Osborne’s cuts mean Universal Credit will punish working families

New research finds the government is undermining its own reforms


Changes to the benefits system will leave working families worse off according to new research, which warns budget cuts by George Osborne undermine the government’s own goals for the reforms.

Universal Credit was introduced under then Department for Work and Pensions Secretary Iain Duncan Smith to ‘simplify’ the benefits system and ‘make work pay’, creating incentives for people to move ‘from welfare to work’.

But a new report by the Resolution Foundation says cuts to the scheme of £3 billion by 2020 make Universal Credit ‘less generous than the current system’ and risks dismantling years of progress made in reducing the number of people out of work.

Women are likely to suffer most under these cuts, as they are more likely to be in low-income and part-time work.

While the Foundation headed by former Tory minister David Willetts supports Universal Credit, it makes some scathing criticisms of the scheme in its current form:

‘Crucially, the latest series of cuts – announced at last year’s Summer budget – risk leaving UC as little more than a vehicle for rationalising benefit administration and cutting costs to the exchequer.

Any ambition for supporting and rewarding work and progression looks very hard to achieve under the revised proposals.

Indeed, even some of the welcome progress made over the last 15 years under the tax credit system in reducing worklessness – particularly among single parents – is at risk of being dismantled.’

The report’s key findings are:

  • 3 million working families entitled to tax credits will no longer receive in-work support of any kind under the reforms, leaving them on average £42 a week worse off.
  • A separate 1.2 million who are set to receive Universal Credit will be on average £41 a week worse off.
  • Of the families who will no longer receive Universal Credit, only 200,000 will be better off after government budget cuts, even with the government’s income tax cuts and National Living Wage (really an increased minimum wage).
  • 7 million who still receive Universal Credit will be on average £38 per week better off, partly due to ‘generous treatment of housing costs’.

Resolution Foundation on UC

The report also raised concerns about Universal Credit’s complicated new IT system which has caused several delays to the scheme and could cripple its supposed efficiency.

It adds:

‘Now, UC will on balance be less generous than the tax credit system for working families. Even when considered alongside policies designed to boost incomes including the introduction of the National Living Wage and income tax cuts […]

Overall, the reductions associated with the UC cuts planned for this parliament mean that the majority of working families with in-work support will be detrimentally affected. […]

We argue that [secretary of state] Stephen Crabb should restate and reclaim the role of UC in supporting more people into work and then boosting earnings, rather than being a source of savings for the treasury to meet fiscal targets.’

Iain Duncan Smith resigned as secretary of state in March claiming the treasury was forcing cuts on the welfare budget that were damaging his department’s reforms. He was replaced by Stephen Crabb MP who is overseeing the introduction of Universal Credit.

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