Government assurances that people would not lose out if they moved onto the Universal Credit system were misleading, MPs have said, revealing that many claimants have been left out of pocket by thousands of pounds.

Claimants on Universal Credit faced a sudden drop in income – an average loss of £59 a week, or around £3,000 a year – with no way back under the new system, the Commons Work and Pensions Committee found. 

The groups affected include families with a disabled child who stood to lose £30 a week – or £1,560 a year – while some disabled claimants faced a loss of £70 a month.

Universal Credit replaces six older “legacy” benefits with one monthly payment.

The committee said the Department for Work and Pensions (DWP) had repeatedly promised claimants would not lose financially when they move to UC through a process known as “managed migration” if their circumstances have not changed.

However, it said officials had done nothing to stop people being transferred prematurely, even if they lost out as a result.

DWP staff even described the situation as being akin to claimants being placed into a lobster trap, the committee’s report said.

The architect of Universal Credit, Lord Freud, admitted to MPs in 2013 that teams within the department had coined the crude phrase to describe those stuck within the new system.

“Rather vulgarly we call it ‘lobster pot’, which is a term that we probably should not have introduced,” Freud told the Work and Pensions Committee. “What that means is that once you get on to [Universal Credit], however your circumstances change, you stay on [Universal Credit].”

The committee said in a report on Tuesday: “Given how difficult it is to work out when a move to UC is required, it is little wonder that some claimants find themselves trapped in the department’s chillingly-named ‘lobster pot’, either by their own mistake or by following incorrect advice from the department’s own staff or other organisations.

“By the department’s own admission, this can leave claimants in some cases with substantial losses in income, unable to return to legacy benefits.

“While it is welcome that the department has said it will compensate claimants who move to UC following incorrect advice from its staff, this commitment does not go far enough.”

A DWP spokesperson said: “Universal Credit helps people into work faster than the old system and provides targeted support.

“Around one million disabled households will gain an average of £100 more a month, and changes to work allowances mean 2.4 million households will be up to £630 per year better off.”

Universal Credit: 5 persistent problems

The Commons Work and Pensions Committee said there were five problems with Universal Credit which need urgent fixes.

1). Overly complicated rules around when existing benefit claimants need to “naturally” move to the new system 

2). Disabled people offered better homes are often moved onto Universal Credit without a choice – leaving them with less money

3). A person who is bereaved and loses their partner is classed as having a change in circumstance – which means they must immediately claim Universal Credit 

4). Additional payments of income-related Jobseeker’s Allowance, Employment Support Allowance and Income Support to help those who migrate are not currently available due to IT issues

5). Thousands have been moved onto Universal Credit sooner than they needed to and have subsequently lost thousands in entitlements – without compensation

The committee also highlighted the “cruel effect” of the government’s policies on bereaved claimants who were immediately required to transfer to UC on the death of a partner.

“It is inconceivable that, at a time of considerable grief and distress, the department expects claimants who have just lost their partner to immediately claim UC and grapple with a process which by all accounts is often extremely complicated,” it said.

“We urge the department to show these people some compassion.”

Committee chairman Frank Field said: “In the history of humankind, has there ever been an example of a Government introducing a fundamental welfare reform and none of its employees being able to tell if it will leave people better or worse off?

“The UC application page needs to come with a health warning, and anyone who gets inadvertently caught in DWP’s lobster pot should be compensated.”