Universal credit ‘likely to help low-income families’

The new universal credit system is likely to increase financial help for working families on low incomes more than middle-income families, especially in the case of couple families. That's the conclusion of a 'preliminary assessment' of the government's planned scheme by think-tank researchers.

Key points

  • Overall, 2.9 million working-age families will gain under universal credit, and 1.8 million will lose.
  • On average, those working-age families that stand to gain will see a 9.1 per cent increase in disposable income (averaging £32.70 a week at 2014-15 prices). The average family that loses will be worse off by 10.1 per cent (or £40.15 a week).
  • In overall terms the new system will be more expensive than the existing one by £1.2 billion a year.
  • There are more winners than losers in each of the bottom five income decile groups, though there are substantial numbers of losers as well as winners. As a fraction of income, universal credit will benefit poorer families more than richer ones in the long run. The poorest 10 per cent of working-age families will see a 4.7 per cent increase in their income, whereas the richer half of the population will see small losses on average (mostly arising from families losing child tax credit).
  • Universal credit should be simpler to understand and implement by cutting the number of separate means-tested benefits people need to claim, and the number of authorities they need to report their personal details to. It should also mean claimants need to understand fewer sets of rules for defining key things such as what counts as 'income'.
  • But many details are still unclear, including how universal credit will interact with the new, localised council tax rebate system, how tough the conditionality regime will be (particularly for working families), and whether universal credit can in practice be made to respond automatically to changes in claimants' earnings in 'real time'.
  • Keeping the means-tested council tax rebate outside the universal credit system will, in particular, undermine many of the supposed advantages of universal credit. Families will continue to have to claim more than one means-tested benefit, and report their circumstances to more than one agency. Having a different form of rebate in every English local authority also risks introducing the sort of complexity and lack of transparency the government says it wants to reduce.

The researchers conclude with a reminder that universal credit is only one of many changes to social security benefits and tax credits announced by the new government since May 2010. These changes will, taken together, substantially reduce government spending on social security benefits and tax credits – and increase relative and absolute measures of income poverty over the coming decade.

Source: Mike Brewer, James Browne and Wenchao Jin, 'Benefit integration in the UK: an ex ante analysis of universal credit', in Tim Callan (ed.), Budget Perspectives 2013, Economic and Social Research Institute (Dublin)