Universal credit ‘will not benefit everyone’

Work and Pensions Secretary Iain Duncan Smith has said that universal credit, which is due to replace a range of benefits and tax credits, will “make work pay”.

But research by the charity Gingerbread suggests that single-parent families living on the minimum wage will be left on or below the poverty line, and that working longer hours will have only a “negligible” effect on their net incomes.

Because of the cost of childcare and housing, some of the poorest families will even see their disposable incomes fall if the parent takes on more work, according to the report by Donald Hirsch from Loughborough University.

Almost two million single-parent households will start to move on to universal credit from next year.

The report found that, under the new system, it will pay for single parents to take on part-time work, even at the minimum wage.

‘Financial plateau’

But it said that, because of the way the credit is designed, many families will quickly find themselves stuck on a “financial plateau”, where working longer hours will not increase their income once housing and childcare costs are taken into account.

Under universal credit, a single parent with a child aged one would gain significantly by working up to 10 hours on the minimum wage, according to the report.

But for every additional hour worked after that, the family would only gain around £1.50 in income, with the rest lost in reduced universal credit and higher tax and national insurance.

“In many cases, increasing the number of hours worked will make a negligible difference to net household income, removing the incentive for them to progress and take on more work.” Donald Hirsch, Loughborough University

This sum would be further reduced by about £1 an hour because of the need for more childcare, leaving the family about 50p an hour better off.

Single parents with three children could see their family income after housing and childcare decline if they work more than about 18 hours a week, even if they are on the national median average wage of £11.15 an hour, the report found.

Childcare costs

The situation is more difficult in London, where childcare costs on average £5.16 an hour, compared with £3.70 elsewhere in the country.

The research says that because of these costs, single parents on the minimum wage cannot lift themselves above the poverty line. They are only able to do this on the average median wage.

“Universal credit will help many – but by no means all – single parents to escape poverty, but is likely to leave most with incomes that are too modest to be able to afford the standard of living that most people would consider a minimum in 21st century Britain,” wrote Mr Hirsch.

“In many cases, increasing the number of hours worked will make a negligible difference to net household income, removing the incentive for them to progress and take on more work.

“Moreover, for some families, especially those with high housing or childcare costs, even working long hours will not remove the risk of poverty.”

Gingerbread chief executive Fiona Weir said the charity had ” discovered that for many single parents, working longer hours won’t necessarily pay”.

‘Better off’

A spokesman for the Department of Work and Pensions said: “Universal credit will make millions of people better off, including 700,000 lone parents.

“An extra £300m will be spent on childcare support, so that more families will be able to take up jobs. And we’re changing the rules so that people can access childcare support from their first hour in work, a move that will clearly benefit lone parents.

“We know rising childcare costs are a concern, and the Childcare Commission is currently tasked with finding solutions to this problem.”