What is Universal Credit (UC)?

Thursday 24 January 2019

The first in a mini series of blogs on Universal Credit (UC) What exactly is UC? Which beneefits does it affect and which does it not? When does it finally take over? Who claims it now and what happens to the many still getting one of the "legacy benefits? How does it also affect older people, despite being a mainly "working age change" ? Will there be any differences across the UK? And why is UC so keen to do things differently from other benefits?



Welcome to Part 1 of a series of blogs looking at Universal Credit (UC)

Universal Credit (UC) is gradually taking over from six "legacy benefits".  This is taking place over more than a decade, so the old benefits are still very relevant as both systems co-exist.  We are now at a stage where most new claims for means tested benefits from those usually of working age, will be for Universal Credit (UC)

However, the majority of people who will eventually claim UC, still currently claim the old "legacy benefits" and some people can still make new claims for those benefits. In  Part 2 we will look at the extra complications around when that people still claim the old benefits, how they might switch over to UC and why it makes such a difference. 

Benefits staff are still a little confused and over zealous in telling you you need to switch, even when you don't actually have to. And you could lose money if you made a wrong choice. So do read Part 2 and get advice before switching

It's been a bumpy and controversial ride: at first simply an issue of changing timetables, but over time significant issues have emerged around the wait for payments and how well prepared UC has been for the much wider range of people who now make claims.  Advisers will always moan about any new benefit, and there is always a period of initial chaos. 

However with UC, there has been a much wider range of concerns and the problems seem much harder to get sorted; the major reform has been said to be in need of some major reform of its own. Reading about the the ongoing problems and the campaigns to press hard for some change., may be causing you some anxiety. 

As may hearing the experiences of people who claimed UC earlier. However, the good news is that - sometimes willingly, sometimes less so UC is getting a bit better; the less good news is that it still has a way to go. Past worries and problems may no longer apply in the same way. 

Over these blogs, I hope to explain a bit more about how UC is meant to work and some of the pitfalls and suggestions if you find out that it doesn't in your case.  Here in Part 1, I start with what Universal Credit (UC) is? What is the latest timetable? And who does it affect? 


What exactly is Universal Credit (UC)?

Universal Credit (UC) mainly affects people of “working age” who are entitled to “means tested” financial support, because of  a low or perhaps temporarily reduced - income. UC takes over as both a general cash top up, -whether you are earning or not - and as the way of extra support for dependant children and to help pay the rent.  Some quick explanation of those two bits of jargon: 

  • “working age” means over 16 and below "pension age".  This became 65 for both men and women in December 2018 and is now slowly rising to 66 by October 2020, where it will stay for a bit.  The next phased increase will be between 2026 and 2028 when it will rise to 67. UC is mainly a working age change, but it will have some knock on effects for benefits in pension age and some older folk will be drawn into UC - see below.
  • “means tested” benefits are those which also involve an assessment of your other income and savings, on top of meeting the basic criteria for a benefit. So as meeting the tests for being accepted as e.g. an active jobseeker, too unwell to work, a carer, a pensioner etc - the amount you get will also be affected by an assessment of your other income and savings, and those of any partner. 

In fact, most benefits are  "non-means tested": you claim them as an indivdual, unnaffected by most other income and any savings. So never think you may not get any benefits, just because of income or savings, as you may well get non-means tested benefits. At the same time, don't rule out the means tested ones, as they can help at higher incomes than you might think. 


Which benefits are affected?

At its simplest, UC merges six of the most important means tested benefits and tax credits into one benefit. These six are often called  the “legacy benefits” by the Department of Work and Pensions (DWP),  as they will eventually disappear into UC, but not for a while yet. The six benefits involved are:

