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The financial shock ‘double whammy’

Published: 17 Apr 2020

The Universal Credit system is leaving many parents who have lost their jobs due to COVID-19 worse off. This needs to change. 

By Julia Waltham, Joint Head of Policy and Influencing and Will Hadwen, Legal Adviser

If you’re working and on a low income, you may be claiming working tax credit to help with living costs. It’s the government’s intention that tax credit claimants will eventually be moved across to Universal Credit (UC) during the ‘managed migration’ phase of its rollout. These claimants will receive transitional protection, to ensure they don’t lose out on financial support.

But what if you’ve experienced a change of circumstance? What if, say, a global pandemic meant your job disappeared overnight? Since the onset of COVID-19 we estimate that the number of people getting in touch with our Legal Advice Service has more than quadrupled compared to previous months, almost overnight. Every day we’re hearing from working parents and carers left without a job or with a severe reduction in income even if they are still employed or self-employed, due to the coronavirus.

Very often these parents and carers will make a new claim for UC. And because they’re moving on to the scheme themselves, due to a change in their circumstances, they won’t get any of the transitional protection people moved across by the government will eventually receive. All too often they are discovering they are worse off, or soon will be.

This is partly because UC is less generous in the way it interacts with earnings than tax credits – but it can also be due to the benefit cap in UC, which tries to ensure no one is better off on benefits than they are working – but which in reality, penalises parents and carers because it is more difficult for them to work because of their caring responsibilities. It’s now forcing parents and carers who have lost their jobs due to COVID-19 to live on very little.

But by the time they’ve realised they will be worse off it’s too late – there isn’t an option to return to legacy benefits, including to tax credits, from UC.

Of course, this was a problem for parents and carers before. But it’s a bigger problem now. Nearly a million new UC claims have been made in just a fortnight. The numbers discovering they are worse off are likely to be far higher, especially once they are earning again – a triple whammy given the financial shock they’ve already had.

That’s why we’re calling for the government to temporarily allow parents and carers previously claiming tax credits, who have switched to UC since 28 February, to be allowed to return to them.

Safina, a key worker with a vulnerable disabled child, recently got in touch. She needs to be at home and started claiming UC to help with the rent, as she is no longer earning, and tax credits don’t include any help with housing costs. She is not affected by the benefit cap, but she will still end up worse off, particularly once she starts earning again, because UC provides less support for most disabled children.  She would benefit from being able to return to tax credits once she is working.

Then there’s Ruby, a single parent. She started working under a year ago but was forced to leave work because she had to be at home after school and childcare settings closed. She got in touch because she now gets less money in UC because she is treated as not working and is subject to the benefit cap, which has removed any advantage from the increase in the UC standard allowance recently announced by the Chancellor.

Many parents and carers start claiming UC during this crisis, particularly if they aren’t working. As well as calling for them to be able to return to tax credits – either when they get their first UC payment, or later when they are earning again and realise they would have got more had they stayed on tax credits – we’re joining organisations like the Child Poverty Action Group and calling for the benefits cap to be suspended during this crisis. This is because it is based on the premise that everyone has access to a job and could work if they wanted to. That this isn’t true has never been more obvious.

The simple measures we’re suggesting would, of course, be temporary. But it’s likely the economy will take some time to recover and employment to return to pre-COVID-19 levels, and they should be kept under review. Unless the government acts, many parents and carers turning to Universal Credit be worse off in the long run, particularly when they start working again. Their incomes need to be future-proofed. We’re all in this for the long-haul.


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