Universal Credit welfare switch 'to hit 1.4m homes'
- 12 January 2011
- From the section UK Politics
Some 1.4 million families will lose money as a result of the government's reforms to simplify welfare, a think-tank has warned.
But the "universal credit", set to replace many benefits and tax credits, will help 2.5 million households, the Institute for Fiscal Studies said.
Among those losing out will be lone parents and families with savings of more than £16,000, its report added.
The government said universal credits would "make work pay".
It has promised that, under the new system, people will always be better off in work than on benefits.
There would be stricter rules for people losing their payments if they refused a job, with those who do so three times losing their benefits for three months.
The government also says it needs to streamline an over-complex system, with universal credits being introduced from 2013.
In its report the Institute for Fiscal Studies (IFS) said the change would create clear "winners and losers".
It calculated that 2.5 million families would gain in the long-run and 1.4 million would lose, while 2.5 million would see no change to their benefit and tax credit entitlements.
The IFS said that, while the universal credit would create stronger incentives for single adults and the main earners in couples to work, it would weaken the incentives for both partners in a couple to find jobs.
The changes would benefit poorer families more than the better off, with the poorest six tenths gaining on average while the richest four tenths lost out slightly.
The IFS said couples with children would gain more than couples without children who would, in turn, do better than single adults without children. However lone parents would, on average, be worse off.
The report stressed that within all family types some people would be worse off, such as couples with children who have savings of more than £16,000.
BBC News Channel chief political correspondent Laura Kuenssberg said the report's findings could raise some difficult questions for the government.
In November Work and Pensions Secretary Iain Duncan Smith told MPs: "We will financially protect those who move across to the universal credit system. There will be no losers."
A government source said no-one who currently claimed benefit would see a cut in the level of their payments.
The IFS estimates that the universal credit will cost around £1.7bn, although that could rise if the simplified system results in a higher take-up rate.
But the costs could fall if, as intended, the system encourages more people to take jobs.
IFS deputy director Mike Brewer said: "Our analysis illustrates the constraints all governments face when contemplating radical welfare reform.
"Work incentives will be strengthened for some, but weakened for others, and the reform will lead to both winners and losers in the long-run."
The Department for Work and Pensions said the universal credit had been designed to "make work pay".
A spokesman said: "Our reforms will move 350,000 children and 500,000 adults out of poverty. This will change Britain for generations - a change we cannot wait any longer for."
For Labour, shadow work and pensions secretary Douglas Alexander said the analysis suggested there were "clear potential benefits" to the universal credit, but added: "The more immediate issue is that government cuts from this April will see tax credits withdrawn faster and support for childcare for working families cut back."