-04.

2.22 Within the estimated 10.5% total fraud and error rate:

1.8% was official error, when a benefit is paid incorrectly due to inaction, delay or a mistaken assessment by the Department;

1.1% was claimant error, when claimants make mistakes with no fraudulent intent, for example if they provide inaccurate or incomplete information; and

7.6% was fraud, when claimants deliberately seek to mislead the Department to claim money to which they are not entitled.

2.23 The Department had expected Universal Credit to increase the level of fraud and error but to reduce the cost of overpayments to the taxpayer. This is because of how it assesses people’s income monthly compared to Tax Credits. Under the Tax Credit regime, HM Revenue & Customs makes a provisional award to claimants based on the information it holds and then calculates their actual entitlement after the end of the year. Any overpayment due to a change in the claimant’s income during the year does not count as fraud and error. Universal Credit involves a monthly assessment of claimants’ income. Any monthly change in income is adjusted for earlier (saving the taxpayer money), but any change that is not adjusted for counts as fraud and error.

2.24 However, Universal Credit’s overpayment rate is significantly higher than expected. In 2019-20, the Universal Credit overpayment rate was 9.4%, whereas the Department’s forecast for the same year, based on a range of assumptions, was 6.4%. The Department has not yet calculated the impact of this on its financial savings target for 2019-20 but, for context, in 2018-19 when the overpayment rate was 8.6% against an expectation of 6.3%, it calculated that it made only £62 million of the £141 million net savings it expected from reduced overpayments at that point. The Department found five areas of unexpectedly high fraud and error overpayments in Universal Credit (statistics in brackets relate to 2019-20 actual statistics versus start of year assumptions):

Claimants’ capital (2.8% actual versus 0.7% predicted). The Department has found it difficult to assess and verify capital rules in Universal Credit due to a lack of data, leading to an increase in this type of fraud.

Earnings and employment income (2.4% actual versus 1.1% predicted). The Department expected the use of the Real Time Information (RTI) data on employees’ income, provided by employers through HM Revenue & Customs, to reduce fraud and error. However, the Department appears to have underestimated the number of employees whose income is not recorded on RTI, or who are self-employed, and whose income is harder to verify.

Housing costs (1.2% actual versus 0.1% predicted). The Department found that it had underestimated the amount of knowledge needed to verify housing costs.

Official error excluding conditions of entitlement (1% actual). The Department’s internal monitoring found standards were not met in 45% of case managers’ work that was tested. Unlike other benefits, no targets are in place for accuracy of processing for Universal Credit, but these figures are higher than their equivalents across nearly all its other benefits.

Conditions of entitlement (0.4% actual vs 0.1% predicted). This includes cases where the Department’s staff have signed the claimant commitment on behalf of the claimant and has fallen from 1.3% in 2018-19 after the Department focused on ensuring staff stopped this practice. The Department does not view this type of fraud and error as resulting in a loss to the taxpayer as the claimant would otherwise have been entitled to Universal Credit anyway.

2.25 The official estimates of fraud and error above do not include fraudulent advances, which have proven to create an additional and significant risk of fraud in the new claims process. We found an estimated range of between £148 million and £221 million additional fraud in Universal Credit advances between June 2018 and December 2019.19

2.26 We believe the Department’s test and learn approach, which it has applied effectively to improve payment timeliness, could also help it reduce fraud and error. However, it is not clear that fraud and error has been a top priority for Universal Credit, and it is not monitored to the same extent at a senior level. Several counter-fraud and error initiatives have been postponed due to other urgent requirements. This includes further testing and risk assessment techniques, which have been deprioritised several times and not fully implemented. The Department believes that these techniques could reduce the amount of manual verification in some areas and enable it to increase verification in areas of higher risk.

Cost-efficiency

2.27 The administrative cost of each claim largely reflects the amount of effort the Department’s staff need to put into each claim. The Department seeks to reduce costs by automating processes and training its staff so they can take on more claims. The Department records the overall cost per claim but does not hold data on the specific cost of administering the new claim process.

