The government is in the process of conducting a review of
universal credit (UC), the main means-tested benefit for
working-age people, received by 6.3 million families at any one
time. A briefing published today by the Institute for Fiscal
Studies discusses some of the challenges UC faces, and outlines
potential directions for reform.
- Parts of the system – most importantly the level of housing
support that private renters can receive – are frozen in cash
terms indefinitely. This means their generosity steadily falls in
real terms over time at a speed determined by inflation, rather
than because of a government decision. There is no good
justification for this, and the government should decide what it
thinks appropriate benefit amounts and thresholds are – which
could be higher or lower than currently – and then commit to
uprating them with a sensibly chosen index (such as CPI
inflation).
- There are also opportunities to improve the structure and
operation of the system, including by reviewing the benefit cap,
the ‘advances' that claimants get at the beginning of a claim,
and the way that UC interacts with council tax support (a
separate means of support to low-income families). Because
council tax support is a separate benefit from UC, claimants
earning an extra £1 often lose 64p in benefits – and in some
cases lose more than £1. This undermines the original case for UC
which was meant to remove these very high effective tax rates.
There is a strong case for integrating the two benefits to
address this issue.
Over decades, the gap between the degrees of support provided for
unemployed claimants and for those with health problems has
widened. The government has raised the concern that this
potentially increases the incentive to claim health-related
benefits rather than unemployment benefits. Reforms coming into
effect from April 2026 will increase the UK's low level of
protection against unemployment while reducing support for
claimants deemed unable to work. This may go some way to slowing
the growth in the number of people claiming health-related
benefits, but inevitably means less support for disabled people.
Tom Waters, an Associate Director at IFS and the author
of the briefing, said:
‘Universal credit, by integrating together six different existing
benefits, was in many ways a real achievement. But it can
certainly be improved. For example, there is no good
justification for leaving important parts of the system frozen in
cash terms for years on end. And there is a compelling case for
integrating UC with council tax support, which is currently a
separate benefit. The trade-offs in benefit policy between a
strong safety net and strong work incentives is never going to go
away, but a careful reformer could find ways to make the system
fairer, more coherent and better suited for achieving its goals.'
ENDS
Notes to Editor
Universal credit review: challenges and options for
reform is an IFS briefing by Tom Waters.
