The government's proposed new universal credit scheme is 'heading for trouble', says a think-tank report. The scheme risks undermining its own goals by taking a 'sink or swim' approach to the challenge of benefits reform, and will leave many households struggling to cope.

The report is based on in-depth interviews and discussion groups with low-income households with children, focusing on budgeting and financial resilience.

Key points

• Most of the households had seen their financial circumstances deteriorate over the last five years, and many were very vulnerable. Most said their finances were a source of worry, and struggled to balance income and expenditure.
• Some aspects of the universal credit are likely to prove unhelpful for a significant number of claimants, and will require behavioural change if they are not to cause 'serious problems'.
• Most households surveyed said they opposed the idea of a monthly payment system. A significant minority were concerned it would make budgeting much more difficult and doubted their ability to cope.
• There was widespread opposition to paying housing benefit direct to tenants. Many were afraid they would be unable to manage their finances effectively and would overspend, leading to rental arrears, possible eviction and further indebtedness.
• In a small number of cases, considerable concern was registered over having a single recipient for universal credit in each household. In these cases, people warned of power imbalances within couples, and the potential for tension and for one partner having to struggle to get the resources they need.

The report's authors say the universal credit system can still meet the government's aims of encouraging personal responsibility, boosting households’ financial resilience, and simplifying the benefits and tax credits system. But they say progress on these aims will actually be set back without further measures. They propose a so-called ‘Budgeting Portal’ – an online budgeting tool allowing claimants make changes to the way their benefit money is transferred before it reaches their bank account. These changes could include identifying the different components of the payment, determining the frequency of the payment, redirecting payments to third parties, and dividing up the payment between household members at source.

Source: Nigel Keohane and Ryan Shorthouse, Sink or Swim? The Impact of the Universal Credit, Social Market Foundation
Links: Report | Social Market Foundation press release