2.28 Since our last report in June 2018:20

the number of claimants per case manager has increased from 154 to 573 as at February 2020;

the number of claimants per work coach in the intensive search group (who require the most time with work coaches) has increased from 78 as at April 2018 to 125 as at February 2020;21 and

the overall cost per claim has reduced from £699 to £301 as at February 2020.

2.29 At £301, the cost per claim was higher than the £277 the Department forecast it would be at February 2020. The Department told us this was due to lower numbers than expected moving onto Universal Credit. As a result, it is still not certain that Universal Credit will be cheaper to administer than the benefits it replaces. In its Full Business Case, the Department estimated that the cost per claim will fall to £173 in 2024-25 after it is fully rolled out. This would enable the overall annual cost of administering Universal Credit payments to be £335 million cheaper (29%) per year than that of the benefits it replaced, or £99 million (9%) per year cheaper after the additional cost of administering Universal Credit’s work search reviews is included.

Process integrity and efficiency

2.30 Although the cost of processing claims is reducing, the Department told us that it recognises that some parts of the Universal Credit process are still inefficient. Despite Universal Credit being primarily a digital system, making payments on time still requires manual work for some payments. For example, we observed case managers manually calculating and checking claimants’ payment amounts to process payments. Manual processes take longer, therefore increasing the risk of late payments, and potentially increase costs.

2.31 Habitual Residency Tests (HRTs), a process used to determine a claimant’s residence in the UK, are an example of a process which can involve unnecessary work. For example, the system can trigger a review of an HRT decision when certain other actions are completed on the claim, even when these might not actually necessitate a review of the HRT decision itself. Minor human error when making a referral can also lead to the process being reset. The Department is currently piloting improvements to this process and has recently amended the actions that trigger a review of the HRT decision.

2.32 We also found that some of the Department’s processing of individual cases could be improved to help reduce late payments and extra work. In particular:

the Department did not always take a holistic view when assessing claimants’ entitlement or the progress of a claim. We reviewed cases where important aspects of the claim were missed because the Department focused on a specific issue or request from the claimant without looking at the claim in the round; and

some claimants have multiple work coaches and case managers working their claim, which can lead to mistakes. Although the Department tries to ensure claimants speak to the same case manager, staff are not always available, and some claims are passed between multiple staff members. For example, in one case we reviewed, a claimant who had already completed the HRT process mistakenly requested an additional HRT via their journal. The work coach who processed this request was not familiar with the case and did not check the claim history, so the claimant went through the HRT process again unnecessarily.

Volume of claims

2.33 The large number of new claims which need to be checked presents an ongoing challenge for the Department. To manage this, the Department has created a ‘trigger point’ prioritisation system. The system prioritises payment timeliness over accuracy.

2.34 Prioritising ‘payment blocker’ triggers over accuracy is likely to have an overall positive effect on payment timeliness, but inevitably means that fraud and error and the wider customer experience is a lower priority, which is reflected in the high rate of fraud and error overpayments. Case managers can also struggle to get to the bottom of their ‘to-do’ list, which means actions affecting accuracy may not be processed in a timely manner. In November 2019 an Internal Audit report also found staff struggling to process the tasks assigned to them. For example, in its sample of 25 claims the internal audit team found 48 errors on 21 claims that were linked to unactioned ‘to-dos’.

Sustainability

2.35 The Department’s ongoing challenge is to continually improve the customer experience, accuracy and efficiency of Universal Credit as its caseload increases. The Department expressed some concerns to us about pressure on its front-line staff, many of whom it considers are spending more time than expected on certain processes to ensure claimants are paid on time. Some staff are spending a substantial amount of time ‘nudging’ claimants, via their online journals, or by phone to ensure their payment goes through on time.

