Universal Credit - the government's new single benefit payment - is in danger of failing to deliver on its key objectives, according to a new report published today (7 May) by the Child Poverty Action Group (CPAG) and the Trades Union Congress (TUC).
The report says that although Universal Credit will improve some aspects of the benefits system, its ability to lift families out of poverty and remove barriers to working will be severely undermined by the government's wider tax credit and benefit changes, with nine in ten families gaining nothing overall from its introduction.
The report warns that the generosity of Universal Credit is often overstated by ministers and that for those households who do gain from its introduction, many will see any benefits offset by recent social security cuts.
Will Universal Credit Work?, looks at its three main objectives - to reduce poverty, make work pay and simplify benefits - and raises doubts about each, especially when considered alongside other government changes:
- Reducing poverty: Only around one in ten working age households will see any overall gain from Universal Credit, when other benefit reforms are taken into account, says the report. Disabled claimants who work and currently receive the disabled workers' element of the working tax credit will see also a huge drop in their annual incomes of over £2,800.
- Making work pay: Second earners (someone whose partner is already in work), those who pay high childcare fees or who have mortgages, will gain very little under Universal Credit. As a result, taking a job or increasing their hours may not always be worthwhile
- Benefits simplification: Requiring people to claim online and make joint claims with their partners will make the process more complicated for many at a time when advice services are also being cut.
Commenting on the report, TUC General Secretary Frances O'Grady said: "Universal Credit is not bad in principle, but taken together with the other benefit changes introduced by the government, it will make most people worse off.
"And for all the claims of simplicity, in practice it is such a complex system that the government has been forced to delay its roll-out.
"We [are] also concerned at the impact Universal Credit will have on disabled workers, as well as its plans to take away benefits from second earners as soon as they find work.
"Ministers must not turn a blind eye to these problems or Universal Credit will fail to help those very people it has been designed to support. This report provides a useful blueprint for improving Universal Credit so that it can make a real difference to families.'
CPAG Chief Executive Alison Garnham said: "Universal Credit seeks to address many of the shortcomings of the current benefits system by being simpler and providing incentives for claimants to earn more.
"But Universal Credit lets itself down on many fronts. It introduces new complexities into the benefits system such as joint payments and new rules on savings. In addition, the financial gains for many are underwhelming, and the new system will rely as much on the stick as the carrot to incentivise claimants into work.
"Universal Credit is also blind to conditions outside of the benefits system: a lack of suitable jobs, the high costs of housing, and expensive childcare to name a few. Taken in isolation, Universal Credit may increase some households' incomes, but what financial gains they receive are more than wiped out as a result of the government's broader programme of cuts.
"Many of Universal Credit's shortcomings can be fixed but if the government wants to reduce poverty, it needs to take a long, hard look at its broader policies rather than expect Universal Credit to save the day."
The report has the following to say on Universal Credit's three main objectives:
Analysis by economist Howard Reed cited in Will Universal Credit Work? shows that by the end of this parliament only around one in 10 working age households making a new claim will gain from Universal Credit once wider benefit changes are taken into account. At the same time around 50 per cent of households will see their income fall (compared to what they would have received under the benefit and tax credit system the government inherited).
On average, the second poorest group of households (those with incomes of £10,187) will lose over £500 by 2015 as a result of all the benefit changes including Universal Credit. And those in the fourth income group (with household incomes of around £16,010) will find themselves an average of £700 out of pocket (compared to the previous system).
Among those most likely to see a reduced entitlement are two earner couples with children, 94 per cent of whom will lose out by the end of the parliament, and working lone parents, 76 per cent of whom are set to lose.
The biggest losers from Universal Credit, however, will be disabled workers. Universal Credit will see the ending of the severe disability premium - currently paid to disabled people who do not have another adult caring for them. This will result in some people finding themselves £3,000 a year worse off.
Disabled claimants who work and would currently receive the disabled workers' element of the working tax credit will see also a huge drop in their annual incomes of over £2,800 when Universal Credit is rolled out across the country.
Making work pay
Will Universal Credit Work? also raises concerns about the ability of Universal Credit to help people back into work.
One of the biggest challenges facing parents looking to work is childcare costs. Under Universal Credit, people working 16 hours a week or less will now be able to claim support for childcare - a move welcomed by the TUC and CPAG.
However, under Universal Credit most working families will only receive support for 70 per cent of their childcare costs. It will not reverse the 10 per cent cut to childcare support introduced by the government in 2010. Families will have to continue to make up the shortfall.
In addition, couples with children are entitled to only one income disregard (the amount of money that is allowed to be earned before benefit payments start to fall) and as a result the incentives for second earners to find employment are diminished.
The effect of these measures, the report warns, could be to trap families into poverty and worklessness - the government's own data shows that couples with children with just one earner have an 18 per cent risk of living in poverty. However, this drops to four per cent when one partner works full- time and the other part-time.
Will Universal Credit Work? asks whether Universal Credit will be easier to claim. Universal Credit will bring some much-needed simplification to the benefits system, but people will have to claim the new benefit online, make joint claims and deal with numerous new rules.
This will be daunting for many people and made a lot more stressful by recent cuts to the independent advice sector which is now unlikely to have the capacity to help claimants understand the new changes, says the report.
Will Universal Credit Work? concludes by calling on the government to make a number of changes to Universal credit, including:
- Introducing a second earner disregard to ensure that non-earning members of a couple have the same work incentives as the main earner.
- Increasing support for childcare from 70 to at least 80 per cent of the actual costs, thereby going some way towards reducing the barriers to employment for parents.
- Recognising the real costs of disability by ensuring that levels of support for adults and children with disabilities are not lower than those provided under the current system.
- Drawing up an exceptions policy that is informed by evidence to ensure that the needs of those who cannot manage online applications, joint claims, monthly payments or direct payments are accommodated.
- Ensuring that robust independent systems are put in place to monitor and review decisions to sanction.