Universal credit: the winners and losers

The reseach for the Joseph Rowntree Foundation says universal credit (UC), which combines six different benefits and tax credits in a single payment, will benefit some working households, particularly those employed for a few hours a week.

But for those in full-time work, it could lead to a drop in disposable income, providing “little or no incentive for additional work”.

UC has already been introduced in some parts of Greater Manchester. It is due to cover another six areas in October, before being rolled out across Britain by 2017.

Radical

It is one of the government’s most radical and far-reaching reforms.

But the report says: “Many families will have limited incentive to move from part-time to full-time work, especially if they require childcare.

Disposable income “plateaus” at as little as 10 hours a week, as UC reduces sharply with additional earnings.

“For lone parents and second earners on the minimum wage, working 30 or more hours a week will reduce disposable income compared with working fewer hours.

“Above this level, working extra hours triggers higher childcare bills and reduced UC payments, and brings income into taxation.”

‘Significant losers’

The report says the “most significant winners” will be those working a few hours a week who do not currently qualify for tax credits.

“Significant losers” include part-time second earners with children.

The report’s author, Donald Hirsch, from Loughborough University, said: “Universal credit strengthens the incentive to do a bit of work in mini jobs, but the rewards for additional hours can be tiny.

“Parents hit a ceiling where a lid is placed on the aspiration to work more hours for an adequate income because the return is negligible.

“The government’s plans to make a greater contribution towards childcare could make a difference in overcoming this for those in a position to benefit.”

Childcare costs

The report says one of the factors affecting UC’s potential success is the cost of childcare, which is rising at twice the rate of inflation.

This means that parents who want to work longer hours find it hard to do so because their take-home pay is wiped out by the extra childcare costs they are facing.

People currently receiving UC receive help with 70 per cent of their childcare costs. This is rising to 85 per cent from 2016 for adults paying tax.

A Department for Work and Pensions spokesperson said UC “will give very clear incentives for people to move into work and to work more”, adding: “The new benefit will also reduce childcare costs for hardworking families.

“We’re investing £200m, on top of the nearly £2bn already spent from now, so that around 100,000 more families will benefit from childcare support for the first time.”