Margaret Thatcher’s one time right-hand man in Scotland has chaired a damning report into the Tories flagship welfare reform policy.

Michael Forsyth, former Scottish Secretary under Mrs Thatcher, now Lord Forsyth of Drumlean, co-authored the report which says Universal Credit is failing millions of people.

The report found that Universal Credit is leading to a rise in rent arrears and dependence on food banks leading to “widespread poverty and hardship”.

Lord Forsyth said the benefit is too rigid and is harming the very people it was supposed to help.

He criticised the punitive sanctions policy and the five week wait for a first payment which the report said should be scrapped.

The Lords’ report said the UK has some of the most punitive sanctions in the world but little evidence they have any positive effect.

The House of Lords Economic Affairs committee said the government is using Universal Credit to claw back billions of pounds in debt from claimants and said the debt should be written off.

It called for a two week initial payment which does not need to be repaid to replace the advance payment which is putting people further into debt and poverty.

Lord Forsyth said: “Most people, including our Committee, broadly agree with the original aims and objectives of Universal Credit. However, in its current form it fails to provide a dependable safety net. It has led to an unprecedented number of people relying on foodbanks and not being able to pay their rent.

“The five-week wait for a first payment must be replaced by a non-repayable two-week grant to all claimants.

“The punitive nature of Universal Credit has not worked. It punishes the poorest by taking away their sole source of income for minor infractions. It needs rebalancing, with more carrot and less stick, particularly as large numbers of claimants will have ended up on it because of events completely out of their control.”

The report said that Tory cuts to social security is having a damaging effect and Universal Credit needs urgent investment just to catch up and provide claimants with adequate income.

It called for a temporary increase in the payments during the coronavirus crisis to be made permanent as the level of award is too low.

On sanctions which has been one of the most controversial features of Universal Credit and the benefits system, the report said they must only be as a last resort.

The committee said: “Removing people’s main source of support for extended periods risks pushing them further into poverty, indebtedness and reliance on foodbanks.

“There is a substantial body of evidence which shows that sanctions harm people’s mental health. ”

Will Quince, Welfare Minister, said: “The case for Universal Credit has never been stronger. The system defied its critics in unprecedented and unforeseeable circumstances, processing more than 3.2m new claims at pace since mid-March and paying more than a million advances worth hundreds of millions of pounds to those in urgent need within days.

“We remain committed to supporting the most vulnerable in society, which is why we currently spend over £95 billion a year on the benefits system. We’ve also increased the Universal Credit standard allowance by up to £1,040 a year, as part of a package of welfare measures worth over £9.3 billion.

“We welcome the acknowledgement that Universal Credit is here to stay and we will consider their recommendations in detail.”