  • Income Support (IS) – e.g. for carers, some lone parents  and as the top-up benefit for those on Statutory Sick Pay
  • Income-related Employment and Support Allowance (Ir-ESA) – for those who are unwell and have limited or no capability for work e.g. after a cancer diagnosis or during and for a while after cancer treatments. ESA can carry on well into recovery and can be a stepping stone back into work as you can do some work while claiming ESA
  • Income-based Job Seeker’s Allowance (Ib-JSA)  – for the unemployed active jobseekers . People affected by cancer are more likely to claim ESA or IS , but JSA could apply if you have fully recovered, don't have too many "late effects" or limitations are full ready for work, but just don't happen to.
  • Working Tax Credit (WTC) – for those working, but on low – or perhaps temporarily reduced - incomes.  Tax credits worked rather differently from the three basic "safety net" benefits above and are much more aligned with the income tax way fo doing things. If you were getting it before you became unwell, you can carry on getting WTC for six months. If still unwell then ESA might be the one. In recovery though it might be back to WTC or making a claim for it for the first time as a real help when earnings might be lower as you build up towards previous hours and earnings. 
  • Child Tax Credit (CTC) –  this bridges the gap between traditional benefits and tax credits. CTC helped with the extra costs of children still at school or 6th form college. If you are not working and claiming one of the first three you automaticlly had the top rates of CTC. If you were workin and claiming WTC then CTC would be part of that claim and assessments would be in line with income tax rules. Most parents then could get some help from CTC - whether in work or not. 
  • Housing Benefit (HB) – for help paying the rent. Like CTC this can be paid whether you are in or out of work. If you had one of the first three on this list you also got the maximum help HB can give. If not HB would assess your income and savings and you might get full or partial help. With rents having risen in real terms, the majority of people getting HB are people in work getting Partial HB.  

When UC has completely taken over from these benefits,  there will be some 7.5 million claimants of UC covering some 12 million people. So UC may only affect be replacing six out of some  40 or more benefits, but they are some of the biggest benefits so UC will eventually affect a lot of people. 


Other means tested benefits and UC

There will still be some means tested benefits that will remain after UC has fully taken over:

  • Pension Credit (PC) is the much higher paying equivalent to the first three benefits on the list above for those over pension age, It is paid regardless of sickness, caring, working etc, although there are some extra amounts within PC for carers and some who are unweell. There is also no savings limit. Always chek out PC as around 40% of those entitled to it don't claim it
  • Council Tax Support - this is means tested help via your local council to help pay the council tax. It is quite different from say 25% discounts for people who live alone. CTS could cover the whole bill depending on other income and savings. You need to claim it seperately whether you come under legacy benefits, Pension Credit or Universal Credit
  • Help with health costs: Some is non means tested but others such as help with dental/optical charges or tracel to hospital is means tested. This carries on seperately
  • Social fund replacement schemes - these one off payments carry on. Some of this help still run as part of a national scheme, though now devolved in Scotland. Other help is more discrtionary and has been replaced by local schemes in England and seperate national ones in the other three nationsNot all means tested benefits will all


Non-means tested benefits and UC

All the "non-means tested" benefits carry on as before. These include important benefits for people affected by cancer such as Personal Independence Payment (PIP) or Carer's Allowance (CA). Any existing award is entirely unnaffected by UC , and new claims can be made just as before, and regardless of any income or savings that you may have.

However, two of these non means tested benefits remain but are affected by UCare That's because Employment and Support Allowance (ESA) - for those too unwell to work much - and Jobseeker's Allowance (JSA)  - for those fit and available for work - have both a non-means tested, contributory version which remains outside UC and an income related version that doesn't . The contributory versions are renamed as  "New Style" ESA and New-style JSA. The main difference is that they have lost their link with their means tested equivalents. 

It also led to a very confused attempt to merge the ESA claim process into UC one , which has now been finally sorted out. So you may only be interested in claiming New-style ESA because of savings or a partner's earnings stops you from getting means tested help. Or you may claim UC as a top up to your New Style ESA claim.



UC and people of “pension age”

The first three “legacy benefits” on the list above are exclusively claimed by people of working age. The equivalent for older people is Pension Credit (PC), and that is  not merging into Universal Credit.  UC then, is often talked about as a reform of "working age" benefits. But UC will affect older people in two ways:

  • the last three of the six benefits above are also claimed by people who have come of “pension age”, especially Housing Benefit. So, there will need to be changes within "pension age" benefits to allow thse to be abolished.
  • some couples are "mixed age" ones - where one partner has come of pension age and the other isn't. Here UC doesn't have to cause a change but the Government has chosen that it shoud. 


