Hundreds of thousands of low-income working families will be worse off, and in many instances cannot improve their condition by increasing the hours they work, under the government’s flagship universal credit scheme, a report has said.
Universal credit, which will replace six of the seven main means-tested benefits and tax credits for those of working age, is due to be rolled out over the next five years. Pilot projects will start in spring and it is planned to start nationally next autumn.
The report says households that earn £247 or less a week will see a fall in real income in 2015, and lone parents with up to three children will always be worse off if universal credit remains in its current form.
Grainia Long, CIH chief executive, said: “This is a critical time – 400,000 of the lowest earning working households in the UK could see a real drop in income under universal credit. Changes to address this need to be made now. The principles underpinning universal credit are the right ones, but as our report sets out, it is imperative that the detailed design of universal credit ensures that low-income working families are not disadvantaged.”
According to Sam Lister, head of policy at the institute: “All those on minimum wage and officially in poverty lose out. Also all lone parents – it does not matter what they earn: lone parents across the piece lose out under the current form of universal credit. We want the government to rethink the measures.”
The complexity of the scheme means “single people aged under 25 across the whole income range will be better off than under the 2010 system,” Lister said, adding that this might explain why Conservative ministers talk about removing housing benefit from young people.
Other CIH calculations show that most two-children families with a single earner who makes less than the living wage will be worse off under universal credit, while couples with three children will be worse off if their earned income is less than £300 a week. Assuming a weekly rent of £80, childless couples always benefit while a couple with one child needs to earn £292 a week before the new scheme would boost their incomes.
The report said the proposed structure of universal credit runs counter to the idea underlying the scheme – that work should pay for the poor. It notes that “a single earner with a partner and two children cannot make themselves better off under universal credit than they would have been under the pre-reform system by increasing the number of hours they work – they would need to get a much better paid job.”