Everything you need to know about universal credit

28 February 2020

Universal Credit is the new benefits system which aims to make welfare payments easier for claimants. But what was once billed as being more generous than the old system is now leaving many worse off than before.

Here's what you need to know about Universal Credit - and what we can do to ensure it serves those who need it most.

First things first: what is universal credit?

Universal credit is the new benefits system if you’re out of work or on a low income. It was introduced in 2013 as a way to simplify welfare payments, combining six benefits and tax credits into one single monthly payment. Housing benefit, income-related Employment and Support Allowance (ESA), income-based Job Seekers Allowance (JSA), Child Tax Credit and Income Support are now received as a monthly lump sum rather than weekly.

How does it work?

The payment is made up of a basic ‘standard allowance’ and extra payments that may apply to you depending on your circumstances. You could be entitled to extra payments if:

  • You look after one child or more
  • You need help with housing costs
  • You work and pay for childcare
  • You are disabled or have a health condition
  • You are a carer for a disabled person or have a disabled child

Plus, many claim Universal Credit to help cover rent. But this is where it starts to get complicated, particularly if you’re a young person renting from a private landlord: the amount of money you get for your rent is set at a rate called the Local Housing Allowance (LHA), and this amount will vary depending on where you live.  If you’re under 35, this rate is set at the amount needed to rent a room in a shared house in your area. If your rent costs more than what you’ll get under the Local Housing Allowance, you’ll have to make up the difference yourself.

There are some cases where you may be entitled to more than this rate – if you live with a partner, for example, or you’re over 25 and have spent time in a hostel or been in care. If you are renting from a social landlord, like a council or housing association, the amount of money you’ll get depends on the number of bedrooms you are entitled to. If your property has more bedrooms than you need, you may not have your full rent covered by Universal Credit and may have to cover the difference yourself.

So what’s the issue?

Ever since Universal Credit came to fruition, it has been heavily criticised and plagued by problems. Essentially, it’s failing to provide the service it’s supposed to.

The first major problem is that it takes at least five weeks for the payments to start, which leaves a lot of people destitute in the meantime. That means if you apply for Universal Credit on 1 January, you won’t get your first payment until 5 February at the very least. Obviously, many people who are applying for Universal Credit won’t have enough to keep them afloat for that amount of time, and so they can receive an advance on the first instalment of the benefit. This, however, isn’t free – it’s considered a loan, and is taken out of the claimant’s future benefit payments.


Such caveats to this new and ‘improved’ benefits system is putting a huge strain on those who need it the most. UK debt charity StepChange said that flaws in the design of Universal Credit – namely the five-week wait – is driving many to loans sharks in order to get cash for basics such as food, clothes and heating.

And those who are receiving Universal Credit are still in debt – only 6% of people told StepChange they always stayed on budget; 46% always ended the month in the red. More than one-third had resorted to food banks – in fact, the Trussell Trust found a 52% increase in foodbank use in areas that had Universal Credit for a year or more.

Plus, certain complications that can arise are not being adequately explained to its recipients – and plenty of Centrepoint residents have first-hand experience of this. Kai was given housing through Centrepoint and is a receiver of Universal Credit, but wasn’t aware how his employment would affect his benefits: “I didn’t know that I had to declare my work – I assumed that paying tax was declaring it. I hadn’t really worked before so I didn’t really know. I was overpaid on several occasions which I didn’t realise and that racked up to nearly a grand, which I now have to pay back. Then I’ve got to pay back the advance payments from the ridiculous five-week assessment period. I’m paying £66 per month for over payments. I haven’t got enough money to live on.”

The monthly payment can also prove problematic for people who have no experience of, or have trouble with, budgeting. One Centrepoint resident who regularly uses our weekly social supermarket, The Food Point, due to financial insecurity told us that getting Universal Credit at the beginning of the month makes budgeting for the month “really difficult”: “You have to make it last the whole month and midway through, you haven’t got enough money for food. I’ve also got dyscalculia [difficulty understanding mathematics], so I have real trouble with numbers and budgeting.”

