Universal Credit: A policy under review

Tue,9 September 2014
News

This Resolution Foundation paper reviews the current design of Universal Credit and its likely impacts.

The paper proposes changes that would make the policy more likely to support people to get into and progress in work. It finds “overall, there is a clear tension between maintaining the simplicity and transparency of UC’s design and better targeting of incentives and support.

The paper suggests that UC is not an incentive to finding full time work.

“UC’s work allowance can provide strong incentives to begin working part-time, up to 20 to 26 hours on the minimum wage and it is amongst such low earners that some of the gains from UC are concentrated. But above the allowance, marginal deduction rates remain high, with families losing two thirds or more of each extra £1 of earnings. This does not represent a significant improvement in work incentives compared to the current system and for significant numbers is, in fact, worse. UC will also remove the particularly large incentive in the current system to work at least 16 hours per week (24 hours for couples with children) in order to be eligible for Working Tax Credit, and the smaller step change for working 30 hours or more.”

As a result many claimants may “remain in ‘mini jobs’ at higher cost to the state.” The paper notes that the OECD have stated that the UK may need to restrict entitlement to UC for those working less than full-time hours..

“as few other countries with similarly generous means-tested systems allow part-time workers to keep benefits to such an extent. They suggest that part-time workers could have their UC entitlement time-limited, while people on UC earning above the minimum wage but working less than full-time hours could also be encouraged to increase their hours.”

It is therefore suggested that any Changes to UC will create trade offs in terms of gains for different client groups, which will need to be accounted for and the consequences understood.

“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.”

The paper only discusses UC as it applies to non-disabled people.

You can download Universal Credit: A policy under review” at http://www.resolutionfoundation.org/publications/universal-credit-a-policy-under-review/