'Working families worse off' under Universal Credit

3 February 2016, 15:51   By Justin Schamotta

WORKING families in receipt of benefits will be worse off under the Universal Credit scheme, says a new report from the Institute of Fiscal Studies (IFS).

universal credit on mobile
Credit: Gary L Hider/Shutterstock.com

However, the report's authors say that the welfare reforms do address the "most extreme disincentives" for some people to find work.

The Universal Credit scheme was designed to merge six benefits into one monthly payment, and provide a more generous alternative to the existing system. However, numerous benefit cuts along the way could mean that many will now be worse off.

The IFS say that around 2.1 million families will face an average loss of £1,600 a year. This contrasts with the estimated 1.8 million who will gain an average of £1,500.

Hardest hit

Working single parents will fare badly under the new system, losing an average of £1,000 a year, because of the way UC is withdrawn as claimants' earnings rise.

The so-called work allowance - which comes into effect this April - means that claimants earning above £4,764 will have their benefits reduced. For those claiming for housing costs, the limit is just £2,304.

The work allowance will also negatively affect working families, says the IFS's Robert Joyce.

"The long run effect of Universal Credit will be to reduce benefits for working families on average," he says - and that is "a reversal of the original intention" of the combined benefit.

Campaigners are similarly critical. Duncan Exley, director of The Equality Trust charity, says:

"For all the talk of Universal Credit making work pay, it does nothing of the sort in its current guise. In fact, many recipients will keep even less of what they earn than under the current system of tax credits."

He points to the likelihood that low income families will face a higher marginal rate of tax, coupled with benefit withdrawal. This could amount to losing 76p in every £1 under Universal Credit, compared with 73p under the current system.

Back to work

But although low income families face losing more of every pound they earn under Universal Credit, it's thought that overall the number of claimants who will be affected like this will fall, by up to two thirds.

The IFS estimate that the number of people who lose more than 70% of their pay, in the form of taxes and withdrawn benefits, will fall from 2.1 million to 0.7 million.

The gains for some of these people will be marginal, but the IFS say that Universal Credit will encourage people in work to earn more.

For example, the 800,000 working individuals who currently keep less than 20p of each additional pound earned would all keep at least 23p under Universal Credit.

Of course, these figures aren't guaranteed - particularly when discussing a reform that has struggled to find its way from day one.

Long time coming

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Universal Credit has been plagued by problems and delays since it was first vaunted by Iain Duncan Smith at the Conservative Party annual conference in 2010.

He initially announced that one million people would be on the new benefit by April 2014, but that was quickly scaled back to 0.1 million by May 2015.

At the time, IT systems bore the brunt of the blame. That's no surprise considering the pressure to get them right: Universal Credit is the first "digital by default" benefit, with both payments and applications - for millions of people - being dealt with entirely online.

The National Audit Office said that the Department for Work and Pensions had "weak control of the programme, and had been unable to assess the value of the systems it spent over £300 million to develop".

Those issues haven't gone away: the Government are still coming under fire for being "evasive" about when Universal Credit will be completely rolled out, and thanks to those continuing IT issues, the latest DWP estimate for completion is autumn 2021.

The digital nature of the new system is also proving problematic for applicants without easy access to the internet. New computers and wi-fi were promised for all jobcentres by the end of 2014 to help address this issue.

But even this increased online access hasn't helped some - as we've previously reported, some 60% of people lack some of core digital skills needed to access Government services online - and budgetary issues have had some impact on the help available from local libraries and councils.


The scheme has also been criticised for stopping people's benefits for fairly minor infractions of the rules,and in some cases benefits were ceased because of administrative error.

An MPs' inquiry revealed that more than one million jobseekers suffered from these so-called sanctions during 2014.

It's a far cry from the greater flexibility promised by the Government.

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