IFS: Universal Credit will make working families worse off

IFS: Universal Credit will make working families worse off

Millions of families will be significantly worse off thanks to the single Universal Credit, according to the Institute for Financial Studies.

Ruth Jackson

Household money

Ruth Jackson
Updated on 4 February 2016

The replacement of a range of benefits with the single Universal Credit will leave working families worse off, according to the Institute for Fiscal Studies (IFS).

Universal Credit was originally intended to be more generous than the current benefits system. But pre-emptive cuts mean that Universal Credit will actually leave many people worse off.

The new system, which is intended to be fully rolled out this parliament, will see six benefits, including Jobseeker’s Allowance and Employment and Support Allowance, combined into one monthly payment.

Research by the IFS has found that introducing Universal Credit will cut annual benefit spending by £2.7 billion in total.

[SPOTLIGHT]Among working households 2.1 million will be worse off by an average of £1,600 a year, but 1.8 million will get more – £1,500 on average. Working single parents will be particularly hard hit, with the IFS estimating they will be over £1,000 a year worse off. However, families with only one earner are likely to be £500 a year better off.

“The long run effect of Universal Credit will be to reduce benefits for working families on average – a reversal of the original intention,” says Robert Joyce, an associate director at the IFS and an author of the report.

“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.”

Incentives to work

Universal Credit will still achieve one of its key aims – to encourage people into work, according to the IFS.

The number of people who lose more than 70% of their pay in taxes and withdrawn benefits when they start to work will fall by two-thirds from 2.1 million to 700,000.

Universal Credit will also incentivise people to work more and earn more. The 800,000 working people who would currently keep less than 20p of an additional pound earned would all keep at least 23p if the long run Universal Credit system is applied as it stands now. 

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