Knock on effects for all claiming "pension age" benefits

The plan is to abolish Housing benefit - that many people claim in pension age too and Child Tax Credit which some do. A few older people also claim Working Tax Credit. The replacements come as extra amounts within Pension Credit (PC):

  • Children. Some older people take over responsibility for grand children or young people still at college. From 1st February 2019, help with the costs will be by extra amounts within Pension Credit, rather than making a separate claim for  Child Tax Credit (CTC). If you are already getting CTC you will stay with that. The amounts are exactly th same, but some will notice a difference if they have some work and private pension income or savings. That's because CTC does not start tapering off until your income exceeds £16,105 a year, but PC starts tapering off at much lower levels and more steeply. Savings are also treated less generously
  • Help with rent - This will affect far more older people. At some point in the future, help with rent will be through a new "housing credit" within PC,  rather than a seperate claim for Housing Benefit (HB) . No date has been set, so for t for now everyone needing help with rent continues to claim HB. The new arrangements are likely to work in the same way - with the same financial impact - as now

Bringing these additional amounts into PC, means that the level of income you can have and still get some PC will also go up. You may not be entitled to PC right now, but you could be if and when these extra bits apply in your sums.  It is also true that many people are entitled right now but do not claim; around 40% of those entitled do not claim. PC goes higher up the income scale than you might think and there is no savings limit, so do check this out with a Benefits Advisor.


What’s happening for mixed age couples?

Under the old system there was a free choice for mixed age couples:

  • either the younger partner took the lead on  a joint claim for the relevant  "working age" benefits; or
  • the older partner started a joint claim for Pension Credit.

It did not matter too much - in cash terms - as  which you chose. An extra  “Pensioner Premium” closed the growing  gap between "working age" subsistence rates of benefits and the more liveable rates of Pension Credit. 

The big change is that -  from 15th May 2019 - that choice was removed for new claims. As PC could be backdated for 3 months, some were still able to claim up until 13th August 2019.  But now, a mixed age couple can no longer start a claim for Pension Credit (PC). Some will still be able to start a claim for a fairly similar "legacy benefit" instead. However, most will have to claim Universal Credit (UC) instead, which is not just the loss of the previous choice, but comes with real cuts in benefit compared to Pension Credit:  

  • UC does not have that  "pensioner element"  to close the gap, so all couples affected could lose up to lose up £140 a week. 
  • other UC changes in amounts for disability and carers - that we explain in later parts - mean that some couples affected by cancer could see that loss grow to as much as £260  a week .

If you were already claiming PC as a mixed age couple before May 2019, then you can stay with PC.  But you must be careful not to do anything to come off PC  - e.g. a tempting call to come in and cover at your old work. That nice little extra earnings for a few weeks, could turn into a longer term loss of income,  until your partner also comes of pension age. Get advice before doing anything or if you already have. In some circumstances you may still be able to get back to PC. 

If you are thinking of either becoming a mixed couple or are looking at seperating - do seek advice about the options and implications.



Where does UC fit in with the rest of the benefits system?

UC then is not quite universal. It eventually replaces just the six “legacy benefits” above – important as they are – out of some 40 different benefits. So it is a big change in what can already feel like a bit of a maze of a system. Is there a way to get a senses of how these different benefits fit together? And where does Universal Credit fit in? I often suggest thinking of your possible benefits entitlement as three steps: 

  • Step 1: "earnings replacement" benefits – these are the basic non-means tested benefits – often in return for past National Insurance contributions – that was the big idea of the "modern" social security system when it started from scratch in 1948.  You claim these individually and regardless of most other income or your savings. Important ones for people affected by cancer include: Contributory ESACarers Allowance and State Retirement Pension
  • Step 2:  Means-tested benefits. Originally retained as a small “safety net” for people not entitled to help under Step 1,  these have grown in importance over the years for a variety of reasons. You may then be entitled to help from Step 2  either instead of or as a top up to Step 1 benefits. Some act by offering a cash top to other income , while others help with specific costs such as rent, council tax and health costs. All claims are “means tested” and made jointly with any partner. It is here in Step 2 where the six “legacy benefits” lie and where UC is moving in to gradually replace them. 
  • Step 3: Extra non-means tested benefits. These  are paid on top of any Step 1 or 2 benefits or earnings from perhaps even full time work. They include “family benefits” such as Child Benefit or Bereavement Support Payment. And "disability benefits" – such as Personal Independence Payment (PIP) or Attendance Allowance (AA) focus on help with the extra costs of living with a long term illness or disability. 
  • A final step after any award of a disability benefit is to check back for any extra positive effects back at earler steps after an award of any disability benefit at Step 3 . It can mean a carer can now claim Carers Allowance at Step 1 while extra amounts may be added in to "legacy benefits" and Pension Credit at Step 2 , but sadly less so with Universal Credit (UC) 


So how might those steps apply to people affected by cancer? 

