Universal Credit (UC) is on track to be fully rolled-out to seven
million families by the end of the next parliament, with working
renters the main winners and those with disabilities the main
losers from the reform as it faces up to new challenges like
rising long-term sickness, according to new Resolution Foundation
research published today (Monday).
With the final phase of the UC roll-out now under way, and
neither of the main parties pledging to overhaul the reform, the
report In Credit? says that whoever wins the next
election will govern a fully rolled-out ‘Universal Credit
Britain'. However, both the benefit system and the country have
changed considerably since the introduction of UC in 2013.
The fifteen-year roll-out has been characterised by prolonged
welfare cuts. By 2028, entitlements to UC will total around £86
billion a year, but this is £14 billion less than if the
government had kept the 2013-14 benefit system. As a result,
seven-in-ten working-age families eligible for means-tested
benefit support will be worse off under ‘Universal Credit
Britain' than with the pre-reform system.
However, most of these cuts have occurred across the entire
working-age benefit system, rather than being unique to UC. The
report notes that the impact of UC in isolation is more nuanced,
saving £4 billion compared to the legacy system (with an average
loss of £350 for eligible families), and creating a mix of
winners and losers. This reflects the different priorities of the
welfare reform, as well as the inevitable consequences of rolling
six complex benefits into one.
The research finds that the biggest beneficiaries from the switch
to UC are working families in rented accommodation. A renting
single parent who works 30 hours per week on the National Living
Wage will be nearly £3,800 per year better off in 2024-25 than if
they were on the old system. Across the 2.7 million families in
the private rental sector that are eligible for UC, the average
gain compared to the old system is £1,200.
However, the report also shows that the streamlining of
disability premiums means that out-of-work claimants with
disabilities are likely to be worse off under UC. For example, a
single person with a long-term disability that prevents them from
working will now be £2,800 per year worse off.
As well as simplifying the benefit system, UC was designed to
‘make work pay' through a mix of ‘carrots and sticks'. The report
shows it has done this by virtually eliminating the very high
marginal deduction rates of the old system – the number of
claimants losing over 70p of every extra pound they earned has
fallen from 1.4 million to just 165,000. Conditionality also
plays a bigger role, with 2.7 million UC claimants subject to
some form of conditionality, compared to 1.1 million in the
legacy system back in 2013-14.
But although ‘making work pay' may have been the right focus for
the problems of high unemployment and worklessness in the early
2010s, Britain today faces different labour market challenges.
While the unemployment rate has fallen from 8.5 per cent in 2011
to just 3.8 per cent in 2023, and there are currently only 35,000
workless couples with children where at least one parent is
unemployed, economic inactivity due to poor health is at
near-record levels.
The report notes that the number of benefit claimants who are out
of work because of ill-health has almost doubled since UC was
first introduced to reach 2.3 million now.
The Government has recently announced long-run changes to UC that
should encourage people with ill-health to seek work. The report
says that whoever wins the next election will need to build on
these plans, while recognising that Universal Credit cannot by
itself tackle Britain's growing sickness problems.
Alex Clegg, Economist at the Resolution Foundation,
said:
“Whoever wins the next election will be governing a ‘Universal
Credit Britain', with seven million families eventually receiving
the new benefit. It is vital that they understand both the system
they will inherit and the population that relies on its support.
“A lot has changed since Universal Credit was first introduced
back in 2013. The working-age benefit system is less generous,
with entitlement down by £14 billion. And while the 2010s'
problem of high unemployment have faded, Britain faces new
challenges from an older and sicker population.
“Compared to the old system, Universal Credit offers greater
support for renters and stronger incentives to enter work. But
its original design did not anticipate there being over two
million claimants with poor health or disabilities. Alongside
efforts from the NHS, education, and labour market policy to
address the drivers of ill-health, UC will need to change to
tackle Britain's new challenge of long-term sickness.”