2.36 The Department became increasingly concerned over the course of 2019 that the volume of telephone calls case managers receive from claimants posed a risk to sustainability. In October 2019, the Department noted that the volume of calls to case managers was high, and that this may be linked to signs of stress in some service centres, with “increased absence levels and ongoing threats of industrial action”. In December it noted that telephony contact continued to increase, which meant that staff were “having to do more work to keep Universal Credit going”.

2.37 Before the onset of the COVID-19 pandemic, the Department was working to understand and reduce pressures on its staff. This included additional recruitment and spreading out complex cases more evenly between offices. It stated that caseloads per case manager should not go above 650 to 750 next year and that it would not go beyond this figure until it is safe to do so.

9 See Comptroller and Auditor General, Rolling out Universal Credit, Session 2017–2019, HC 1123, National Audit Office, June 2018 for further details.

10 ‘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.

11 The Department pauses a claimant’s account if their earnings mean they are no longer entitled to Universal Credit. If their monthly earnings are more than £2,500 over the amount where their payment stops, this becomes ‘surplus earnings’. Surplus earnings will be carried forward to the following month. This allows it to take account of people with high but irregular earnings.

12 This is lower than our estimate of late payments in 2018 in our previous report Comptroller and Auditor General, Rolling out Universal Credit, Session 2017–2019, HC 1123, National Audit Office, June 2018. This is due to a lower number of new claims than the Department forecast for this period and a lower number of these claims that were due payment than we had estimated.

13 Here average delay refers to the median additional wait.

14 Here average refers to median.

15 Analysis based on the average age of individuals in one claim.

16 We set out the development of these lead indicators in Comptroller and Auditor General, Supporting disabled people to work, Session 2017–2019, HC 1991, National Audit Office, March 2019.

17 We set out some of the problems with the Verify service in Comptroller and Auditor General, Investigation into Verify, Session 2017–2019, HC 1926, National Audit Office, March 2019.

18 Department for Work & Pensions, Fraud and error in the benefit system: financial year 2019 to 2020 estimates, May 2020.

19 Comptroller and Auditor General, Universal Credit advances fraud, Session 2019–2021, HC 105, National Audit Office, 20 March 2020.

20 Comptroller and Auditor General, Rolling out Universal Credit, Session 2017–2019, HC 1123, National Audit Office, June 2018

21 The number of claimants per work coach has been restated from our previous report so as to exclude claimants that are unlikely to require meetings with or interventions from a work coach.

Part Three

Support for new claimants

3.1 In this part we look at why claims are paid late and assess how well the Department for Work & Pensions (the Department) supports people through the initial claim process. We focused on those cases where people are paid late, building on two earlier reviews undertaken by the Government Internal Audit Agency (GIAA) and the Department.

Why payments are made late

3.2 Both the Department and the GIAA have undertaken case reviews to identify whether late payment was due to the Department or the claimant not fulfilling their responsibilities. Both reviews found that the main reason for late payments was claimants not engaging with the claim process or not providing relevant evidence in a timely manner.

3.3 The GIAA found that in 24 of 25 late payment cases sampled claimants had not completed actions on a timely basis. The key issues were claimants failing to: attend their initial interview; accept their claimant commitments; or provide relevant evidence. Only one late payment was attributable to slow action by the Department.

3.4 The Department told us that it reviewed a sample of 415 late payment cases and found that:

one-third were paid late due to outstanding action by the Department. The most common problems were with making a Habitual Residency Test (HRT) decision, checking customer information against benefit system records, and making a backdating decision; and

two-thirds were the claimant’s responsibility. The most common issues were verifying bank details, reporting other income, and checking further education or self-employment.

3.5 Given the majority of late payments appear to now stem from claimant behaviour, we undertook an in-depth review of 26 cases to identify root causes of late payments. We selected our sample to develop deep understanding of each case and cover a reasonable range of different claimant types and common problems. Our sample was not designed to be statistically representative and purposely included a variety of both common and less common ‘payment blocking’ issues.