In general, the mix for someone of working age who has received a cancer diagnosis might include:

  • Step 1 - Contributory ESA - unchanged except new claims will usually be for a new style version 
  • Step 2 - Income related ESA (instead of or as a top up to C -ESA ) or Working Tax Credit (if in work) . On top of these , Housing Benefit for rent, Child Tax Credit (if children) . All of these would be within Universal Credit  (UCI under the new system . Still seperate claims though for Council tax support, possibly health costs and the different Social Fund replacement schemes. 
  • Step 3 - Personal Independence Payment (PIP) as an extra disability benefit) , Child Benefit (if children) 

Some then will be directly related to cancer; unwellness for work or PIP for extra costs in or out of work. Others will be related to general circumstances : do you have rent to pay or children to feed?

Below are some different examples in relation to where UC might fit into their benefits:

  • Ali’s partner, Bethan, is working in a well-paid job. As was he, before his cancer diagnosis. He can claim Contributory ESA from Step 1 and Personal Independence Payment (PIP) from Step 3,  regardless of any work sick pay he gets, Bethan’s earnings or their joint savings. But their joint income, while reduced from time out from earning, might stop any claims at Step 2. However, but always double-check this with an Advisor. If so, then UC does not affect this couple, except for some knock on effects in the process for claiming Contributory ESA. 
  • Chris is single and was in low paid work before she became unwell. She can also claim Contributory ESA from Step 1 because of having "limited capability"  in relation to work (due to sickness) and PIP from Step 3 (to help with extra costs whether working or not). However, her low income overall (with PIP not being counted in the sums),  means that she may also get help from Step 2. In the past, this might have been mainly as a cash top up from Income-related ESA, along with Housing Benefit (to help pay the rent). But for a new claim, this help will usually be via a claim for Universal Credit. However, just as before, Chris still needs to claim separately for council tax support and may need to do so for help with health costs.
  • Darren and Erin are a couple planning retirement. Darren has claimed his Retirement Pension from Step 1,  but Erin has another three years to go. Darren becomes unwell with a cancer diagnosis and can claim Attendance Allowance from Step 3.  Erin decides to cut work right down and claims Carer’s Allowance from Step 1.  Until 15th May 2019, the couple could have  claimed  Pension Credit based on Darren’s age from Step 2. Since then, they have to claim UC based on Erin’s age, until Erin also comes of pension age. The couple lose out by up to £140 a week, but could face a bigger loss in some circumstances. 



Key variations in Scotland and Northern Ireland:

UC is a UK-wide benefit. However, under pressure, the Government has been willing to allow devolved Governments in Scotland and N. Ireland to have control of some aspects of UC. 


Payment arrangements

In Scotland

After your first payment, this means that it is entirely up to you, as to whether:

  • you want help for rent to be paid directly to your landlord or to you; and 
  • you prefer future payments to be monthly or twice monthly


In N.Ireland,

Here, the default setting is that you will receive payments - after the first one - twice monthly with rent direct to the landlord,  but you can choose to go monthly and receive that help with your rent yourself. 


In England and Wales - 

the difference is that the original UC plans apply. This means that "alternative payment arrangements (APAs)" are not a simple free choice for you. They are only granted at the discretion of UC for a temporary period, if they are satisfied that you can't manage with the default arrangement of a single, all in, monthly payment.


Split payments

There is another APA, that is changing - where payments can be split between partners . At present this is only in exceptional circumstances at the DWP's discretion. Both Scotland and N.Ireland are looking to make this purely a matter of choice, as soon as the necessary powers are transferred over. There is some consideration over whether to make that option available across the UK.


Other differences:

  • Scotland only will also have powers concerning the bit of UC that helps with the rent. This will mean the abolition of the "bedroom tax" in Scotland. It also has powers to make some extra payments which will be ignored as income in Scotland.
  • N.Ireland has a number of "welfare supplements" to mitigate some of the losses in change overs - mainly as a result of the switch from "working age" DLA to PIP.  Again these will be ignored in the UC sums. 

Note:  Across the UK, you can currently seek a Discretionary Housing Payment (DHP) from your local council for bedroom tax and other shortfalls between the rent you actually pay and the maximum that either UC or the old Housing Benefit can help with. In Scotland,  you will almost certainly get a DHP one to help with any "bedroom tax", with the Scottish Government topping up the local pot accordingly



More than just a merger


Why doe UC want to be so different?

