Universal Credit leaves working families worse off, IFS says

woman with push-chair Image copyright Getty Images
Image caption Universal Credit may discourage single parents from working, claims the IFS

The introduction of Universal Credit (UC) will leave working families worse off on average, the Institute for Fiscal Studies has said.

UC, which combines six benefits into one monthly payment, was intended to be more generous than the current system but the IFS said cuts to the programme meant this would not be the case.

But it said UC would encourage people into work and save £2.7bn a year.

Ministers said the IFS had ignored other benefits such as extra childcare.

Universal Credit's single payment replaces six current benefits, including Jobseeker's Allowance (JSA) and Employment and Support Allowance (ESA).

According to the IFS research, an estimated 2.1 million families will face an average loss of £1,600 a year, while 1.8 million will gain an average of £1,500.

Its figures suggest 1.1 million homes with no-one in paid work will lose out by about £2,300 a year, while 500,000 are expected to gain of £1,000. Working single parents are said to face an annual loss of £1,000.

The new payments system still only affects a minority of claimants, but it is gradually being rolled out across the country.

Single parents

Robert Joyce, the author of the IFS report, added: "The potential gains from simplifying the working-age benefit system remain mostly intact: Universal Credit should make the system easier to understand, ease transitions into and out of work, and largely get rid of the most extreme disincentives to work or to earn more created by the current system."

The government has always said that Universal Credit (UC) would encourage more people to find work.

The IFS said that was true for most people, but not all.

It said that single parents, for example, had less of an incentive to work under UC than under the old system.

Where couples are concerned, UC encourages just one of them to find employment, rather than both, the IFS claimed.

Single parents claiming UC will keep 8% less of their earnings than previously, its figures suggest.

Image copyright PA
Image caption From April 2017, new UC applicants will only be able to claim for a maximum of two children


Although Chancellor George Osborne abandoned cuts to tax credits in the Autumn, cuts to UC announced last summer will still go ahead.

From this April the amount that anyone on UC can earn before their benefits are cut will be reduced.

This so-called Work Allowance will be £4,764 for those not claiming for housing costs, or £2,304 for those who do.

Once claimants earn above that amount, they lose 65p for every pound they are paid.

From April 2017, parents making new UC claims will only be able to take their first two children into account, while the first child premium will be abolished.

Separately, a committee of MPs has also complained that UC is getting further and further behind schedule.

The Public Accounts Committee report accused the Department for Work and Pensions (DWP) of being "evasive" when asked about the delays.

But the DWP said that the programme was being rolled out "safely and securely" and would be completed by March 2021.

The overhaul of the welfare system has been driven by Work and Pensions Secretary Iain Duncan Smith, who argued that too many people were trapped on benefits.

But shadow work and pensions secretary Owen Smith said Mr Duncan Smith's claims were "in tatters".

He said "everyone can now see that successive cuts to Universal Credit have destroyed many of the work incentives that were supposed to be the very reason for the scheme, hitting single parents particularly hard".

The government has always said that no individuals will lose money as a result of the changes. New claimants for UC will also be helped by transitional support.

And a spokesman for the Department for Work and Pensions said: "Universal Credit will make work pay and increase financial incentives for people to work more, while also bringing the welfare bill under control."

He added: "Universal Credit also includes a wide range of additional benefits - including increased childcare and more support from a dedicated work coach both things that were ignored in the IFS's analysis."

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