Resolution Foundation has brought together an expert panel of labour market economists, welfare specialists, employment practitioners and other experts to review the current design of Universal Credit and its likely impacts and propose changes that would make the policy more likely to support people to get into and progress in work. The cumulative impact of changes proposed by the panel on the number of people moving into and on in work will be estimated. This paper sets out the scope of the panel’s review.
- Given the decisions already made any change to the structure of UC will create trade-offs between a number of outcomes. Increasing the generosity of UC would create the need for additional spending, which in a fiscally neutral world would likely mean that other groups in the UK are made worse off. Re-allocating resources within the UC budget would create clear trade-offs between different family types; between incentives to move into work against progressing in-work; and between the basic level of income adequacy compared to the work incentives the system creates. Overall, there is a clear tension between maintaining the simplicity and transparency of UC’s design and better targeting of incentives and support.
- It will be essential to take into account and appropriately balance these, and other, necessary trade-offs that changes to UC will create. But it is equally important to understand the consequences of such trade-offs given the position of the labour market, while being clear about the extent to which changes in incentives are necessary to drive changes in behaviour. The questions raised in this paper provide a guide for this project in developing specific proposals to boost UC’s beneficial impact.
Recommendations for panel
The panel will focus on Universal Credit as it affects the working-age, non-disabled population and will principally address three aspects of the system:
- The scope of benefits that are integrated as part of UC compared to those that have been excluded and how these choices affect work incentives. This will focus predominantly on the exclusion of Council Tax Support and passported benefits such as free school meals and the inclusion of housing and childcare support.
- The financial incentives to enter and progress in work created by UC’s allowances and taper rate. The panel will also consider how these structures interact with tax policy.
- The design and likely success of in-work conditionality for both employees and the self-employed, given the untested nature of the approach. The panel will also consider the potential to use in-work conditionality to support people to earn higher wages rather than simply increase their hours.