Who struggles with their claim

3.6 We found that a range of factors can overlap in any one case, including: the claimant’s individual needs and capacity; claimant engagement; the quality of communication from the Department; and the accuracy of the Department’s systems and administration of claims. This is demonstrated in the case study examples (Figure 12 and Figure 13), which show how multiple issues can be encountered in a single claim. Our review identified three key themes relating to particular groups who had been paid late.

Self-employed claimants

The Department’s data show that 79% of self-employed claimants were paid in full compared with 90% of all claimants in February 2020. The process for self-employed claimants is relatively complex and requires specially trained staff. Where claimants experienced issues these included waiting a long time for an appointment with their self-employment work coach, and incorrectly reporting their self-employed earnings, including because they misunderstood how to report the wage they paid themselves through their business, leading to this income being double-counted on their claim.

Issues with English-language proficiency

Claimants with limited English-language proficiency appeared to find it harder to complete their claim form accurately or understand what was required of them. Issues in these cases included claimants making incorrect declarations or submitting the wrong evidence, or not taking required actions promptly. We also found that some were not able to successfully dispute errors on their claim. For context, in one piece of research conducted by a cohort of local Citizens Advice offices in the North of England on barriers faced by claimants accessing their Help to Claim service, around one in five claimants identified reading or writing in English as a barrier to accessing Universal Credit.

Issues with the Habitual Residency Test

We reviewed cases where claimants experienced unnecessary delays in their claim due to inefficiencies in the Habitual Residency Test (HRT) process. We set out issues with the HRT process in paragraph 2.31.

3.7 Stakeholders told us that people who experience delays may be more vulnerable and therefore may suffer a more significant impact from having their payment delayed. This may be because they struggle with the digital aspects of Universal Credit or to keep appointments. Vulnerable people include those with: physical or mental disabilities; literacy issues; limited English-language proficiency; digital illiteracy or digital access issues; or chaotic lives. Stakeholders also acknowledged that people with comparatively simple cases, such as single people, those working but on a low income and those who are digitally literate, find the Universal Credit process relatively simple.

3.8 Given the challenges some vulnerable groups are likely to face, it is important that the Department communicates with claimants clearly. The Department’s communication was not always tailored to the claimant in the cases we reviewed (Figure 13). Some claimants clearly struggled to understand their entitlement or what the Department was requesting, but the Department did not adapt its language accordingly. The Department’s own survey of Universal Credit claimants found that only 48% of claimants felt they were made aware of all the main requirements when they first made their claim.

Support for claimants

Help to Claim

3.9 In 2019-20, the Department made available up to £39 million of grant funding for the ‘Help to Claim’ service, delivered through Citizens Advice and Citizens Advice Scotland. The aim of the service is to provide claimants with “enhanced, free, confidential and impartial” support to help them make a claim. This is a significant change in the way the Department commissions support for claimants, engaging directly with the advice sector rather than organising this through local authorities as it had in previous years. At the time, local government representatives expressed some concern about the lack of notice they received for the change, although other stakeholders we spoke to were more positive. The Help to Claim service went live in all of the Department’s jobcentres and service centres in England, Wales and Scotland from 1 April 2019.

3.10 The Department awarded funding to Citizens Advice and Citizens Advice Scotland as a ‘direct grant award’, which is a grant awarded without competition. The Department, in consultation with the Cabinet Office, decided that a direct grant award was appropriate because it considered that Citizens Advice and Citizens Advice Scotland occupy a unique position in the market, offer a specialist function and have an established track record. The Department also explained that it wanted to get the service up and running quickly in response to the feedback it was getting on Universal Credit at the time.

3.11 The Department is aware that a direct grant award is not an appropriate long-term funding model. Cabinet Office guidance sets out that government grants should be competed by default. The Department is considering the possibility of running a competitive tendering exercise once the current arrangements come to an end in 2021. A grant is also generally considered appropriate for funding an organisation’s core activity, whereas a contract is a more effective mechanism for managing a service. A contract could also better enable the Department to integrate Help to Claim with its Universal Credit service.

