Universal Credit needs reform to unlock families from in-work poverty

The Government can boost the budgets of low-income working families and loosen the grip of poverty by increasing Universal Credit work allowances to their original levels, says Katie Schmuecker.

A parent caring for children is not expected to work full-time until their youngest child is 13 under the rules of the benefit system. Yet 2 million children are locked in poverty despite their parents following the rules and doing what is expected of them. We need to redesign Universal Credit for working families so that when they earn more they keep more of their earnings – providing a strong foundation for them to build a better life. This would help right the wrong of in-work poverty and would be popular with the public.

The rising tide of in-work poverty among families

The injustice of in-work poverty is the problem of our age. Employment is at a record high, but it is not reliably offering a route out of poverty. In the UK today, 2.8 million children and 2.6 million parents are trapped in poverty despite someone in their family working. What is more, the likelihood of being in working poverty has been rising for families with children, with a particularly sharp increase for lone parents.

Being able to work more hours makes a big difference to loosening the grip of in-work poverty – a couple family with two full-time workers is far less likely to experience poverty than a couple family with one full-time worker and one parent who doesn’t work. But people face constraints in their opportunities to work, and both the public and the rules of the benefits system recognise this. Caring for young children limits the number of hours people can work and the distance they can travel for work, locking families in poverty when jobs are low paid.

Parents are doing what’s expected but they’re still in poverty

There are rules in the benefits system that set out how much a parent who is the main carer is expected to work, depending on the age of their youngest child. But new analysis for JRF lays bare the number of people who are trapped in poverty despite doing what is expected of them. It underscores the need for the social security system to act as an anchor that prevents families from being dragged under by poverty.

Assuming people can work, the benefit system expects one person in a couple with children to work full-time, with their partner, or a lone parent:

  • not expected to work when the youngest child is aged two and under
  • expected to work part-time when the youngest child is aged 3-12, and
  • expected to work full-time when the youngest child is aged 13 or above.

Yet JRF’s analysis finds at least 2 million children in poverty have parents who are meeting these expectations – that’s half the total number of children in poverty.

Among those whose parents are not currently meeting these expectations, 1 million were in families that included a disabled person. These parents may not be expected to meet the same work requirements, depending on the nature of their disability or caring responsibilities if the disabled family member is a child. This means the true number of children in poverty with parents doing what is expected of them is likely to be higher than 2 million.

Clearly there remain some parents for whom support to find a suitable job or to increase their hours will help to release them from the grip of poverty. But it is simply not right that so many children are in poverty despite their parents doing their bit to try and balance their working and caring responsibilities.

The public want the Government to top up low pay for families

One response might be to say the rules are wrong, and parents should be expected to work more hours, but that would be out of step with public opinion. People think it’s important for a parent who is the main carer to spend time at home with their children when they’re very young.

Mirroring the fact that women remain most likely to be the main carer, the British Social Attitudes Survey recently asked people about the hours of work that should be expected of a mother depending on the age of her children. The vast majority of people think she either shouldn’t work or should work part-time before her children are old enough to go to school, but expect her to work more hours as children get older.

Accepting that not all parents should work full-time gives the social security system a crucial role in providing a foundation for families to build a better life. Both tax credits and the in-work elements of Universal Credit top up the incomes of low-paid families, and the public strongly believe this is the right thing to do. Some seven in ten (70%) support wage top-ups for lone parents and six in ten (58%) support them for couples with children.

But there is trouble ahead. Cuts to Universal Credit carried out in the July 2015 Budget mean it now provides less of a top-up to working families than it was originally designed to. Indeed, an estimated 1.8 million working families with children will be worse-off under Universal Credit compared to the current benefits system. More families will be trapped in working poverty unless UC is reformed.

We need to reform Universal Credit for working families to release the grip of poverty

When parents earn more, they should be able to keep more of what they earn. That is why JRF is calling for Universal Credit to be reformed to help reduce in-work poverty.

By increasing the work allowances to their original levels for families with children the Government can give a much-needed budget boost to low-income working families. Some 4.9 million parents and children in working poverty would benefit from this, with 300,000 of them escaping poverty altogether.

A government with a bold agenda for domestic policy would introduce these changes at the next Budget.