Universal Credit – is it working and will it do enough?

Yesterday the Government released a report stating that Universal Credit is working; helping more people into work and higher earnings.

By September 2015, nearly 175 000 people had made a claim for Universal Credit, out of the seven million expected to move on to it. By April 2016 the Government intends all Jobcentres to be operating Universal Credit, with all claimants due to be transferred by the end of 2017.

The underlying principles of Universal Credit have always been sound – integrating benefits, better supporting people who move in and out of work and removing arbitrary rules about how many hours people work. The Government is keen to ensure people are supported to stay in work and helping them to increase their earnings. This is central to reducing poverty. But is it accurate to say that Universal Credit is working so far?

The Government’s report makes two main claims:

  • 71% of new Universal Credit claimants are in work at some point in the first nine months of their claim, compared to 63% of Job Seekers Allowance claimants.
  • Universal Credit claimants on average earn more than JSA claimants.

The full report includes an independent review of the research by NIESR, (Annex B, p 71 – 77) which finds:

  • The difference in earnings between Universal Credit claimants and those on JSA is not statistically significant.
  • The DWP has worked hard to carefully match the Universal Credit and JSA claimants being compared, and the research shows that Universal Credit claimants are more likely to be in work than those on JSA. However, the gap could be less than 8% because of differences between the Universal Credit and JSA groups unrelated to which benefit they are getting.

The NIESR review also looks at the difference in the employment rate between JSA and Universal Credit claimants among those who are still in work after nine months (as opposed being in work at any time during that time). It finds that this difference is much smaller – only three percentage points. This suggests that much of the work people are getting is short term.

So, for the group affected so far, Universal Credit is increasing their chances of moving into work, but has no measurable effect on earnings. However, these are not the only issues which will affect whether UC works for the people who will use it.

Changes to Universal Credit in the Summer Budget, such as cuts to the work allowance, mean that many families will be much worse off once they move on to it, even with the new National Living Wage. The cuts to the work allowance may also affect the impact on employment for those moving onto Universal Credit. Analysis from the Resolution Foundation shows that changes to taxes and benefits are likely to leave an extra 300 000 children in poverty by 2020, rising to 600 000 once all the policies announced this year have taken place. Two thirds of the increase is among working households.

To make a real difference to peoples’ budgets, the welfare to work system needs to support people who are in employment to help them to stay in work and increase their earnings. The Government are moving in this direction, but there is much more they could do. JRF research sets out how the welfare to work system could be transformed to provide the support which could truly help to make Universal Credit a success, and save the Treasury billions of pounds, such as:

  • Focussing the whole system on increasing earnings to improve security and move people out of poverty for good.
  • Radically reforming the role of Jobcentre Plus to create local ‘support hubs’ which join up government and voluntary sector support and advice on benefits, housing, childcare and training.
  • Introducing support which is aimed specifically at helping those in work to keep their jobs and move to better ones or increase their work hours.
  • Employers, city leaders and central Government working together to make sure that economic growth creates new opportunities and high-quality jobs.

This blog was updated on 11 December 2015.