3.12 Currently, only a minority of claimants use the new service, although the Department expects volumes to increase steadily as the service matures. Between 1 April 2019 and 31 July 2019 around 75,000 people accessed the service (12% of new claims). Provisional data showed that between 1 April 2019, when the service was first put in place, and 22 October 2019, 130,853 people accessed the service.

3.13 The Department’s interim evaluation of the service found that claimants accessing the service were on average older than the average claimant and were more likely to access the service in person than by phone or online. This may reflect the fact that some groups are more likely to find the online Universal Credit claim process challenging. The Department found that:

just over 50% of those accessing the service did so in person at a Citizens Advice office, 40% by phone and only 5% using the web chat channel;

people accessing Help to Claim were older, on average, than Universal Credit claimants as a whole. In England and Wales, 60% of people accessing Help to Claim were over 40, compared with 35% of claimants overall; in Scotland 50% were over 40 compared with 25% overall; and

21% of claimants in England and Wales and 11% in Scotland were from a black or minority ethnic background. The Department does not have robust data to compare this with the profile of all claimants.

3.14 The Department does not know whether those using the Help to Claim service are those that need the most help. There are multiple referral routes into the service, including self-referral, direct referral by the Department, or referral by other support agencies such as local authorities or charities. In the case of self-referrals and referrals from external organisations, the Department will not know that the individual has accessed Help to Claim. This means it cannot currently track, in all cases, how this extra support affects the actual outcome of the claim, including on payment timeliness.

3.15 More broadly, although the Department provides a range of support for vulnerable claimants, it does not use data ‘flags’ to record claimants’ vulnerabilities or complex needs within the Universal Credit digital system. The Department’s staff use a range of resources to support vulnerable claimants. For example, local jobcentres maintain a complex needs plan to help work coaches signpost claimants to relevant support. Staff can also use ‘pinned notes’ in the Universal Credit digital claim system to highlight people’s vulnerabilities. However, the Department cannot currently use these mechanisms to produce consistent, national-level management information on vulnerable claimants, nor can front-line staff use the information within the system to easily identify all the vulnerable people they are working with. We have observed jobcentre staff manually recording claimants’ complex needs to enable them to offer targeted support, indicating that there is demand from the Department’s front-line staff for this type of information.22

22 Comptroller and Auditor General, Supporting disabled people to work, Session 2017–2019, HC 1991, National Audit Office, March 2019.

Appendix One

Our audit approach

1 This study examines how the Department for Work & Pensions (the Department) is managing the process of getting to first payment in Universal Credit. We describe how the process is working and the impact on claimants.

2 We do not assess all aspects of the Department’s performance in rolling out Universal Credit and providing services to claimants in this report, nor do we update the conclusion on value for money we reached in our 2018 report, Rolling out Universal Credit.23 We do conclude on the Department’s performance specifically in managing and improving the first payment process before the COVID-19 outbreak. An assessment of Universal Credit policy and rules, including who is eligible and how much money they are entitled to, is outside the remit of the National Audit Office.

3 This report considers:

the initial wait for Universal Credit and the impact of this on claimants;

the Department’s operational performance and management of the initial claim process; and

the issues faced by new claimants and how the Department is supporting them.

4 Our audit approach is summarised in Figure 14. Our evidence base is described in Appendix Two.

23 Comptroller and Auditor General, Rolling out Universal Credit, Session 2017–2019, HC 1123, National Audit Office, June 2018.

Appendix Two

Our evidence base

1 Our independent conclusions on how the Department for Work & Pensions (the Department) is managing the process of getting to first payment in Universal Credit were reached following our analysis of evidence collected between September 2019 and February 2020.

2 We applied an analytical framework with evaluative criteria which consider what arrangements would be optimal for managing and improving the new claims process and supporting claimants. Our audit approach is outlined in Appendix One.

3 We tested our findings through peer review and quality assurance processes and triangulated these against our consultation with a range of stakeholders.

