Universal Credit – we still haven’t been told who will lose

It is still very far from certain whether the government's Universal Credit proposals will be able to deliver its aim of a simpler, less complex welfare system.

With the Welfare Reform Bill due this month, yesterday’s Institute for Fiscal Studies (IFS) report on Universal Credit (UC) makes concerning reading. Despite the government’s plans to legislate within a matter of weeks the number of unanswered questions about how the new benefit will work is significant – meaning that it remains impossible to calculate who will gain and lose from its introduction.

But even with the limited information that is available, what we do know for certain is that many households will lose out when Universal Credit is introduced – with lone parents most likely see their incomes fall.

The IFS calculate that 1.4 million families will lose, while 2.5 million will gain and 2.5 million will see their incomes remain the same. But this model applies to gains at the point of transition – i.e. the benefits system as it would otherwise be in 2014-15 after the coalition’s cuts have been introduced.

Given that these cuts include:

• Significant reductions in childcare support and Tax Credits for working families;

• Real drops in support with housing costs;

• Cuts in the amount that all benefits will be uprated by;

• Cuts in various universal benefits for children and babies;

• The abolition of contributory Employment and Support Allowance (ESA) for disabled people who have claimed for a year or more; and

• Cuts – their precise nature yet to be decided upon – in Disability Living Allowance

… it seems unlikely that the 2.5 million ‘winners’ will all remain better off compared to what they would have recieved in 2014-15 had the coalition’s welfare cuts not been introduced.

The IFS report also demonstrates how much remains unknown/undecided about how Universal Credit will work in practice, stating that:

“The government has not yet announced decisions on many aspects of Universal Credit… It is likely that whatever decisions are reached in these areas will either increase the cost of Universal Credit or lead to more families losing (or both).”

The impacts that these decisions will have on families will therefore be significant – as a few examples (there are too many to list in one post) show:

Transitional protection: The Government has stated that anyone who is claiming benefits or Tax Credits when Universal Credit is introduced, and whose circumstances mean that under Universal Credit their award would be less than under their current claim, will recieve transitional protection. This claim is important – it has allowed the Secretary of State to go on the record in Parliament to confirm that ‘there will be no losers’ from Universal Credit’s introduction.

But we still don’t know what this protection will involve – will everyone who currently recieve Tax Credits have their claims supported until their children leave home? Even if under UC they would have no entitlement at all? Will households whose circumstances change slightly but still have needs that would have been met under the previous benefits and Tax Credits system – e.g. a child moving from daycare into school; a partner moving into a job; a small increase in hours – continue to recieve protection?

Childcare costs: The government has already cut the childcare costs that parents are eligible to claim from Tax Credits by 10 per cent, and while their white paper suggested that no further immediate cuts are likely many families who are currently entitled to childcare support will still lose it when UC is introduced – including families with savings of over £16,000.

For example, a young couple saving for a house deposit would, under current plans, be ineligible for any in-work support with living costs or childcare expenses – and many families whose incomes are around or a little over median earnings, who will no longer qualify as a result of the increased taper. How this issue is addressed will have significant impacts for the number of losers, and for whether it is feasible for many families to move into and remain in work.

Online access: Will the benefit only be available via an online claim (as suggested in the white paper)? And if so how will the 70 per cent of very low-income households without internet access be able to receive it? How will voluntary sector services – currently being subjected to sweeping funding cuts – develop capacity to support claimants?

Household claims: Will households of two or more adults only receive one household payment – with no distinct payment made to the main carer? As Fran Bennett’s evidence to the work and pensions select committee sets out:

“… research has shown that money paid via the ‘purse’ rather than the ‘wallet’ is more likely to be spent on the children and in low/moderate-income families it is still the mother who tends to take the main responsibility for meeting children’s day-to-day needs…

“Moreover, paying the means-tested element for children to the ‘main carer’… means it is more likely to be labelled explicitly – as Child Tax Credit is – as intended for children.”

Single payments would have significant implications for the distributions of incomes within households – risking leaving women and children worse off.

Employers’ role: Despite the government’s proposed ‘employer’s charter‘, the business lobby remains on on the warpath on new employment regulations. How will employers, particularly small businesses, take to their new role of providing regular assessments of their employees’ incomes – the precise information and definition of ‘income’ remain unavailable – to HMRC/DWP?

There are also real risks for claimants here, particularly those in the most vulnerable work: where employers don’t engage properly with PAYE systems it may mean that their workers’ benefits payments, as well as their wages, are placed at risk.


Universal Credit has potential to deliver a simpler and less complex welfare system for families across the country. And a well funded and generous version of the UC has potential to reduce in-work poverty and make it easier for claimants to move into work.

But it is still very far from certain whether the government’s proposals will be able to deliver against these goals – succeeding against any of them remains highly contingent upon the new system’s design, generosity and implementation – not to mention the wider state of the labour market – and at the moment the only thing we know for certain is that before UC is even introduced billions of pounds will be cut from welfare spending.

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