Universal Credit can be a tool to deliver economic security for low-income families but changes are undermining and undoing its promise. We need to get back on track, says Katie Schmuecker.
A benefits system that’s easier to understand, makes work pay, eases people’s transitions into and out of work and incentivises them to progress in work has always been the promise of Universal Credit (UC). But this integrated system has been having a prolonged and difficult birth. The roll out has not exactly gone to plan, and future changes will undo much of the promise that UC held. The system has been made less generous overall and the amount people can earn before their benefits start being removed has reduced sharply. As we pointed out a few months ago, some people will benefit from these changes, while others lose out significantly.
New analysis by the Institute for Fiscal Studies confirms this - here are five of their most important findings:
- Fewer winners: In a 2012 the DWP impact assessment estimated 3.1 million households would have a higher entitlement as a result of UC. New IFS analysis estimates this has fallen to 2.3 million households.
- More losers: the 2012 DWP assessment estimated 2.8 million households will get a lower entitlement as a result of UC, while new analysis puts this figure at 3.2 million. Transitional protections will be in place for these households, although anyone new entering the system will be joining a less generous one.
- Work incentive problems: The number of people losing more than 70% of an increase in earnings to taxes and withdrawn benefits will fall by two thirds to 0.7m. This helps make work pay for more people - UC addresses a major problem for some people in the current system.
- Single breadwinner families are relatively likely to gain: on average £500 a year.
- Working single parents lose out significantly: on average by more than £1,000 a year. The amount they can earn before benefits start to be withdrawn is reducing sharply.
It’s sometimes easy to forget what is good about Universal Credit. The UK needs a benefits system that is fit for the 21st century. In recent years, the UK economy has produced impressive levels of employment, but it has also brought insecurity to many people at the bottom, with people cycling between low-paid work and unemployment. The large proportion of low-paid, low-skilled jobs also sees people getting trapped in jobs where they struggle to earn enough for a decent standard of living. Being able to respond to these challenges has always been the promise of an integrated benefits system, like UC. But it’s clear some of the changes to UC are taking it in the wrong direction.
As part of our strategy to reduce poverty, we are looking at ways of making sure UC delivers better for families. This could be by allowing workers to keep more of their earnings through the Work Allowance (the amount people can earn before their state support starts to be withdrawn), and the Universal Credit taper (the rate at which support is reduced) which provides better incentive to work more hours and increase earnings. In the end, a benefit system alone cannot deliver a reduction in poverty. It must go hand-in-hand with employment support and skills services that help people to move into jobs with prospects, and a strategy to deliver more and better jobs.