Families should be able to ‘opt in’ to an online budgeting tool under the new Universal Credit, which allows them to determine the direction and frequency of benefit payments, according to a think tank.

The Social Market Foundation (SMF) report 'Sink or Swim' warns Universal Credit is at risk of “backfiring” and shows that the changes - including monthly payments and housing benefit paid to claimants in the social rented sector from next October - will leave many households struggling to cope.

Research it commissioned earlier this year, involving interviews with 30 low-income families in Oldham, Brighton and London, revealed that most opposed greater frequency payments and having their housing benefit paid directly.

In addition, it warned recently unemployed people could go for a month with no income at all under the move to fixed monthly assessments, and this could be even longer if employers struggle to meet the new reporting requirements. This, it warns, increases their chance of going into debt and could act as a deterrent for people to take temporary work.

Instead it proposes a budgeting portal – that would sit alongside the normal claims process for Universal Credit – allowing claimants to make changes to the way their benefit money is transferred before it hits their bank account.

The portal would not hold money, but individuals could make a series of "structured decisions" on how they receive their Universal Credit payment to help them budget and plan effectively, including identifying different components of the payments; determining frequency and direction i.e. housing rent or childcare fees to third parties; dividing up payment between household members and diverting cash into savings.

The portal would be an 'opt in' solution, says the SMF so claimants would by default receive their money monthly in a lump sum payment.

While the portal would be voluntary for most claimants, use of it could be required of families struggling with rent arrears, says the think tank.

The SMF argues that such a scheme would ensure that households engage with their finances and take active decisions on how they manage their money. It would also help them build the resilience to cope during the current economic downturn and financial shocks in the future.

"The Government's laudable aim that Universal Credit should prepare families for work, boost their resilience to financial shocks, and simplify the system is at risk of backfiring," said Dr Nigel Keohane, SMF deputy director and co-author of the report.

"Instead of mandating monthly payments and centrally planning which families to exempt, the Government should allow low income families to take the decision themselves through an online budgeting tool," continued Dr Keohane. "This would allow the reforms to work with the grain of wider government objectives like personal responsibility and increased financial capability rather than working against them as the current system seems set to do."