Why is the welfare system trapping young people in employment?

For Daniel, 2017 was a difficult year. He lost his job at a local butcher, was kicked out of his family home and slept rough for two days before moving into shared social accommodation with his partner.

Without any income, Daniel started a Universal Credit (UC) claim to cover his living costs and help tide him over until he could find a job. As the festive season approached, Daniel was happy to find a temporary retail role over the busy Christmas period to help boost his income.

He worked for two months in this job and took all the hours he was offered. In Daniel’s first month of work his UC payment remained the same. In the second month however, it decreased. In the third month, after Daniel’s contract had ended, he received no UC payment at all. As a result, Daniel was unable to pay all of his living costs and fell into rent arrears.

Why did Daniel encounter these issues? Wasn’t UC meant to simplify transitions in and out of work, and be responsive to monthly fluctuations in income, with payments increasing if an individual’s hours and earnings suddenly drop? In the Department for Work and Pensions (DWPs) guidance on Universal Credit, claimants are reassured that:

“Your claim continues when you start work, so you can take temporary or seasonal jobs without worrying about making a brand new claim or any gaps between paydays as you move in and out of work."

The most likely explanation is the timing of Daniel’s assessment period, which is used to calculate how much UC he is entitled to each month. UC is assessed and paid in arrears. It’s a single monthly payment, which takes into account an individual’s earnings and circumstances over the previous four weeks. An assessment period begins on the date an individual first starts their claim. As a result, these periods can stretch over two calendar months and may not always align with workers’ pay cycles. In Daniel’s case, it’s possible that he received his monthly pay a few days after the end of his monthly assessment period.

This would mean that his pay packet for the second month he was working fed into the assessment period for the subsequent month, when he was no longer employed. Over this period, HMRC data will have shown that Daniel earned enough money to take him off UC standard allowance, meaning he wasn’t entitled to any benefit.

Unfortunately, Daniel is not alone in experiencing financial difficulties caused by fluctuating benefit payments while working in ‘non-standard’ employment (e.g. zero-hours contracts, agency temping and work in the ‘gig’ economy), where regular hours of work are not guaranteed and can vary month-to-month.

Our recent report for the youth homelessness charity Centrepoint examined this issue among the groups they support. From speaking to service managers, we identified several individuals who had recently engaged in non-standard forms of work. We asked questions about their experiences in these roles and how it affected their personal finances.

For young people living in supported accommodation, their entitlement to Housing Benefit is paid direct to their landlord by the local authority. This helps young people manage their finances and ensures that their rent is paid month-to-month. We encountered cases where, due to a delay in notifying the council that they were working, young people had their Housing Benefit payment stopped entirely.

In one case a local authority determined that Shaun, who had been working as a self-employed taxi driver via an online platform, had been overpaid Housing Benefit since he started work and invoiced him for the full amount, which was more than £5,000.

Shaun was referred to a legal charity for help. They assessed that the decision to stop his Housing Benefit and the amount he had been billed was incorrect. Because of the fluctuating nature of his employment, Shaun could have periods where he was earning more than would entitle him to any Housing Benefit, although he also had months where he didn’t work and had no income.

Eventually, with legal support, Shaun had his Housing Benefit reinstated and the amount he was deemed to have been overpaid halved. The process of evidencing his income was protracted, however, and made difficult by the irregular and online nature of his work.

While in Shaun’s case a delay in notifying the council that he was working contributed towards some of the financial difficulties he experienced, providing the Jobcentre with early notification that they were working did not guarantee that young people avoided difficulties with their claim.

We also encountered cases where, contrary to DWP guidance, young people had their UC payment stopped upon informing the Jobcentre they had signed a zero-hours contract, despite initially not receiving any hours or earning any income. Again, this caused them to fall into rent arrears, which at the time of research they were still repaying.

Clearly young people with experience of homelessness and challenging life circumstances need to be protected from falling into cycles of debt like the ones described; the social welfare system should prevent against income insecurity, not enhance it.

Young people also need to be put in a position where being in work pays, and they are able to increase their income and savings, enabling them to find their own accommodation, move on from supported housing, and stop claiming benefits.

Our research recommends several ways in which the welfare system can better support young people to get to this point. This includes increasing their UC work allowance, allowing them to keep more of what they earn in employment, as well as reviewing the way that Housing Benefit interacts with UC for young people living in supported accommodation, who are subject to sharper reductions in Housing Benefit when they start to earn more.

As Daniel put it, “I’d love to have a job and get off benefits because I wouldn’t have to come to places like this [food bank]. I’d like to be able to buy my own food and have a decent house.”

Young people who have experienced homelessness should be enabled to achieve these modest goals, and shouldn’t be put at financial risk by a welfare system that does not respond well to non-standard forms of employment, which are commonly the easiest way for young people to earn money fast.