Some 18% of people in working-age households in the bottom quintile (1.1 million) have more than £16,000 of savings. This would mean they are not eligible for Universal Credit (UC), and they would be expected to use their savings to get them through a period of low income. If their circ*mstances do not change, they would potentially become eligible for UC as they run down their savings. But in the short term this group has assets to draw on to help them with the cost of living. In addition to their savings, they also appear to have high levels of net wealth (wealth from pensions, property and material belongings such as cars, minus outstanding debts and mortgages).
Potentially more of a concern is the 23% of people in low-income households with lower or no savings who are not claiming means-tested benefits (1.6 million). While this group has higher net wealth than those who receive means-tested benefits, their level of wealth is well below the average for all households.
There are a number of reasons why these low-income, low-savings households may not be eligible for means-tested benefits, some of which will overlap:
Low earnings: among the low-income, low-savings group not on means-tested benefits, 46% (700,000) are employees. While working people can claim UC, people without children become ineligible at relatively low levels of earnings. A single person with no children and an income of £12,000 or a couple with no children and an income of £18,000 would be in the bottom quintile. Even earning these low amounts, these childless households would not be eligible for UC if they are not receiving help with housing costs – typically this will be working households with a mortgage or people who do not pay rent, for example because they live with family. The inadequacy of the basic rate of benefits for adults (the Standard Allowance in UC), which has hit a 40-year low in real terms, is key here. A higher rate would see support last longer when people move into work and their UC is tapered away as their earnings rise. A family with children and an equivalent level of earnings could still receive UC at these low earning levels as the system is more generous toward households with children.
Self-employed: among the low-income, low-savings and not on means-tested benefits group, 14% of people are self-employed (200,000). While low-income self-employed people can claim UC, there are two scenarios where they might be ineligible.
The first relates to the design of Universal Credit. After a one year ‘start up’ period to establish a business, a self-employed UC recipient who is deemed capable of work and has no caring responsibilities will usually be assumed to be earning the equivalent of 35 hours on the minimum wage, whether they are or not. This is known as the Minimum Income Floor. For a single person without children and no eligible housing costs, they are assumed to earn enough to no longer be in receipt of UC. Assumptions about earnings that are divorced from reality leaves some low-income self-employed people at high risk of hardship.
The second scenario relates to the volatility of self-employed earnings. Because social surveys are only ever a snapshot of someone’s income at a point in time, when a good year follows a bad year, people’s circ*mstances may appear worse than they are in the survey results because of the way the data is collected. Unfortunately, we cannot easily quantify these different groups.
Students: most students are not able to claim means-tested benefits, although some exceptions are made, for example for students who are estranged from their parents or who are parents themselves. Students make up 7% of the low-income, low-savings and not on means-tested benefits group (100,000).
People with no recourse to public funds: when people come to the UK to work, study or join family they will often have ‘no recourse to public funds’ (NRPF) as a condition of their visa. This means they are unable to claim means-tested benefits. Asylum seekers or irregular migrants (such as people who have overstayed a visa) also have NRPF. Not being able to produce requested documentation – for example as happened to many of the victims of the Windrush scandal – can also result in people having no recourse to public funds in practice, when in fact they should be eligible.
The size and circ*mstances of the group of people with NRPF is difficult to estimate, and many with a visa to work in the UK will be high earners. Nonetheless, where people are on a low income, or their circ*mstances change (for example they’re made redundant, break up with their partner or need to flee a violent relationship), having NRPF results in a high risk of deprivation. A recent LSE study focusing just on people with visas to work or join family, estimated there are 362,000 households in this situation 22,000 of whom would be eligible for UC if they could claim it (Benton et al, 2022).[ii]
(2) People who are not receiving benefits they are entitled to
Of course, there are also people not claiming benefits despite being entitled to them. Take-up appears low for some benefits and is unknown for others. It tends to vary with income and the size of the award, with take-up higher where earnings are lower (or no earnings) and where people are entitled to a larger amount.
There is a range of reasons people don’t claim what they’re entitled to. These include not being aware of entitlement, the stigma attached to claiming benefits, complex application processes, a lack of support to navigate them, and bad experiences of assessment processes and benefit administration putting people off. It is certain that some of our group with low income, low savings and not on means-tested benefit will be entitled, but it is hard to estimate the exact size of this group.
Frustratingly, despite increasing take-up being one of the expected benefits of introducing Universal Credit, no take-up data for Universal Credit is currently published. The table below sets out the most recent estimates of take-up of other means-tested benefits from the DWP and HMRC.
| Year | Benefit | Take up rate |
|---|---|---|
| 2019/20 | Pension Credit | 66% |
| 2019/20 | Housing Benefit (pensioner households only) | 84% |
| 2018/19 | Housing Benefit (all households) | 81% |
| 2018/19 | Income Support and income related Employment and Support Allowance | 90% |
| 2017/18 | Child Tax Credit | 84% |
| 2017/18 | Working Tax Credit | 67% |
| 2016/17 | Jobseekers Allowance (Income-based) | 56% |
However, take-up at least for tax credits is likely to be higher than these figures indicate, as the method for calculating these estimates has been called into question. This is because social surveys are used to make the calculation, and they substantially under-report benefit income (Bangham and Corlett, 2018; Corlett, 2020). The DWP has been taking steps to improve this by matching people’s reported income to administrative data. This is welcome, but without the DWP completing this work and producing some statistics on the take-up of UC, it is hard to judge how big this problem is.
The proportion of households in poverty claiming means-tested benefits appears to be falling fast
Focusing in on working-age households in poverty (less than 60% of median income, after housing costs, with no pensioners in the household), it is deeply concerning to see the proportion of households in poverty and in receipt of means-tested benefits appearing to steeply decline in recent years. Means-tested benefits should be there to support people through hard times, but this trend implies more people who need help are missing out.
Figure 2: Households in poverty reporting receipt of means-tested benefits or tax credits
