Many will be worse off under Universal Credit

Last week’s welfare reform white paper included the following graph, claiming to show that “many households will receive more under Universal Credit than under the current system”; at first viewing, the graph does appear to show small weekly gains for those in lower income deciles, and insignificant losses for those higher up the income distribution. But all is not as it seems.

Last week’s welfare reform white paper included the following graph, claiming to show that “many households will receive more under Universal Credit than under the current system”:

At first viewing, the graph does appear to show small weekly gains for those in lower income deciles, and insignificant losses for those higher up the income distribution. But all is not as it seems. Left Foot Forward has now ascertained that:

• The graph compares household income in 2014/15 after the introduction of Universal Credit with what household income would be in 2014/15 after the impacts of the welfare cuts outlined in the Chancellor’s June Budget are taken into account.

These cuts included the linking of benefits to CPI (rather than RPI); significant Housing Benefit cuts; and significant Tax Credit cuts. Some claimants will be better off under UC than they will be after the cuts, but many will be worse off under UC than under the current system before the cuts.

• The graph does not include childcare costs. These costs are significant, paying upwards of £10,000 for low-income working families with more than one child.

Given that the Spending Review cut eligible childcare payments by 10 per cent, and that the White Paper warns of further reductions in childcare costs for working families, leaving these costs out of a better-off analysis seems confusing.

• The graph includes all households in the UK, not just those who are claiming benefits or Tax Credits. While most people in the bottom deciles will be receiving benefits or Tax Credits, most people in higher deciles will not (where it is only households with children who receive significant levels of Tax Credit support).

Amalgamating all households in this way arguably distorts the graph – making the losses among middle earners seem far lower than they will be (as including households for whom there is no change – i.e. they continue to receive nothing – distorts the average).

• If the graph was based on an analysis comparing the current system with Universal Credit, if it only considered households in receipt of benefits and Tax Credits and if childcare costs were included, it would show a very different picture. Gains would be far less – and many would be shown to lose significantly.

Important questions remain unanswered about what the real impacts of Universal Credit will be, and exactly which benefits and Tax Credits are being included or excluded from its reach. A Government committed to transparency should be willing to provide more details, and to be clearer about the impacts their changes will have for households across Britain.

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