Making the most of UC: Final report of the Resolution Foundation review of Universal Credit

Published on Tax and Welfare

The improvements necessary to enable UC to, at a minimum, make work pay and smooth the transition into work must be made before millions of families are moved onto the new system. The start of the new parliament provides a natural opportunity to review the potential impact of UC and set out plans for its near- and medium-term development. Our proposals span two phases:

  • The first phase – covering the period when UC is fully rolled out, largely over this parliament –  seeks to focus incentives to work on the groups most likely to respond, in order to maximise its potential impact. Our recommendations in this phase are cost-neutral, recognising a backdrop of ongoing fiscal constraint.
  • The second phase – in the next parliament, following UC’s full roll-out – incorporates ambitious proposals designed to ensure UC is fit for purpose over the next decade and maximises its impact on employment. Our recommendations here are no longer bound by our short-term cost-neutral constraint but continue to fit within official projections of the expected long-term level of spending on working-age benefits.
  • Through analysing the evidence, it became apparent to us that the policy focus in UC must shift from reducing worklessness to encouraging and supporting all members of a household into decent, sustainable work. Simply being in work is not enough; the objective must be to tackle endemic low pay. To do so, we make recommendations that would improve incentives and provide effective practical support to help people progress. It is our hope that this approach will improve the living standards of millions of low to middle income families, helping them find a better balance between work and other commitments.
  • UC must learn the lessons of the current tax credits regime, particularly in relation to simplicity. The existing system successfully supports many people into work. However, its highly complicated structures and interactions can mean those who could stand to benefit most do not do so. The withdrawal of multiple benefits at the same time (and at varying rates) fails to provide workers with a clear incentive to progress and increase their earnings. A better-integrated and simpler-to-navigate working-age benefit system – which we have made suggestions to develop – can help to achieve these aims.
  • Simplifying the system will not be enough on its own however. To reach the targets set for UC, it is imperative that incentives to enter work are rebalanced. Those most in need of support to start working – single parents, second earners with children and the disabled – should have their incentives strengthened. Those with fewer barriers to work – people without dependent children – must not have their work choices distorted. Government must improve incentives to progress in work. People will feel little impetus to do so if 76 pence of every additional pound earned is lost through reduced benefits and payment of income tax and NI. Along with getting the financial incentives to progress right, effective practical support can help people improve their earnings via the route most appropriate for them.
  • With significant numbers of families set to start claiming UC next year – many of whom will have more complicated circumstances than those who are already receiving it – the start of the new parliament provides a perfect opportunity to reflect on the current design of UC. We hope that the new government finds our review to be a constructive and practical guide as it decides how to proceed. The warning our report makes is that a failure to revisit and revise policies now, and overlooking the changes needed to make UC a success, would represent a missed window of opportunity that may not present itself again once the system becomes fully bedded in.