Universal Credit leaves working families poorer

Updated
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The rolling out of Universal Credit will leave the average working family worse off, after cuts have taken their toll - according to a new report.

Universal Credit (the brainchild of Iain Duncan Smith) is expected to be completely rolled out by March 2021. It brings together six benefits in one payment, and was originally intended to be more generous than the current system. However, cuts have dramatically altered the outlook for families. Critics say they have undermined incentives to work - which was supposed to be the whole point of the new system.
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Worse off

These cuts were announced last summer, and see a reduction in the amount that anyone on Universal Credit can earn before their benefits are cut. This figure (known as the work allowance) will be £4,764 for anyone not claiming housing costs, and £2,304 for those who do.

In addition, from April 2017 new claimants will only be able to claim for their first two children - and the eldest child premium will be abolished.

As a result, the Institute of Fiscal Studies calculated that 2.1 million families will be £1,600 worse off each year - although 1,8 million will gain an average of 1,500.

The 1.1 million homes where nobody is in work will suffer the most - as they will see their income fall by £2,300 a year. Working single parents will also suffer an average annual loss of £1,000, and will keep 8% less of their pay under the new system. Families where both parents work will also lose out.

The IFS argues that this will make it harder for single parents to work. It also adds that in couples the new system will only encourage one of them into work. It said: "A series of pre-emptive cuts means that introducing UC will in the long run reduce the generosity of the benefit system – including to working families, in a reversal of the original intention."

It adds that as a result of the cuts, instead of being more generous than the current system, it will cut £2.7 billion from the benefits bill.

However it accepts that those who face the most barriers to work will benefit, saying: "It will still do a lot to help make work pay for many of those who currently face the most severe disincentives." Those who will benefit include those who saw more of than 70% of their pay disappear in taxes and withdrawn benefits. The number of people in this position is expected to fall from 2.1 million to 0.7 million.

The government responded to the IFS findings by pointing out that the statistics have ignored other benefits such as extra childcare, which will be a vital boost to some families.

Universal Credit: What You Need to Know
Universal Credit: What You Need to Know



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