Universal Credit could trap people in poverty, new JRF report finds

A new report by the Joseph Rowntree Foundation (JRF) today suggests Universal Credit (UC) could see people worse off in work and struggling to manage their finances, with many left to deal with a more complex benefits system than before.

The research, by Inclusion and the University of Portsmouth, takes a first comprehensive look at what implementing UC reforms will mean for recipients facing one of the biggest reforms to the welfare system. UC will replace means-tested benefits and tax credits for people out of work or on low incomes from October 2013.

The report assessed how implementation would affect the three key objectives to be delivered by reform, and found: 

1) Work incentives

Making work pay is the key aim for UC, however the report finds many households are set to be worse off, or only marginally better off. While the new system does incentivise more people to take ‘mini-jobs’ (those less than 16 hours per week), it does not encourage the crucial next step into full-time work and help people move out of poverty. While UC makes things better for people who are currently facing a very high rate of effective tax, not everyone will benefit. Marginal increases in earnings alone are unlikely to be sufficient incentive to move into full-time work, with small financial gains likely to be wiped out by costs such as childcare and travel.

2) Simplification

Simplifying the benefits system is severely undermined by the localisation of Council Tax Benefit (CTB) and of Social Fund loans designed to help families in crisis. Separate means tests and eligibility rules for CTB and emergency assistance will create complexity and likely to be so aggressive as to leave some people worse off as their earnings rise. The knock on effect of UC on passported benefits (free school meals, free prescriptions) being withdrawn as earnings rise could create cliff-edges for those in work and reduce the financial gains of employment.

3) Improved delivery for claimants

The report raises serious concerns about a ‘one size fits all’ digital delivery system and around potential IT failures that could quickly lead to backlogs, poor service and complaints. There is little information on the ‘stand by’ arrangements to ensure claimants are paid: system failure could lead to financial hardship for significant numbers of people, with those affected having to rely on emergency help from councils and charities. The shift from fortnightly to monthly payment in arrears has raised concerns amongst families on low-incomes that they will run out of money before the end of each month. Recipients may have to borrow money to bridge the gap, leaving them to start their UC claim in debt. UC may create an unfair bias against women, with child-related support not necessarily reaching the children it is intended for. 

The introduction of tougher sanctions and in-work conditionality as part of UC must be fair and the report proposes an agreement between claimants and their Jobcentre Plus advisers rather than a one-sided commitment to DWP. This would outline the actions claimants should take to prepare or look for work, as well as providing a clear statement of the support they can expect in return. 

Julia Unwin, Chief Executive of JRF, said: “The principle of Universal Credit is sound, but our research has found the actual roll out could unintentionally trap people in poverty and hardship.  Universal Credit reforms are approaching at break-neck speed, so the DWP must show similar urgency to address the very serious concerns outlined in this report.” 

Chris Goulden, Head of Poverty at JRF, said: “It is self-defeating to encourage more people into part-time work, only for them to see their earnings wiped out when they progress into full-time jobs. If Universal Credit is to be successful in helping people out of poverty, it needs to ensure work is truly worthwhile and does not punish people who try boost their hours and income.”

Tony Wilson, Policy Director at Inclusion, added: “Successive governments have had chequered histories in delivering major benefit reforms.  In less than a year, we will start the biggest yet – affecting more than 10 million families nationwide. This report shows it is not too late to get it right.”

Dan Finn, Professor of Social Inclusion and report author, commented: “Greater attention must be given to the needs of service users and easily accessible channels for their voice to be heard. There is a case for a visible ombudsman for the benefits and employment services system who can respond quickly if complaints about service delivery reveal systemic flaws in the system.”

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