The universal credit system is pushing poor tenants deeper into rent arrears and sending food bank referrals soaring, according to a study by two councils that have been guinea pigs for the new regime.

Southwark and Croydon councils in south London warned that without rapid changes the new system could have a devastating effect across the country as it is rolled out over the next few months, warning that arrears could reach “many hundreds of millions of pounds” and that tenants could face severe hardship. One food bank reported an increase in referrals of 97%.



The findings emerge amid reports that the government is considering changes to cut the minimum six-week waiting period universal credit claimants must wait before they receive a first payment. Ministers have been warned that the widespread evidence of hardship caused to many tenants by the 42-day wait risks turning the flagship welfare policy into a “new poll tax”.



The report examined rent accounts for 775 social housing tenants in the two boroughs who had moved on to universal credit between August and October 2016, comparing them with 249 rent accounts held by tenants who moved on to the older housing benefit system during the same period.

The study found that 36% of those moving on to universal credit failed to pay rent at all in the first week, and on average accrued arrears for each of the next 11 weeks. At this point arrears stabilised but were not fully paid off. At the end of the study period 406 of the 775 households on universal credit were in a worse financial position that at the start. On average, each universal credit tenant ran up arrears at a rate of 60p a day. Total arrears for this group rose by £89,000 over the period.

Southwark said that although just 12% of its social housing tenants were on universal credit, they have collectively built up £5.8m in rent arrears. The average universal credit household was £1,178 in arrears, compared with £8 in credit for the average council rent account across the borough.

The study found that by week 20 tenants in receipt of universal credit were on average £156 in arrears, while those on housing benefit were in credit. Universe credit tenants were far more likely than housing benefit claimants to fail to pay the full rent owed – more than a third underpaid rent by 75%.

The study found that long delays for universal credit payments was a key cause of stress, anxiety and depression for claimants. There was a common perception among claimants that the system was inflexible and challenging to navigate. Those tenants used to being paid weekly or fortnightly found it particularly difficult to move to a system of monthly payments.



“Participants in this research almost universally have experienced financial hardship as a result of transitioning onto universal credit, notably as a result of the significant delays to payment,” the study says.

Universal credit problems have also stretched local hardship services. As well as the local Pecan food bank reporting a 97% increase in referrals in the first three months of the year, Southwark council’s emergency support scheme handed out 34% more food parcels over the same period.

Fiona Colley, Southwark’s cabinet member for finance, modernisation and performance, said: “This report’s stark evidence is why we need to lead this debate; I implore the government to listen to how this is affecting the poorest and most vulnerable people in our borough, and the potential effects reverberating nationally.



“Universal credit, in its current form, has the potential to be catastrophic, not just for residents at an individual level, but for councils’ ... [budgets for housing].

“The arbitrary delay in receipt of money – particularly for those already in difficult situations such as temporary accommodation, could mean a spiral of debt, poverty and people not being able to afford to eat. I cannot think of a more compelling reason to push for change on this.”

Alison Butler, Croydon council’s deputy leader and cabinet member for homes, regeneration and planning, said: “This report underlines the major flaws in universal credit, which is placing more and more Croydon and Southwark families in rent arrears and at risk of losing their home. The government needs to fix this policy now or risk devastating thousands more people not only in Croydon but nationwide.”

The councils said more flexibility for tenants to arrange to have the housing benefit element of universal credit paid direct to the landlord would ease the transition period, along with shorter waiting times for a first payment to claimants.

Universal credit was designed to simplify the benefits system by bundling six existing entitlements, including unemployment benefit, housing benefit and working tax credit, into one. However, the long-delayed programme – it is currently five years behind schedule – has run into huge criticism as a result of huge cuts and administrative errors and complexity.

Labour, which supports the general principle of universal credit, is seeking a pause to the rollout so problems can be fixed. After the Labour leader, Jeremy Corbyn, raised the issue of claimants being charged 55p a minute when calling a helpline on a mobile phone, the work and pensions secretary, David Gauke, announced last week that this line would be made free.

Later that day the party inflicted a symbolic Commons defeat on the government with the passing of an opposition day motion calling for a pause in the rollout. It was passed by 299 votes to zero after government whips ordered Tory MPs to abstain.

A Department for Work and Pensions spokesman said: “This research into a small group of claimants was carried out over a year ago, now the vast majority of claimants receive their first universal credit on time and in full.

“The best way to help people pay their rent and to improve their lives is to support them into work, and under universal credit people are moving into work faster and staying in work longer than the old system. We also know that over time people adjust to managing monthly payments, and reduce their arrears.



“The majority of people are comfortable managing their money upfront but budgeting advice, upfront benefit advances and direct rent payments to landlords can be provided for those who need it.”

