Budget: Government must show it is on the side of the just about managing

Cuts to the amount families can keep of their earnings under Universal Credit risk making the ‘just about managing’ worse off and increasing in-work poverty.

New analysis by the independent Joseph Rowntree Foundation (JRF) shows the Government’s flagship reform to tackle poverty and ensure work always pays risks being undermined by cuts made in the 2015 summer Budget by George Osborne.

In the 2015 Autumn Statement, planned cuts to tax credits were postponed following an outcry, but cuts were made to the Universal Credit work allowance – the amount families can earn before their support starts to be withdrawn.

This cut will result in an estimated 340,000 additional people in poverty in 2020/21. 

After confirming it would press ahead with the roll-out of UC, JRF is calling on the Government to show it is on the side of struggling working families by restoring work allowances in next month’s Budget.

Work allowances: The table shows current and original Universal Credit work allowances
  Current work allowances Original work allowances
Higher work
allowance
Single no kids £0 £111
Lone parent £397 £734
Single/couple - limited capability for work £397 £647
Couple no kids £0 £111
Couple with kids £397 £536
Lower work
allowance
Single no kids £0 £111
Lone parent £192 £263
Single/couple - limited capability for work £192 £192
Couple no kids £0 £111
Couple with kids £192 £222

Further analysis shows a lone parent working full-time on the National Living Wage will be £832 a year worse off by the end of the Parliament (in 2022) than they would be had the cut not been made. The equivalent figure for couples with a single breadwinner working full-time is £468.

The briefing, Keeping more of what you earn, shows the more hours families can work the less likely they are to experience poverty, but for many families in poverty it is difficult to work more hours:

  • More than 4 in 10 (900,000) families in poverty have children of primary school age or below
  • 2 in 10 (400,000) families in poverty have children under the age of 3
  • 3 in 10 (600,000) families in poverty contain a family member with a disability.

Campbell Robb, chief executive of the independent Joseph Rowntree Foundation (JRF), said:

“The Government made clear this week they intend to press ahead with the roll-out of Universal Credit, but there are still problems to be fixed and it is vital these are done quickly.

“No Government wants to fight an election on a record of rising poverty and falling living standards, but this is the risk facing the Government when families are still struggling to make ends meet despite working all the hours they can.

“Restoring the work allowances would put money directly into the pockets of the ordinary working families that the Prime Minister has prioritised. It would increase the incentives for claimants to move into work or work more, and help ensure getting a job really does provide a route out of poverty.

“But if the Government wants to be on the side of the just about managing, it must restore the work allowances, lift the freeze on working-age benefits and get Universal Credit right. With the cost of living rising and real wages falling, next month’s Budget will be crucial.”

To support families, JRF is calling for people to be able to keep more of what they earn under Universal Credit by:

  • Restoring the work allowance in Universal Credit to its original level, resulting in 340,000 fewer people in poverty in 2020/21.
  • The majority of those benefitting would be lone parent families (150,000 fewer people in poverty) and couples with children (160,000 fewer). It would cost an estimated £3.4billion in 2020/21.

In the context of a tight budget, a partial reversal by restoring work allowances for families with children – who face the biggest risk of poverty – would cost £1.2bn for lone parents and £0.9 billion for couples with children.

Increasing the work allowance is a more effective way to help low-income families than increasing the personal tax allowance (PTA). Only £1 in £6 spent on raising the PTA will go to households in the bottom half of the income distribution. JRF recommends delaying or cancelling the increase in the PTA and targeting the money at low-income families.