We considered the Department’s new claims process and its impact on claimants

4 We conducted a document and file review of published and internal client documents, including departmental research on the initial claim process. This included its research on rent arrears; claimants’ earnings before they join Universal Credit; and the impact of advances.

5 We analysed internal client data on levels of deductions and rent arrears among Universal Credit claimants.

6 We reviewed internal client documents and data on programme costs and forecasts.

7 We visited one jobcentre site and one service centre site both co-located in Stockton-on-Tees to observe the new claims process in practice. We observed initial evidence and first claimant commitment interviews and conducted a focus group with work coaches. We also observed case managers as they worked through their ‘trigger’ process and accepted incoming telephony calls, and conducted a focus group with case managers.

8 We interviewed a range of key stakeholders including: Mind, Citizens Advice, Curo housing association, The Trussell Trust and Child Poverty Action Group.

9 We also undertook a broader stakeholder consultation through our website which was open to both stakeholder organisations and the public for submissions. We received 1,183 responses: 159 were from organisations and groups; 1,024 were from individuals. This was a self-selecting sample and not intended to be representative. We undertook a thematic analysis of the submissions and our findings are intended to represent the range and diversity of responses.

We assessed the Department’s approach to managing and improving the new claims process

10 We conducted document and file reviews of published and internal client documents, including programme board papers and minutes, departmental management information and documentation relating to Universal Credit system developments.

11 We analysed published and internal client data on payment timeliness, cost-effectiveness and fraud and error.

12 We conducted interviews with senior officials at the Department. We also drew on findings from our stakeholder interviews and consultation as set out in paragraph 8 above.

13 Our assessment on fraud and error included detailed analysis of its approach to managing income-related fraud and error using our fraud and error audit framework. This included document review, walk-throughs of controls and interviews with staff. Findings from that evaluation were agreed with and reported to senior management in June 2020 and also informed the Comptroller and Auditor General’s Report in the Department’s 2019-20 Annual Report and Accounts.24 The fraud and error audit framework evaluates whether the Department has:

a strategy in place, both at a high level and at individual benefit stream level, that demonstrates how the Department seeks to reduce fraud and error to a cost-effective level. This strategy should be supported by a robust governance structure;

a control environment that is well designed to tackle the key fraud and error risks the Department faces. These should encompass controls that seek to deter, prevent and detect fraud and error;

a control environment that is well implemented to ensure that controls are optimised in their use and are sufficiently resourced;

a robust measurement base for all key controls; and

an evaluative framework that enables the Department to understand whether progress is being made in reducing fraud and error and whether individual controls are proving effective.

We assessed how the Department is supporting claimants

14 We conducted a review of a sample of 26 Universal Credit cases which had been paid late. We used a purposive sampling approach, focusing our review on the most common payment blockers while also ensuring coverage across a range of payment blockers and claimant characteristics. For each case, we reviewed the claim history and journal in the digital Universal Credit system to understand the issues causing the late payment.

15 We reviewed findings from the Government Internal Audit Agency’s internal audit report on the Universal Credit first payment process. This included a sample review of 25 Universal Credit cases.

16 We reviewed findings from the Department’s internal sampling exercise, which reviewed 415 Universal Credit cases.

17 We reviewed documents and management information from the Help to Claim service, including the Department’s business case, interim evaluation and progress reports given to the Universal Credit Programme Board.

24 Department for Work and Pensions, Annual Report & Accounts for 2019–2020, Session 2019-20, HC 401, June 2020.

Appendix Three

Universal Credit programme update

1 Figure 15 sets out an update on the Universal Credit programme against the key metrics we used in our last report.25 The table gives the current position before the full impact of COVID-19 is known.

25 Comptroller and Auditor General, Rolling out Universal Credit, Session 2017–2019, HC 1123, National Audit Office, June 2018.

Appendix Four

Update against previous recommendations

Appendix Five

Stakeholder Consultation

Design and Production by NAO External Relations
DP Ref: 007696-001