Universal credit ‘fails to guarantee decent income’

Many families with children receiving the new universal credit will fall short of an adequate standard of living, as measured by the Minimum Income Standard, according to new calculations released by the Joseph Rowntree Foundation. The Minimum Income Standard is based on research into what members of the general public believe is needed to achieve an acceptable living standard.

Key points

  • Universal credit can provide some households on low earnings with improved disposable incomes compared with the current benefits system, particularly if they work only a few hours. However, for others, especially those working full time, it can involve a cut in disposable income. This confirms the official impact assessment that there will be similar numbers of winners and losers (3.1 million will be better off, and 2.8 million worse off).
  • Lone parents only able to access jobs with modest wages are helped to raise their incomes to around three-quarters of the level of the Minimum Income Standard by working about ten hours a week: but if they work longer, the falling value of universal credit combines with the growing childcare bill to prevent them from getting much closer to the minimum.
  • For a couple with two children, it may be more worthwhile under universal credit for both parents to work full time: but with young children it can still be hard to exceed the Minimum Income Standard on a low wage. A particular disadvantage for second earners in such families is that if they work part time and do not pay income tax, the family’s universal credit is reduced to reflect additional earnings at a far faster rate than under the existing tax credits system.
  • The introduction of universal credit represents an 'historic structural change' to the way benefits and in-work credits are paid: but its effect on working households’ economic well-being should not be exaggerated. The planned change to a more generous form of childcare support could have a greater impact than universal credit will on families’ ability to make ends meet.

Source Donald Hirsch and Yvette Hartfree, Does Universal Credit Enable Households to Reach a Minimum Income Standard?, Joseph Rowntree Foundation
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