Professor Jane Millar:

I thank the Chair and members for this opportunity to talk to the committee. I thought I would start with a little bit of a timeline. A version of universal credit was first proposed in 2009. The UK Green and White Papers were published in 2010, immediately following the election of that year. The legislation was passed in 2012 and implementation started in 2013. The plan was to fully implement the scheme by 2017 but that was hugely overoptimistic. It took until 2018 to end new claims to the legacy benefits and there are still around 1.5 million households to be moved over to universal credit. The timetable for completion is now the end of 2025. The first lesson is clear - such a major reform needed longer and more careful planning and more realistic timescales.

There is a lot that could be said about universal credit but I am going to focus specifically on the committee's interest in consolidating the different means tests. As the Chair just mentioned, universal credit brings together four benefits and two tax credits into one system. It also includes the means-tested contribution towards childcare. Much is being made of the simplicity of replacing six schemes with one scheme but actually few, if any, households would ever have been eligible for all six at the same time. It is not necessarily simpler from that point of view. It is very important to remember that these benefits and tax credits had different purposes. Some were the main or sole source of income, others were intended to meet specific costs and others were intended to top up low earnings. Designing one system that can meet all these aims accurately and in a timely way has proved to be very challenging in the universal credit system.

First, the aim of means testing is to identify people in need and with limited resources and to make a payment to meet that need. This requires decisions about how to measure income and resources, over what time period to make that measurement and over what time period to make payments. Universal credit is based on a monthly assessment period and paid monthly in arrears. This means that the first payment is not made until after the first monthly assessment period. This is a very long wait for people with no other income who would, in the past, have received income support or social assistance after about two weeks. Not surprisingly, this waiting period has proved particularly tough for many people, creating a lot of hardship and debt.

Second, universal credit is reassessed every month. The aim of this is to make the system responsive to changes in income and circumstances so that people can easily move into work or increase their earnings. This, in theory, creates a financial incentive to work or to work more. However, what it means in practice is that payments can fluctuate, sometimes by very large amounts from month to month, making it very hard for people to know what their income is going to be and to plan accordingly. It also means that people are subject to an ongoing means test and, therefore, to regular scrutiny and reporting. This can be experienced as very intrusive and undermine rather than promote independence. Security of income, as well as adequacy, is an important principle to inform benefit design. The balance between security and responsiveness seems to tilt too far to the latter in universal credit.

Third, any means-tested system runs into the problem of how to deal with overpayments and underpayments and how and when to adjust so that people pay back money if they have received too much according to their circumstances or have paid extra and have not received enough. The super-responsive means test in universal credit was intended to eliminate this problem, as universal credit would always track income and circumstances. However, this is almost impossible to achieve in a means-tested system. It relies on no errors in assessment, on accurate information and on timely reporting, which are very difficult to achieve in practice. Overpayments are running at about 12.5% in universal credit. Universal credit is very unforgiving when overpayments happen, including those due to official error, with the usual rule being full repayment and with no disregards to provide a cushion for claimants as there were in the tax credit system.

Fourth, one benefit means just one payment. This may not be helpful to those in receipt. One payment makes life more difficult if anything goes wrong. All eggs are in one basket, as it has sometimes been described. One payment can be more difficult to budget and stretch than several payments received at different intervals. One payment goes to one bank account and so may raise issues of equity between women and men within families. Universal credit can be split between partners if requested but not everyone has been able or willing to make such a request.

Finally, take-up is a long-established measure of the success of a means-tested benefit. Is the benefit reaching the eligible population and are they receiving the correct amount? One of the aims of universal credit was to increase take-up, the argument being that take-up would be higher with just one benefit to claim. There are, however, no published measures of take-up for universal credit and the complexity of the design makes it very difficult to identify the eligible population. Independent estimates suggest that about £7.5 billion to £8 billion of universal credit is unclaimed. Having no data on take-up is a serious weakness for the evaluation of how universal credit is working.

To sum up, means testing is a complex way to determine benefit eligibility compared with universal or insurance benefits. The fact that universal credit consolidates so much of the existing means-tested system, includes people in and out of work and seeks to fine-tune the amount they receive to their circumstances over very tight time periods is, arguably, the source of many of the problems. It has all meant a very lengthy implementation period and the complexity of the system has increased over time. In my view, any consolidation of means testing would be wise to be much less ambitious about what to include. A review of means testing that focuses on specific social assistance benefits, with careful design and testing, could perhaps avoid many of these problems. I thank the committee.