One size does not fit all: why Universal Credit needs to work for older people

With its age-blind design, Universal Credit is a missed opportunity to tackle the UK’s demographic challenge.

The shape of our labour market has altered dramatically in recent decades. Among the starkest changes is the increase in the number of older workers – from five million in 1992 to 7.5 million in 2012. One in three people of working age in the UK is already over 50 and the growth of this group will continue to far outpace that of their younger counterparts.

For many of these baby boomers, their working lives have coincided with good times of rising employment and a boom in assets like house prices. But it is naïve to think that all the boomers are now sailing into affluent, easy retirements. The UK has four million inactive or unemployed older people, many of whom might still want to work but are prevented by a mix of caring responsibilities, poor health, poor skills and the fact that there’s often no real financial incentive for them to do so. As a result, many people retire or drift out of the labour market without having been able to save all they need for a comfortable old age.

This is bad news for those households left without the savings they need to maintain decent living standards into retirement. But it also spells trouble for the public finances, putting upward pressure on benefit spending and reducing tax revenues just as public spending constraints are at their tightest.

The ageing challenge provides the context for the introduction of Universal Credit (UC). The interaction between the welfare system and incentives is one of the main ways a government can shape labour market behaviour and UC is the government’s flagship welfare reform. The financial support it offers low earners is a potentially powerful tool to boost employment – indeed providing incentives (“work always pays”) is the principle at the heart of UC. And one in five families receiving UC will include at least one person aged 50 or over.

But how effective will UC be in increasing an older person’s incentive to work? This question has received almost no attention. Yet a report out today from the Resolution Foundation, Getting on: older workers and universal credit, shows that while UC offers some benefits to older workers, it also misses an opportunity to develop an age-specific approach to raise their incentives to stay in a job, or return to work.

In fact, while many older workers will be better off under UC, others will see their financial incentives to work sharply reduced. In the most severe case, someone aged over 60 and earning £7 an hour could see their annual income from work fall by £1,640 (from £9,120 to £7,480). This is because many older workers doing between 16 and 30 hours a week on low incomes receive an extra level of support under the current system of tax credits which will disappear under UC. The result is that an additional tranche of low-paid older people working more than 16 hours a week will be worse off.

The problem is that in its welcome attempt to simplify the current mishmash of working and workless benefits, UC has been designed on an age-blind basis. This passes up the opportunity to incorporate age-specific measures which would make work more appealing to older people, especially those over 55 who are nearing retirement. For example, UC could allow older workers to keep more of their earnings before support starts to be withdrawn (raising the ‘disregard’). A new, higher disregard for workers over 55 would leave low paid older workers better off by £150 a month. This would come at an overall public cost of £200 million; however this cost would fall if older people moved into in work as a result - the Treasury saves around £5,300 a year when a person moves from longer-term unemployment to work 25 hours a week.

The introduction of UC is by no means all bad news. Greater simplicity is to be welcomed. UC also makes support more flexible, helping those who wish to retire gradually and those who can’t work full-time because of caring duties or poor health. UC also provides more incentive to save into a pension than the current system, a very desirable change.

Despite the positives, there is a strong case for making UC more attractive for people to work past the age of 50 and on into their 60s. The UK would add another 1.5 million workers if it matched the older employment rates of other advanced economies, and efforts to boost employment among this group will be vital to living standards in the coming decades.

Our ageing population and relatively poor performance in this field makes this a crucial economic issue for the country. As things stand, UC with its present age-blind design is a missed opportunity to tackle the UK’s demographic challenge.

Giselle Cory is senior research and policy analyst at the Resolution Foundation

Work and Pensions Secretary Iain Duncan Smith speaks at last year's Conservative conference in Birmingham. Photograph: Getty Images.

Giselle Cory is senior research and policy analyst at IPPR.

Getty Images.
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Voters are turning against Brexit but the Lib Dems aren't benefiting

Labour's pro-Brexit stance is not preventing it from winning the support of Remainers. Will that change?

More than a year after the UK voted for Brexit, there has been little sign of buyer's remorse. The public, including around a third of Remainers, are largely of the view that the government should "get on with it".

But as real wages are squeezed (owing to the Brexit-linked inflationary spike) there are tentative signs that the mood is changing. In the event of a second referendum, an Opinium/Observer poll found, 47 per cent would vote Remain, compared to 44 per cent for Leave. Support for a repeat vote is also increasing. Forty one per cent of the public now favour a second referendum (with 48 per cent opposed), compared to 33 per cent last December. 

The Liberal Democrats have made halting Brexit their raison d'être. But as public opinion turns, there is no sign they are benefiting. Since the election, Vince Cable's party has yet to exceed single figures in the polls, scoring a lowly 6 per cent in the Opinium survey (down from 7.4 per cent at the election). 

What accounts for this disparity? After their near-extinction in 2015, the Lib Dems remain either toxic or irrelevant to many voters. Labour, by contrast, despite its pro-Brexit stance, has hoovered up Remainers (55 per cent back Jeremy Corbyn's party). 

In some cases, this reflects voters' other priorities. Remainers are prepared to support Labour on account of the party's stances on austerity, housing and education. Corbyn, meanwhile, is a eurosceptic whose internationalism and pro-migration reputation endear him to EU supporters. Other Remainers rewarded Labour MPs who voted against Article 50, rebelling against the leadership's stance. 

But the trend also partly reflects ignorance. By saying little on the subject of Brexit, Corbyn and Labour allowed Remainers to assume the best. Though there is little evidence that voters will abandon Corbyn over his EU stance, the potential exists.

For this reason, the proposal of a new party will continue to recur. By challenging Labour over Brexit, without the toxicity of Lib Dems, it would sharpen the choice before voters. Though it would not win an election, a new party could force Corbyn to soften his stance on Brexit or to offer a second referendum (mirroring Ukip's effect on the Conservatives).

The greatest problem for the project is that it lacks support where it counts: among MPs. For reasons of tribalism and strategy, there is no emergent "Gang of Four" ready to helm a new party. In the absence of a new convulsion, the UK may turn against Brexit without the anti-Brexiteers benefiting. 

George Eaton is political editor of the New Statesman.