IFS research finds that the government's flagship social security scheme will leave working families worse off

 

The Institute for Fiscal Studies (IFS) has today published analysis showing that Iain Duncan Smith’s beleaguered Universal Credit (UC) programme will, on average, leave working families worse off.

In the past other experts have warned that the programme, designed to roll a number of benefits into a single monthly payment, will actually be detrimental to the people it purports to help.

In June, the Resolution Foundation found that UC provides a disincentive to work, while the National Audit Office has warned several times that the success of the programme is dependent on assumptions.

Now the IFS has found that:

• Among working households, 2.1 million will get less in benefits as a result of UC’s introduction, with an average loss of £1,600 a year. This is compared to 1.8 million households who will get more (£1,500 average gain).
• Among the 4.1 million households of working age with no-one in paid work, 1.1 million will get less (with an average loss of £2,300 a year) and 0.5 million will get more (average gain of £1,000 a year).
• Whether a household will lose or gain from UC depends on a number of factors determining the previous amount of means-tested benefits they received
• So while working single parents and two-earner couples are relatively likely to lose, one-earner couples with children are relatively likely to gain. Among those currently receiving one of the benefits being replaced by UC, working single parents would be over £1,000 a year worse off on average if the long run UC system applied now, but one-earner couples with children would gain over £500 a year on average
• Owner-occupiers and those with assets or unearned income are relatively likely to lose, but working renters are relatively likely to gain. This has the implication that UC will likely focus support more on those with long-term (rather than just temporary) low incomes, but it also weakens the incentive for some to save.

The research by IFS  forms part of the forthcoming IFS Green Budget 2016, produced in association with ICAEW and funded by the Nuffield Foundation. It is the first comprehensive analysis of UC’s effects since the cuts to its generosity announced in the July Budget. These cuts were not reversed in the Autumn Statement, despite the u-turn on tax credits.

Meanwhile, The Equality Trust has released research today which also suggests working parents will be worse off under the new scheme. While working parents currently receiving tax credits lose 73p of every additional pound they earn through taxation and withdrawal of benefits, under UC this will rise to 76p.

As part of the Equality Trust’s research, Ipsos MORI asked people for their opinions on UC.

When told how much a working parent receiving Universal Credit gets to keep of every extra pound earned (24p), 70 per cent said this was too little, suggesting ‘a widespread lack of support for the reform, as it stands’.

Robert Joyce, an associate director at the IFS and one of the authors of today’s report, said:

“The long run effect of universal credit will be to reduce benefits for working families on average – a reversal of the original intention.

“However, 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.”

Mark Serwotka, the general secretary of the Public and Commercial Services Union, said:

“We warned years ago that universal credit could not succeed if it was driven by a political agenda to cut support, rather than offering genuine help for unemployed people.

“It is clear to everyone that this supposedly flagship project is in disarray and is exposed as just another political attack on people who are out of work or on low incomes.”

Ruby Stockham is a staff writer at Left Foot Forward

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