‘Universal Credit disproportionately penalises the poorest’

Universal Credit disproportionately reduces incomes among poorer adults, with the poorest losing most from it, according to a new report by the Institute for Fiscal Studies.

The report shows that there are winners and losers with UC which is expected to be rolled out around the country by 2024 – with 76% (8.7 million adults), most of the in working households, likely to see a change in income of at least £100 per year. Seventeen per cent will see a last of at least £1,000 per year while 14% will see a gain of at least that much.

Those in the lowest-income 10% of the population will be most affected in terms of the percentage of their income lost over an eight-year period and will see an average 1.9% fall in their income, equivalent to £150 per year per adult because their situation is less likely to be temporary.

The study looks at the effects of universal credit on people’s incomes over eight years of their lives, rather than just at a point in time so that it can ascertain the impact of those who are consistently on low incomes.

It is estimated that around one in three working-age households will be receiving universal credit when it is fully rolled out. The integration of many benefits into one UC payment is intended to simplify the process of claiming benefits and encourage people to work. However, it is having a range of other effects due to changes in the regularity of payments, how long people have to wait for them and who within the household receives them.

The IFS says four elements of the UC system account for many of the large losses some claimants will face. It says
77% of those who lose at least £1,000 p.a. are affected by universal credit’s harsher treatment of one of the following groups: those with financial assets; the low-earning self-employed; couples where one member is above state pension age and the other below; and some claimants of disability benefits. On the other hand, the large gains are accounted for partly by universal credit’s more generous treatment of working households who rent: 29% of those in such households who are on means-tested benefits see an increase in entitlement of at least £1,000 p.a.

It adds that large losses are often temporary with the effect on incomes over eight years considerably smaller. For example, those affected by the harsher treatment of the low-earning self-employed on average lose £2,100 p.a. in the year they are affected (the ‘short run’), but in the long term they lose on average £850 per year because they often go on to higher-income self-employed work or become employees. Similarly, the IFS estimated that the average loss from UC’s treatment of assets (among those affected) is £1,430 in the short run, but £420 in the longer run.

The poorest are likely to suffer most as they are more likely to be persistently on UC. The self-employed, owner-occupiers and people with significant financial assets – all of whom tend to lose out from universal credit – are 1.5 to 2 times as likely as other low-income groups to find that a period of low income is temporary, rather than persistent, says the IFS. However, those who are disabled or who live with a disabled person (who, on average, lose from universal credit) are especially likely to be persistently, rather than temporarily, poor.

That means that those having the largest gains or losses will tend to see that impact only in the short term with only 16% see a change that big to their longer-run incomes (11% losing, 5% gaining).

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