Universal Credit: Will benefit changes affect you?

The government's new flagship benefits system - universal credit - is causing "unacceptable hardship" for many of the claimants it was meant to help, a committee of MPs has said.

The universal credit system has been made less generous since it was announced eight years ago and there are concerns 3.2 million working families could lose £48 a week - about £2,500 a year - compared with the old system.

Work and Pensions Secretary Esther McVey has indicated there could be more cash announced for the welfare system in the Autumn Budget on Monday.

So will you be affected by the move to universal credit? And if so, by how much?

Universal credit is a single monthly payment for people on a low income or who are out of work. It replaces some of the benefits and tax credits you might be getting now.

Universal credit will replace these - referred to by the government as "legacy benefits":

While the system, first introduced in 2013, was supposed to be up and running by April 2017, it is now not expected to be fully operational until December 2023.

Currently being phased in across the UK, it aims to make the benefits system simpler and more flexible - so people who are able to work are rewarded for doing so.

However, it has been criticised for running over budget, causing delays to people's payments and in some cases making people worse off.

By June this year, 883,000 claimants were receiving universal credit. This is about 13% of the total caseload expected when all claimants are migrated from legacy benefits.

Birmingham, Croydon, Manchester, Southwark and Newcastle upon Tyne had the largest numbers of claimants at that point - between 14,000 and 33,000 in each area.

Esther McVey has admitted that some working families could lose £200 a month as a consequence of the introduction of universal credit.

But she said the most vulnerable would be protected, and people could take on more work to increase their income.

In reality, whether you will be better or worse off under the new system will depend on your family and household circumstances.

According to the Resolution Foundation think-tank, 2.2 million families are expected to gain under universal credit, with an average increase in income of £41 a week.

However, 3.2 million families are also expected to be worse off, with an average loss of £48 a week.

The Resolution Foundation's analysis suggests the net impact on couples with children will be broadly neutral. Slightly fewer couples with children will gain (one million) than lose (1.1 million). The average gain of £54 a week compares to an average loss of £53 a week.

However, the story for single parents is very different. Overall, they will lose by an average of £26 a week - but almost twice as many will lose (0.7 million) as will gain (0.4 million).

But even within these different groups of gainers and losers, there are a wide range of outcomes, the latest Resolution Foundation's analysis suggests.

The most common gains and losses for families will fall somewhere between £25 and £75 a week. For some, the gains or losses will exceed £100 a week, analysts say.

The following hypothetical case studies of families, produced by the Resolution Foundation, give an example of how very different the impact of universal credit could be for different families with differing work statuses.

In addition, whether families rent or own their own home will have an impact on whether they gain or lose.

Renters are far more likely than homeowners to gain, according to the Resolution Foundation. Of the total 3.2m losers, 2.5 are homeowners. Of the 2.2m gainers, 1.6m are renters.

Separate analysis by the Institute for Fiscal Studies conducted in 2016, found a similar pattern of winners and losers to the Resolution Foundation.

IFS researchers found that the winners, on average, would be single-earner couples with children. The losers, on average, would be everyone else.

Since the IFS analysis two years ago, universal credit has changed in certain ways not captured in their figures. However, researchers say the pattern of winners and losers remains broadly the same.

Another thing to bear in mind is that benefits related to children are also changing.

Under the old tax credits system, applicable in 2016-17, first-born children received £3,325 each year and subsequent children received £2,780.

But as of April 2017 this changed. Newborn first children stopped receiving a higher entitlement and newborn third and subsequent children stopped receiving any support at all.

Although this "two-child limit" imposed on tax credits is a change separate to the rollout of universal credit, universal credit will speed its implementation.

As of November this year, any new claimants for universal credit will not receive any support for third and subsequent children, regardless of how old the children are.

Because of these changes to child-related benefits, the IFS estimates that about 600,000 three-child families will lose an average of £2,500 a year, while about 300,000 families with four or more children will lose £7,000 on average. Most of those affected families are in work.

Claimants have experienced financial difficulties as a result of the move to the new system.

In the the Department for Work and Pensions' (DWP) own survey of full-service claimants, published in June this year, four in 10 said they were experiencing problems keeping up with bills and credit commitments.

A report by the House of Commons Public Accounts Committee, released on Friday, said universal credit was taking too long to pay people the money they needed and that the package of support to help them adjust was "not fit for purpose".

The National Audit Office (NAO), which oversees government spending and assessed universal credit's progress earlier this year, said vulnerable groups had struggled with the move to the new system for a number of reasons.

Claimants didn't have enough savings to last until their first payment was made, they had problems with monthly budgeting because of fluctuating universal credit payments, and they faced difficulties making and managing claims online, because of a lack of digital access and skills.

The NAO reported how in three of the four areas it visited and for which data was available, the use of foodbanks had increased more rapidly where universal credit's full service had been rolled out.

This corresponded with research by the Trussell Trust, which suggested upsurges of 30% in foodbank use in the six months after universal credit rolled out to an area, compared with 12% in non-universal credit areas.

The NAO also found that local authorities, housing associations and landlords had seen an increase in rent arrears since universal credit's introduction.

At one housing association looked at by the DWP, average rent arrears increased as claimants waited a month for their first payment. On average this started to plateau 10 to 12 weeks following a claim, when people started to repay their debts.

Responding to these issues, the DWP announced that from April 2018 those already on housing benefit would continue to receive their award for the first two weeks of their universal credit claim to ease the transition to the new system. It is not yet known what impact this has had.

This week, a group of single mothers also told the House of Commons Work and Pensions Committee how the new system was putting them at risk of debt because they had to pay childcare costs upfront and wait as long as six weeks to get reimbursed.

Vikki Waterman, 34, who has two young daughters, said she had to pay £1,300 for childcare before she returned to work, which the universal credit system took five weeks to repay.

"We want to be able to go to work and to provide for our own families, and at the minute it seems as if there is a roadblock everywhere we turn," she told MPs.

The government is facing growing calls from Conservative MPs - including the architect of the system Iain Duncan Smith - to scrap a promised income tax cut and instead pump more more money into universal credit.

Former Prime Minister John Major has likened the system to the hated poll tax - the policy that helped end Margaret Thatcher's time in Downing Street.

Lib Dem leader Sir Vince Cable, part of the coalition team that launched the welfare programme, has also argued that a £5bn cash injection is required to ensure the system reaches its original aims of encouraging more people into work and simplifying the system.

But the DWP insists universal credit is working and that people are moving into work faster and staying in work longer than under the old system.

It says the programme will increase the number of people in work by around 200,000 and bring in a £34bn return over 10 years.

However, the NAO said in its report that both these benefits were impossible to prove at this stage.

Prime Minister Theresa May defended the system in Parliament on Wednesday, saying there was £3.1bn set aside for additional support for people transitioning to the new system.

"We are not replicating the old system, because the old system did not work," she told MPs. "This is a system that helps people into work and makes sure work pays."

Esther McVey has reportedly raised concerns with ministers about funding ahead of the Budget next week.

Further information:

More details about universal credit can be found on the DWPs' Understanding universal credit website. There is also information aimed at claimants, landlords and employers.

Citizens Advice, which will receive government funding from April 2019 to support people claiming universal credit, also has background information about how to apply.