Far-reaching reforms of Universal Credit (UC) would double the number of families helped into work, according to a new report.
The Making it work report by the Resolution Foundation think tank supports UC’s principles, but says that far-reaching changes are needed to build on its strengths, address its flaws and equip it to meet the UK’s shifting labour market challenges. It adds that its suggested package of reforms is cost-neutral during the current parliament and in line with the Office for Budget Responsibility welfare spending projections thereafter.
The Foundation welcomes the stronger incentives to work in Universal Credit which allow people to retain their full benefit entitlement as they enter work and earn up to a certain level, which it says particularly helps those only able to work a few hours a week.
But Making it work argues that a number of significant changes need to be made to Universal Credit if it is to fulfil its potential. For instance, a second earner with an annual salary of £10,600 will see their disposable income rise by just £3,600 in UC – where as in the current system of tax credits it would rise by far more (£6,000). It says its proposed changes would disproportionately benefit women by helping many more into work, include having a new work allowance for second earners, increasing the allowance for single parents who rent and increasing childcare support for working parents with children under the age of three to 95 per cent of their childcare costs.
The Foundation also proposes a ‘triple lock’ to protect these incentives over time by uprating work allowances with whichever is highest of average earnings growth, increases in the minimum wage or CPI inflation.
The report also addresses pay progression for those on low pay. It calls for:
– A significant reduction in the UC taper rate to 55 per cent or less so that claimants can keep more of their income as their earnings rise;
– A guarantee that future tax cuts are passed on in full to over two million workers receiving UC, who currently stand to lose two-thirds of any gains from increases in the personal allowance; and
– A new approach towards helping low earners to progress, piloted with employers, rather than the current proposal to introduce ‘in-work conditionality’ that includes the threat of sanctions for workers who don’t earn enough.
It also proposes incorporating Council Tax Support into UC, which it says could reduce administration costs by up to £500m and simplifying UC easier through, for instance, relaxing the monthly reporting requirements for parents with childcare costs and the self-employed, offering UC recipients flexibility over the timing of their benefit payments ; and making it easier for tenants to have their housing benefit paid direct to landlords.
It estimates that its proposed package of reforms could help between 180,000 to 460,000 more people into work compared to the current system, potentially doubling the employment gains currently projected for UC, with children being the biggest beneficiaries. They would gain between £5 and £20 a week compared to the current UC proposals, says the Foundation.
David Finch, Senior Economic Analyst at the Resolution Foundation, said: “Universal Credit holds many advantages over the current benefit system. But it hasn’t caught up with big changes in the UK’s labour market, such as rising in-work poverty.
“The government’s flagship welfare reform programme needs a reboot so that it can deal with the big labour market challenges of the next decade and beyond, such as helping people escape low pay, rather than try to tackle the problems of the past.”