Resolution Foundation review of Universal Credit

The report is supportive of many of the principles behind UC and rejects the view that it should not proceed. In particular, it welcomes UC’s stronger incentives to work through ‘work allowances’ which allow people to retain their full benefit entitlement as they enter work and earn up to a certain level.
But the Resolution Foundation also highlights that significant changes are needed to build on UC’s strengths, address its flaws and enable it to meet shifting labour market challenges. These suggested changes include:

• Introducing a new work allowance for second earners in families
• Increasing work allowances for single parents who rent
• Increasing childcare support for working parents with children under the age of three
• Introducing a ‘triple lock’ to protect work incentives by uprating work allowances with average earnings growth, increases in the minimum wage or CPI inflation – whichever is highest of the three

Almost two-thirds of people living in poverty in the UK are now from working households. The report says that UC needs to do more to help people escape low pay, calling for:

• Significant reduction in the UC taper rate to 55% or less so that claimants can keep more of their income as earnings rise
• A guarantee that future tax cuts are passed on in full to over two million workers receiving UC
• A new piloted approach to help low earners to progress, rather than introducing ‘in-work conditionality’ that includes the threat of sanctions for those who do not earn enough

The Resolution Foundation also proposes that Council Tax Support should be included under Universal Credit, and that savings from this could provide more support to low income working age families. The report also argues the system should be more user-friendly by: relaxing monthly reporting requirements for parents and the self-employed, offering recipients flexibility over timings of their benefit payments and making it easier for tenants to have their housing benefit paid direct to landlords.

David Finch, Senior Economic Analyst at the Resolution Foundation said:

"Universal Credit holds many advantages over the current benefit system. But it hasn’t caught up with big changes in the UK’s labour market, such as rising in-work poverty.

The government’s flagship welfare reform programme needs a reboot so that it can deal with the big labour market challenges of the next decade and beyond, such as helping people escape low pay, rather than try to tackle the problems of the past.”

For more information and to read the full report, please visit the Resolution Foundation website