Think tank calls for urgent revamp of Universal Credit

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The current design of universal credit needs ‘urgent change’ to make it fit for purpose, argues a new report.

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In its report on Universal Credit, the Resolution Foundation recommends improving the work incentives for lone parents

Published today (31 October) by think tank the Resolution Foundation, the report, ‘Universal Remedy: ensuring Universal Credit is fit for Purpose’, says that the current design of the new benefits system is not fit for purpose in 21st century Britain and needs urgent change, particularly if it is to become the bold welfare reform the Government planned it to be.

Introduced in 2016, Universal Credit (UC), which replaces six existing means-tested benefits including child tax credit, working tax credit and income support, is being gradually rolled out across the UK. Cuts of almost £3 billion a year to the system mean the UC taper rate – how quickly the benefit is withdrawn as recipients earn more, has been reduced from 65 per cent to 63 per cent. It is estimated that 2.8 million households will be worse off under UC than the tax credits system.

While the Resolution Foundation acknowledges that the creation of a simpler system that consolidates six benefits into one is a ‘prize worth fighting for’, it says changes are needed to end the six-week wait for a payment, recognise not everyone is paid monthly and to avoid big losses for lone parents. Under UC, claimants are paid monthly rather than weekly or fortnightly as they were with the tax credits system.

However, reports over the weekend suggest that the Government is expected to make a U-turn on the roll-out of universal credit in the Budget (22 November) by reducing the six-week wait to four for the first payment.

The report, which is co-authored by Mike Brewer, professor of Economics at the University of Essex, goes on to set out reforms to make Universal Credit fit for purpose, which include:

  • Reducing the six-week waiting period by scrapping the current seven-day waiting period and compressing payment processing days so payments are received a week and a half earlier;
  • Rethinking the requirement that everyone is paid monthly when evidence by the Resolution shows that this is not the case for many people. The think tank says that paying benefits monthly in arrears may work for those with steady jobs, but the timing of payments needs to be more flexible to fit the ‘diverse needs’ of different families;
  • Faster payment of housing support, a simplified process for claiming childcare support and assessing the Minimum Income Floor, which limits support for the self-employed, annually rather than monthly.
  • Improving the work incentives for lone parents and second earners. The Resolution Foundation says that cuts to UC, which make it less generous than the tax credit system it replaces, have weakened work incentives. Also, large cuts to work allowances for single parents, meaning they can work far fewer hours before losing any benefits, risks leaving many trapped at low levels of pay. Meanwhile, it says that over two-thirds of potential second earners with children will keep no more than 40 per cent of their gross pay if they enter low paid part-time work, which is discouraging.

To ensure parity with the tax credit system, the Resolution Foundation says £3 billion must be re-invested in Universal Credit support for working families, including higher work allowances for lone parents and a new allowance for second earners. The think tank says this is vital to making Universal Credit a success and suggests raising the money by delaying a range of tax cuts that ‘disproportionally affect the richest.’

David Finch, senior policy analyst at the Resolution Foundation, said, ‘The Government is rightly committed to the roll-out of Universal Credit, but will need to relaunch the benefit to both address the design challenges that are already visible and get ahead of those that will emerge in the years ahead.

‘Urgent action is needed to reduce the six-week wait and there are simple steps that can be taken now to bring it down, including scrapping the seven-day waiting period before a claim is accepted.

‘Looking further ahead there are major challenges to come, from how childcare is dealt with to ensuring equal treatment of the self-employed.

‘Crucially, because Universal Credit is now almost £3 billion a year less generous than the benefits it replaces, it will leave working families an average of £625 a year worse off. Single parents are particularly hard hit, with almost twice as many losing as will gain, while second earners in couples will also face weaker incentives to work. Now is the time to put right these significant design flaws.

‘The upcoming Budget provides an opportunity to relaunch Universal Credit – making it fit for purpose in 21st Century Britain.’

A Department for Work and Pensions spokesman said, 'This report fails to acknowledge the package of support introduced to help people move into work including unprecedented support with childcare costs and wider reforms to taxation and the introduction of the National Living Wage. It also assumes benefit claimants’ lives remain unchanged, but the truth is under Universal Credit people are moving into work faster and staying in work longer than under the old system.

'The majority of people are comfortable managing their money but advances are available for anyone who needs extra help and arrangements can be made to pay rent direct to landlords.'

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