UC aims to be far more than just a merger, which still makes a big difference: 

  • the potential for a simpler system: no need to claim several benefits nor switch benefits as circumstances change. And a chance to avoid different sets of rules that cause odd things at the point when different benefits meet.
  • the challenge would simply be to join up those dots effectively and not lose on the advantages that each separate benefit can offer in addressing different people's needs. 

UC's has a much bigger ambition, centred on being much more flexible and successful in helping people make the journey from “welfare into work” .  A lot of the focus and early experience of UC has been around unemployed people making an easier switch into work. The ways the old "out of work" benefits worked is seen as very different from the way you run your finances in work. And there was a big difference between the ways out of work and inwork benefits support works. Both were seen as a big barrier to trying a job especially a short term one - because of all the hassle of switching.

And that is what lies behind UC doing things -for better or worse - very differently from other benefits. That focus on the jobseeker journey was reinforced by the fact that for its first 4 years, UC has been a benefit that was only open to new claims from fit and active jobseekers. By 2017, nearly 60% of UC claimants were jobseekers and nearly 40% had found work and stayed with UC. The missing 2% or so were people who had started off as jobseekers but who then became unwell or carers. 

The challenge UC now faces is to deal with a much broader range of claimants with rather different needs. Long term, the overwhelming majority of people claiming UC - some 84% will be people not required to look for work at all, either because they are too unwell or carers or are in work already. They need a benefit that offers effective handling of claims for sickness and caring for now or gives reliable andpredictable support in work. The focus on the journey from unempoyment into work may be less important. 

Some people really like new way of doing things, regardless of what brought them to UC. Others  are finding some of its aspects less helpful and supportive than they could be, as UC plays catch up with reliably addministering sickness benefits or not causing fluctuations in incomes in work. If you are feeling a bit confused and uncertain,  the last thing you need may be a benefit that can sometimes feel the same. 

But in getting to grips with UC and its different ways it can be helpful to understand that it all comes from a desire to make UC feel much more like the world of work 


How does UC work differently?

The key idea is to make claiming UC feel more like the world of work, which is why UC does things  very differently from other benefits:

  • a much greater emphasis on claimant responsibility – in making your claim, reporting changes, responding to queries quickly, staying actively involved to keep your claim going and in keeping up with any “work conditionality” required
  • different culture and practise aimed at reducing what was seen as low level general support for claimants, to encourage people to take a more work like and independent approach to their finances. Any support or adaptions from UC's less supportive usual processes, are meant to focus on those that who might really struggle. There was a system of Universal Support alongside Alternative Pay Arrangements - both were meant to be short term to build you up to a return to the mainstream ways. However Universal Support has now been replaced with Help to claim which will help you make that UC claim, but after that you would need to seek out a Benefits Advisor or support worker.
  • Online claims – by default – and an ongoing online account for keeping your claim going. UC support focuses first on overcoming any barriers to dealing with UC online, as developing these skills is seen not just as making your UC claim easier to manage, but also improving your employability. In exceptional circumstances, there is provision for telephone claims.
  • A single monthly payment to the household including amounts for children and the rent. This replicates/ tops up the monthly wage,  and it is your responsibility to learn to budget accordingly and understand why UC amounts can vary from month to month. This can be a real problem in families where one partner has difficulties handling money or where there is financial abuse. 
  • A simplified monthly assessment period that determines the amounts of UC you might qualify for - based on your circumstances as they apply at the last day of that month and based on the income you received during that month. This can lead to variations based on when UC applies changes due to changing circumstances and how UC deals with your income. Even on a regular wage, your pay days may mean that one month UC will count you as having more money than another. If there is a delay in when HMRC record you as having been paid, you might be counted as having no money one month and two lots of pay another. If you are self employed, income is very likely to vary hugely anyway. The big difference then is tax credits stayed fairly stable, based on last years taxable income, but could adjust. UC payments will fluctuate much more - a positive in that it can react more to quickly to a "bad month" or two but not so good if that steady tax credit payment was a reliable part of your budgeting. i



Coming in Part 2

In Part 2 of this blog,  we will look at the timetable for UC, who can still claim legacy benefits, and when those currently getting  “legacy benefits” over to UC, the two ways of doing so and why it could make rather a big difference. We will also look at how you claim UC (whether you are new to benefits or switching over) and how UC decides if you have limited capability for work when unwell or if you count as a carer.



Links and Further reading


Other parts in this series:

UC 2 - Switching to UC

UC 3 - How to claim UC and New-style ESA

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