NAO: One in five legacy benefit claimants not receiving Universal Credit

One in five legacy benefit claimants have not transferred to Universal Credit after receiving notice to switch, much higher than initial estimates.

Implementing Universal Credit will cost £900 million more and take at least six years longer than the Department for Work & Pensions planned in 2018.

There is evidence that some people on Universal Credit are more likely to be in work than people on the old legacy benefits at least in the short term.

One in five people on Tax Credits who were invited to move to Universal Credit (UC) did not then claim UC and had their benefits stopped, according to a new report by the National Audit Office (NAO).

The coalition government proposed UC in 2010 to replace six means-tested benefits for working-age households.¹DWP estimates that once fully implemented, UC will achieve £10.4 billion of net benefits a year, mainly through increasing employment.

DWP has a clear plan to move around 900,000 households claiming legacy benefits to UC by December 2024, starting with Tax Credit claimants. DWP initially assumed that, overall, 3% of households claiming legacy benefits would not move to UC after receiving a migration notice.

By the end of December 2023, DWP had sent nearly 350,000 migration notices advising legacy benefit claimants they need to apply for UC if they want to continue receiving financial support. At this point, DWP had closed nearly 150,000 migration cases, with more than one in five (over 31,000) closed cases resulting in the claimant having their legacy benefits stopped and not moving to UC.²

In November 2023, DWP revised its migration plans as it found during its testing that take-up of UC by Tax Credit claimants was lower than for claimants of other legacy benefits. DWP now assumes that 26% of households claiming only Tax Credits will not switch to UC, with 4% of other legacy claimants not moving either.

DWP does not fully understand why some people on legacy benefits do not claim UC.³ It is monitoring the proportion of people who do not claim after receiving a migration notice and is reassured that the non-claim rate is not a cause for concern as it has received few complaints. However, DWP lacks data to be sure that people are claiming the benefits they are entitled to.

DWP expects implementing UC to cost £900 million more, and to be completed at least six years later, than it planned in its 2018 business case.⁴ The most significant delay to full implementation has resulted from the government’s decision at Autumn Statement 2022 to delay the move of income-related Employment and Support Allowance (ESA) claimants to UC until 2028.

DWP estimates that 51% of ESA claimants, who are likely to include some of the more vulnerable claimants due to switch, would have been better off on UC by £130 a month on average.⁵ The delay in moving ESA claimants was part of the government’s response to the significant economic challenges the country faced at the time and is expected to save £1 billion in benefit payments.

DWP has some evidence that UC is having a sustained positive impact on the jobs market.⁶ its studies show that people on UC are more likely to be in work six months after making their claim than people on legacy benefits. But DWP’s evaluations have

During the COVID-19 pandemic the number of people claiming UC grew rapidly, more than doubling from 2.9 million in February 2020 to 6.0 million in 2020-21. To cope with the rising volume of claims, DWP suspended some controls, so it was able to process cases quickly, online, and without face-to-face contact or with social distancing.

DWP’s response to the pandemic meant those in need received prompt support, which DWP concluded it would not have been able to provide under the legacy benefit system, although there was an increase in fraud and error.⁷

At December 2023, across Great Britain, 6.3 million people were claiming UC.

The NAO recommends that DWP enhances its evidence base on how effectively UC is working. The independent public spending watchdog also recommends that DWP continues the research and testing needed to develop a better understanding of why some legacy benefit claimants do not claim UC, and take prompt action to address barriers where necessary.

Gareth Davies, head of the NAO said: 

“DWP is on track in moving legacy benefit claimants to Universal Credit. But it needs to satisfy itself better those people who have not switched to Universal Credit are not at risk of financial hardship. 

“DWP’s work to evaluate the impact of Universal Credit on the labour market shows some sustained positive impact. However, it cannot demonstrate it is achieving the scale of the benefits expected at the outset.  

“The Department needs to continue to develop its assessment of the impact to provide assurance on value for money and learn lessons so it can secure the most value possible when Universal Credit is fully implemented.”

Notes to editors

1. The six benefits UC will replace are: Working Tax Credit, Child Tax Credit, Housing Benefit, Income Support, income-based Jobseeker's Allowance and income-related Employment and Support Allowance (ESA). Together, the six benefits replaced by UC are known as legacy benefits.

2. By the end of December 2023, DWP had sent 346,550 migration notices. Of the 148,700 closed cases, 31,500 (21%) resulted in the household having their legacy benefit stopped without moving to UC.

3. In 2022, DWP commissioned Ipsos, to conduct qualitative research with 30 claimants to understand their experiences and why some had not claimed UC. It identified real and perceived barriers to claiming UC, including where people believed that the migration notice did not apply to them, that they would not be eligible for UC due to a recent change in circumstances, or that they would be moved automatically.

4. In 2020, the NAO reported that DWP had forecast it would cost £2,850 million to implement UC, an increase of £834 million (41%) in cash terms compared with the 2018 full business case. DWP’s latest estimate, made in December 2023, is that implementation will cost £2,928 million, a further increase of £78 million (an additional 4% compared with the business case estimate). The cost rises are mainly due to inflation, new measures to address fraud and error, and extensions to the programme’s timetable.

5. DWP estimated that 41% of ESA claimants would be worse off on UC, by around £217 a month on average. In practice, DWP would have topped up the income of these claimants under its transitional protection arrangements which ensure that claimants are not worse off at the point of moving to UC.

6. DWP’s most recent evaluation, based on data from 2018, found that new UC claimants were two percentage points more likely to get a job at any point in the six months after starting their claim than new Jobseeker’s Allowance claimants.

7. DWP accepted that the increased volume of UC claims and the relaxing of some controls during the COVID-19 pandemic would lead to an increase in fraud and error. The proportion of UC overpaid by DWP was rising before the COVID-19 pandemic, from 5.5% (£90 million) in 2016-17 to 9.4% (£1.7 billion) in 2019-20. During the pandemic, the amount of UC overpaid rose to 14.7% (£5.9 billion) in 2021-22. The level of overpayments fell back in 2022-23, to 12.8% (£5.5 billion), but remains significantly above pre-pandemic levels. DWP's spring 2023 forecast suggested it would take until at least 2027-28 to reduce UC overpayments to below pre-pandemic levels, with the overpayment rate expected to have fallen to 9.3% by then.