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18 January 2016

Even if Universal Credit is eventually implemented, most will now lose out

Frank Field's new report shows how the benefits of a programme hailed as revolutionary will be almost non-existent. 

By George Eaton

Perhaps no government reform has been billed as more transformative than Universal Credit. From the moment it was first conceived in opposition by Iain Duncan Smith, it was said that the programme would remake the welfare state and “improve the lives of millions of claimants by incentivising work and making it pay”. 

But the more time has passed, the less plausible this rhetoric has become. Universal Credit’s botched implementation means that there have been just 250,000 claims to date, compared to an original target of 4.46 million by 2015-16. But even if the reform eventually crawls to the finishing line (at a cost of £2bn), its effect will be far from transformative.

The potential benefits of Universal Credit were always oversold. From a previous level of 73p in the pound, the typical withdrawal rate for benefit claimants would fall to 65p – a marginal, not a revolutionary shift. But as Frank Field, the work and pensions select commitee chair, notes in his new Civitas report, the reality is even less impressive. The decision to exclude council tax and free school meals from the reform and the cuts progressively made to the work allowance (the level of earnings exempt from withdrawal) means that the majority of claimants will lose out under Universal Credit. 

Of those low-paid workers who make a new claim and do not receive help with housing costs, childless workers will be £866 worse off compared with what they would have got under the current system, lone parents will be £2,629 worse off and couples with children will be £1,084 worse off. Of those who receive help with housing costs, childless workers will be £866 worse off, lone parents will be £554 worse off and couples with children will be £234 worse off. Field damningly concludes: “If creating an incentive to work is the goal the present system for the vast majority of claimants meets that goal more effectively. Any reduction in the marginal tax rate will only come for particular groups of Universal Credit claimants should the benefit be introduced”. Has more time and money ever been devoted to a reform for so little gain? 

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