U.K. research reveals Universal Credit hurdles

In the wake of the U.K. government's decision to postpone implementation of its controversial Universal Credit (UC) welfare reform, a U.K. financial institution association released research that supports claims that a sizable population of welfare recipients are not presently equipped to handle the financial responsibilities that the reform imposes on them.

The Department for Work and Pensions, the agency in charge of the U.K.'s welfare and pension system, set Oct. 1, 2013, as the start date for UC. But the agency abandoned the idea and instead opted to pilot the program in a few English towns and then expand to other cities, including London, by the spring of 2014.

In the meantime, research from the European Payments Council said that nearly half of all U.K. government benefit recipients (20.3 million families according to The Guardian) have not thought about how they will budget the lump sum of funds they receive monthly from the government.

UC is designed to consolidate into single monthly payments the various forms of government assistance presently provided to recipients on a weekly or bimonthly basis. The program is also designed to shift the money management for those payments from the government to recipients.

"One in every two people who are eligible for Universal Credit think that the change will make it more difficult to manage their money, with common concerns including running into or increasing debt, and struggling to pay bills or rent on time," the EPC said.

Many U.K. welfare recipients have never held jobs or budgeted their personal finances, and have instead relied on the government to handle rent and utility payments for them. The research corroborated an earlier study from the Citizens Advice Bureau about the lack of financial education and budgeting skills among this welfare receiving population.

Over a third of U.K. adults don't know the monthly totals of their household bills, including rent, while a quarter of adults admitted not knowing when money was scheduled to be deposited to or debited from accounts, according to the research.

Worries, worries

The council's research was based on a survey of 6,097 adults in Great Britain conducted between Aug. 28 and Sept. 5, 2013. Of the 1,568 survey recipients who will be receiving UC, 48 percent are worried that a monthly payment will make it harder for them to budget and manage their finances. The council cited DWP research that estimated there were 5.7 million U.K. benefit claimants as of February 2013, which makes the 48 percent mentioned above work out to 2.73 million troubled claimants.

Additionally, the council found that, of future UC claimants, 45 percent worry they will run into debt or a greater level of debt because of the changes, and 47 percent are concerned they will struggle to pay bills and rent on time.

The council also found that, of the U.K. population:

• 65 percent don't know how much interest they pay on credit or store cards
• 33 percent don't know what their overdraft limit is
• 30 percent don't know the difference between a direct debit and a standing order
• 23 percent don't know how to cancel or change a direct debit

Credit union solution

Angela Clements, Chief Executive Officer of Citysave Credit Union Ltd., believes that the UC controversy is a larger issue than the EPC research suggests. "Many of those affected have either been unable to access traditional bank accounts or have opted against them due to the penal charging structure," she said. "Credit unions, like Citysave, are working hard to provide e-money alternatives ahead of the Universal Credit rollout."

Clements noted that Citysave is working with London-based prepaid card program manager Contis Group LLC to provide customers with the credEcardplus digital wallet, which is tied to an optional Visa Inc.-branded prepaid card.

CredEcardplus allows cardholders to set up individual buckets for recurring bill payments to individual billers, with the prepaid card used as a separate bucket for day-to-day spending. The e-wallet thus automatically segregates welfare payments. Contis Group also offers a 4 percent cash back reward feature on its program.

"We see [credEcardplus] as fundamental to our work in serving the community in Birmingham," Clements said. "It is already helping us to stabilize members' household finances, resulting in the healthy uptake of more conventional savings and loan products."

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