Universal Remedy: ensuring Universal Credit is fit for purpose

Published on Tax and Welfare

This Autumn marks the point at which the full Universal Credit system – serving all types of cases, rather than just the simplest ones that have dominated to date (the early rollout of UC focussed on the unemployment but not the more complex cases involving children, housing or disability) – is finally being put into place at scale. Given the delays that have beset the implementation process so far, this is an important milestone. However, it is even more important that the system that is introduced is fit for the 21st Century. With that in mind, the New Year brings with it a break in implementation to allow for an evaluation of the ramped up roll-out. It provides a perfect moment in which to re-assess and review both how the system is working and the sustainability of the underlying policy design.

This report builds on the work of Resolution Foundation’s 2015 expert panel-led review of UC, chaired by Nick Timmins. Where relevant, we update the analysis that fed into the conclusions of that review. Even in just a few years, there have been significant changes – both in terms of the economic backdrop and the budget in place for working age welfare. The future is always uncertain, but it’s clear that the nature of the challenge facing the UK’s welfare system has shifted somewhat over time. It’s less apparent, though, that UC has adapted to match this evolving environment.

  • At a time when working poverty has become a major challenge facing the country, cuts to UC mean it is set to be almost £3 billion a year less generous than the tax credit system it replaces. As a result it will leave working families an average of £625 a year worse off. However, this masks a significant mix of outcomes across family type.
  • The net impact on all two parent families in work is broadly neutral, though 1.1 million will lose an average of £2,770 a year.
  • Working single parents lose out, by an average of £1,350 a year. Almost twice as many lose (0.7m) as gain (0.4m), losing almost twice as much (£2,955 average annual loss v £1,600 gain).
  • The Foundation recommends shortening waits considerably by scrapping the current seven day waiting period and compressing payment processing days to ensure payments happen a week and a half earlier, at a relatively low cost of between £150-£200 million a year.
  • The report also notes that paying benefits monthly in arrears may work for those with steady jobs, but the timing of benefit payments needs to be more flexible to fit the diverse needs of different families. New analysis for the report, using actual bank transaction data, shows that the majority (58 per cent) of new claimants moving onto UC after leaving employment in the last tax year were paid either fortnightly or weekly in their previous job.
  • Other components of the relaunch should include faster payment of housing support, a simplified process for claiming childcare support and assessing the Minimum Income Floor, that limits support for the self-employed, annually rather than monthly.