Universal credit – delays and the impact on divorced or divorcing couples

The BBC has reported that the Universal Credit (UC) rollout has been fraught with difficulties. The idea is that it will simplify an overcomplicated…

What is universal credit and why the delays?

The BBC has reported that the universal credit rollout has been fraught with difficulties. The idea is that it will simplify an overcomplicated benefits system by merging the following six benefit payments into one single payment and to provide an incentive for those reliant on benefits to work without losing out financially.

  • Income support
  • Jobseeker’s allowance
  • Employment and support allowance
  • Housing benefit
  • Child tax credit
  • Working tax credit

However, it has been reported that many claimants will suffer hardship as they stop receiving their current benefits and move onto universal credit, with the first payment being received some 35 days after applying. Many families have been forced to use food banks to plug the gap. It is thought some households will be worse off under the new system with around 3.2 million households losing more than £2,000 per year.

Panorama recently reported that thousands of claimants are not receiving what they should. The programme reported that some families were selling household possessions to plug the universal credit gap to meet their rent and council tax bills.

The government plans to spend hundreds of millions to plug the gap as evidenced by leaked documents seen by the BBC. For many who are struggling to cope, this will be welcome news.

Employment Minister, Alok Sharma, has said universal credit would be available in all job centres for new benefit claimants but for existing claimants, the move to universal credit will be slow and measured and will start in 2019. The government decided to start with a test group of 10,000 people to check the system worked before rolling it out nationally.

The system was originally expected to be up and running by April 2017 but it is thought it might take as long as December 2023. The government has said: "a slow and measured approach to managed migration is needed to ensure the system is working well for claimants and to make any necessary adaptations as we go".

So how will the government plug the gap?

In the documents obtained by the BBC the government appear to be suggesting the following two methods:

1. A two week runoff

To continue income support, employment and support allowance and jobseeker’s allowance for two weeks following a claim for universal credit. This happened with housing benefit last year amidst reports that tenants would be forced into rent arrears.

2. Giving advances

They are proposing claimants can request an advance to meet their outgoings whilst waiting for their first universal credit payment to arrive. The government will then take a deduction from their income to repay the advance.

The government have also suggested that more help will be given to self-employed claimants because of incorrect assumptions by the Department for Work and Pensions about their earnings. However, it is not clear at this stage what that help will look like practically.

Although the BBC report that within the leaked documentation the government has not offered an assurance that these proposals will prove to be deliverable in the future.

What about child tax credits?

The government have ruled out allowing claimants to receive a two week runoff (similar to point 1 above) for child tax credits after applying for universal credit because it would require the Department for Work and Pensions and Her Majesty’s Revenue and Customs departments to work together to deliver the change and they are concerned about creating additional difficulties.

This will not be music to the ears of many lone parents who rely on child tax credits to meet their basic outgoings. Clearly, additional reform is required but as the government have declined to comment on the leaked documents so we will have to wait and see what their plans are for the next stage of universal credit rollout including managed migration in due course.

What about the effect for already divorced, divorcing or separating couples?

There will be plenty of divorcing or already divorced spouses and early retirees who will not welcome the introduction of universal credit.

The new system will take into account an individual’s capital, such as savings. If savings total more than £16,000 a claimant will not be entitled to universal credit. However, there are certain types of ‘capital’ that are ignored for universal credit calculations such as personal possessions, business assets and the main home. Financial settlements negotiated on divorce will need to factor this in.

Likewise, negotiations for spousal maintenance payments on divorce also need careful consideration.

Under the current tax credit system, both spousal and child maintenance are disregarded when calculating entitlement. Child maintenance will continue to be disregarded for universal credit, but spousal maintenance (along with all other unearned income including pension income) will be deducted from your entitlement on a pound for pound basis. Many clients are negotiating settlements disregarding the impact of tax credits for this reason.
Likewise, if you are already divorced and in receipt of spousal maintenance, and anticipating a transition to universal credit, you need to consider whether you need to re-assess the current maintenance received from an ex spouse, and whether to ‘vary’ your arrangements. Legal advice could be crucial.

Should universal credit be scrapped?

Panorama has discovered that the government knew rent arrears caused by universal credit could be an issue. Professor Paul Hickman of Sheffield Hallam University was asked by the government to look into the progress of universal credit. His study found that 8% of tenants making 7 or more rent payments paid their rent in full. Professor Hickman feels that whilst the government listened to his concerns, they were so committed to rolling out universal credit that they were going to plough ahead regardless of what he said. Hickman believes it would be better for all concerned to scrap universal credit.

Linzi Perriman is a Solicitor in the family team at Weightmans.

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