The professed aim of the introduction of Universal Credit is to boost the personal responsibility of claimants, smooth the passage to work and prepare out-of-work claimants for their next job. There are a number of problems with Universal Credit, however - problems which haven't been given anywhere near the amount of coverage by the press that they warrant.
The Universal Credit scheme officially goes live today with a ‘Pathfinder’ version in the north of England – Ashton-under-Lyne – and the scheme is expected to be rolled out nationwide from October 2013.
Universal credit will merge several benefits and tax credits into one monthly payout.
There are a number of problems with Universal Credit, however – problems which haven’t been given anywhere near the amount of coverage by the press that they warrant.
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The benefit changes will “reinforce the traditional male breadwinner model”, in the words of the Women’s Budget Group. The new universal credit will mean that whereas previously certain benefits like tax credits were paid directly to mothers, the universal credit will be claimed and owned by couples jointly and usually paid in full to one partner. Incentives for second earners (usually women) will also be weakened according to independent evaluations; and even more worryingly, the government believes ‘that any such risk of decreased work incentives for women in couples is justified.’
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Households that earn £247 or less a week will see a fall in real income in 2015 because of the changes to benefits, and lone parents will be worse off, whatever their circumstances, according to the Chartered Institute of Housing.
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Research suggests that a monthly payment will make it harder for claimants to budget. A Department for Work and Pensions (DWP) survey asked benefit and tax credit recipients the following question: “If payments of benefits and tax credits are made monthly, would you find it easier or harder to budget, or would it make no difference at all?” Four in ten said it would be harder to budget after the changes and just one in ten said it would be easier. Four in ten said it would make no difference. The fear most commonly cited by claimants was that they would run out of money before the end of the month.
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The proposal that social tenants should have to manage their rental payments, as opposed to the money going direct to their social landlord, is overwhelmingly opposed by most social tenants. 86 per cent of social tenants believe “strongly” that it is better for housing benefit to be paid directly to the landlord. A third of claimants are not confident they will be able to keep up rental payments if they have to manage benefits paid to them for their rent.
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The reforms are bad for those who are in work and looking to work more, especially those who previously received Working Tax Credits. According to an analysis by the Institute for Fiscal Studies (IFS), “Low earners who do have a working partner will tend to see their marginal effective tax rate (the fraction of a small rise in earnings lost to income tax, national insurance, withdrawn benefits or tax credits) increase, because Universal Credit will have a higher withdrawal rate than tax credits do.” (p4) The marginal tax rate for this group will be 76.2 per cent, up from 73 per cent as it is now.” As well as reducing incentives for second earners (see point one), so-called “strivers” will effectively be penalised for working harder.
39 Responses to “Five things the coalition won’t tell you about Universal Credit”
barsacq
Nothing to do with affordability, dingbat. Read again.
Ant percy
people who are claiming, provided they have worked, aren’t living off the government. they are claiming their National Insurance. think about the word “insurance” for a moment. they have paid into (their own earned money, mind you) a program whichis set up for such an eventuality. the economy is messed up because of banks and big business and yet WE all pay for it but when we want what’s ours by right……..my god, what an uproar!
Ant percy
also, if you claim before you ever have a job, when you do eventually work, that lovely thing called national insurance, will recoop those costs for your benefit.
John McBride
Universal Credit is a con, as is raising the tax allowance to £10000.
Two earner families will really suffer. As an example, say the second earner earns £10,000pa in 2014-2015. This income would have a small national insurance liability of about £270pa. Tax credits have a withdrawal of 41p in the pound of gross income, which is £4100 on £10000. £4100 + £270 – £10000 = £5630 effective annual income.
Universal credit would be £10000 – £270 NI = £9730 X 65% UC withdrawal rate = £6324.5. Therefore, under Universal credit income would be £10000 – £270 NI – £6324.50 = £3405.50.
How is that making work pay. Under Universal credit a family in the above example will be £2224.50pa, or £42.78 per week worse off. This shows that Universal credit and raising the tax allowance is just about conning people and not about getting people into work. Once you factor going to work costs, there is less point in the second earner going to work.
If you do the same sums with two earning taxpayers you find that he effective tax rates increases too. The 65%withdrawal rate is a headline, but it is a myth. Once you take tax and NI out, then take 65% the effective tax/withdrawal rate is more like 78%, more than the current tax credits with a 41% withdrawal, 20%tax and 12% NI, a total of 73%.
Families with disabled members will be much worse off, due to reductions in disability elements.
Look at the details and you will see that this benefit change is more about saving money than getting people to work.
Andrew Fisher
Here’s another one – it’s a myth you can be better off on benefits: http://www.newstatesman.com/politics/2013/04/better-benefits-work-claim-complete-fallacy-wheres-evidence