‘People in poorest areas more likely to lose out from Universal Credit’

The impact of Universal Credit (UC) will be felt very differently in different places, with many families in the poorest areas losing money as a result, according to new Resolution Foundation research.

UC is being rolled out around the country and two-thirds per of the six million families who will eventually be on UC will move across during this parliament. The final – and, says the Resolution Foundation, most challenging – phase of the roll-out, involving the transfer of existing benefit and tax credit claimants onto UC, is also due to start later this year.

Although recent reforms means UC is set to be slightly more generous than the legacy system it is replacing (as long as take-up gains are achieved), the Foundation says this marginal average gain masks sizable groups of families that gain and lose out by large sums, and significant geographical variation across the UK. It adds that, thanks to factors such as local rent and earnings levels and the characteristics of local populations, some parts of the country will be left significantly worse off as the switch to UC goes ahead.

In the Liverpool City Region (LCR), for instance,  where the Foundation has done in-depth research, it says just 32 per cent of families will be better off under UC, compared to 52 per cent who will be worse off. This compares to a national average of 46 per cent losing out and 39 per cent gaining. This is largely because LCR has a relatively high proportion of single parents, out-of-work single people and disabled people. In addition, UC’s greater generosity towards working families with high rents has less impact in LCR, which has below-average rent levels.

Many said that the five-week wait for the first payment put them under significant financial and mental stress. Some reported that the wait had forced them to use food banks and worsened existing mental health issues.

Other reported problems with the childcare element of UC – despite it being more generous than tax credits – with one single parent explaining how paying childcare costs up front was hard and that reimbursements could be withheld if they forgot to obtain receipts on time.

Finally, the interviews revealed that, although most people understood working more hours would mean they would be better off, many felt that the system’s responsiveness to their earnings meant that taking on more hours wasn’t worth their while financially.

The Foundation makes various recommendations on how to improve UC, including: helping families overcome the first payment hurdle, for instance, by increasing the proportion of new claims paid on time and in full;  making the childcare support in UC more flexible and easier to navigate; and making UC more female-friendly by boosting work allowances for single parents and second-earners.

The Foundation says policy makers need to consider the impact of UC at a local level.

Laura Gardiner, Research Director at the Resolution Foundation, said: “Welcome recent reforms mean that Universal Credit is now set to be marginally more generous than the benefits it is replacing. But this average hides a complex mix of winners and losers, with families in some areas of the UK faring particularly badly.

“As well as making reforms at a national level – such as helping families to overcome the first payment hurdle and offering more flexibility for those with childcare – policy makers across the country need to better understand the effect Universal Credit will have in different places. That understanding should be central to policy debates that are rightly focusing on what can be done to close economic gaps between parts of the UK.”

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