And the new benefits system penalises people like Kai simply for being young – those under the age of 25 are entitled to less than four-fifths of the award that someone over 25 would receive, despite having many of the same needs. The amount of Universal Credit they receive means they end up unable to move on from homelessness hostels.

What effect does this have?

Universal Credit is supposed to help some of the most vulnerable people in the UK, and failings are not only detrimental but can be fatal, as Britain recently discovered. Errol Graham, a vulnerable 57-year-old grandfather, died of starvation in 2018 after the DWP (Department for Work and Pensions, who are responsible for the welfare policy) stopped paying his benefits. Graham, who had a long history of mental illness, had his benefits removed after failing to attend a fit-for-work test, which was deemed a “devastating stressor” that had been detrimental to his mental health and “may have contributed to his death”.

Unfortunately, Graham’s situation isn’t an isolated incident; just this week, Labour’s Debbie Abrahams spent almost three minutes reading out more than 20 names of people who had died after experiencing a multitude of issues with the benefits system.

While this might be an extreme of the issue, generally speaking it’s still pushing people to their limits. Kai told us that if he wasn’t receiving his Disability Living Allowance (DLA) he’s not sure where he’d be today. “I probably would have killed myself,” he said earnestly. “I just don’t have enough to live. People shouldn’t have to live like this, but this is what happens. The benefits system is against the people that are on benefits.”

In our 2018 report ‘Ready to Move On’, which assesses the barriers homeless young people face when accessing longer-term accommodation, we found that Universal Credit often hinders young people’s opportunities to find a home, with a particular ambivalence towards the benefit from private landlords, preventing young people from finding a landlord who is willing to let to them – in fact, just 19% of landlords said they’d be happy to let to someone who received Universal Credit.

The problem is, Universal Credit is an attempt at a blanket fix for something that doesn’t evaluate the nuances of those who need it the most. It is tough and unforgiving and prevents young people in particular from moving on with their lives. Centrepoint’s evaluation of the Youth Obligation, a support programme for young people on Universal Credit, found that the programme did not meet the needs of the most disadvantaged claimants. Of the 50 young people on the programme that we tracked, 40% dropped out and not because they had found a job – they simply dropped out because they were struggling with ongoing issues, such as poor mental health or homelessness, and the system was too rigid to give them the time and space they needed.

So, what can we do?

Since Universal Credit began, the total number of claims has reached 5.1 million. The number of people on Universal Credit in July 2019 was 2.3 million – a 5% increase from June 2019 and a whopping 123% increase from July 2018. As Universal Credit continues to become increasingly ubiquitous thanks to its slow and painful rollout, something needs to be done to make sure it actually serves the millions of people who are meant to benefit from it.

This isn’t a case of “if it ain’t broke, don’t fix it” – there’s no denying that the benefits system was flawed to start with. But the government has taken something that was broken into pieces and reduced it to dust. What was once billed as being more generous to claimants is now leaving many worse off than before: “We had a lad who ended up leaving here with over £1000 rent arrears, because of Universal Credit and how they assess them,” one Centrepoint service manager told us. “It throws a spanner in the works, and they end up leaving with that debt.”

It sounds like a huge task to change a nation-wide system – and it is. But on a micro level, there are certainly smaller steps that can be taken to improve it significantly. For example, we believe that giving tenants the option of having their benefits paid directly to their landlord would build up an element of trust between the two – something which 64% of landlords told us would change their mind on letting young people rent their property.

We need to recognise that Universal Credit is simply not working as it is. Our campaign, Chance to Move On, aims to give homeless young people the opportunity to find somewhere secure to live, calling on the government to ensure the welfare safety net, including Universal Credit, covers the real cost of renting locally. With a fairer deal, they could be better supported to live independently, which in turn would free up vital space in hostels for others in urgent need.

As part of our Chance to Move On campaign, there are a couple of things you can do to help, too: you can sign our petition that asks the government to ensure Universal Credit covers the actual cost of renting, or fill out this form and ask your local MP to help us in our fight to help young people move on and build themselves a future.


Read our report

If you would like to find out more about Universal Credit and housing, read our report Ready to Move On.