DWP's Universal Credit reforms leave 1.6 million claimants £2,000 worse off, IFS reports

Over a million Brits are £2000 worse off every year, following a decade of benefit reforms and clampdowns, according to the Institute for Fiscal Studies (IFS).

Since 2013, the Department for Work and Pensions (DWP) has been in the process of rolling out the all-for-one Universal Credit benefit system, affecting over five million new and existing benefit claimants. While almost half of these individuals have seen their payments rise by up to £200 annually, at the same time, one in five households on government benefits have faced a yearly income reduction of up to £2000 due to the transition to this new system.

The sweeping alterations to the welfare state by the Conservative Party have been dubbed by the IFS as "the most significant reform to the working-age benefits system" since the post-war Labour government's overhaul in 1945. Universal Credit was designed to streamline the welfare system and reinforce the connection between receiving benefits and being employed, with 40 per cent of recipients now engaged in low-paid work, reports the Mirror.

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Parts of these "significant" changes included increased conditionality, with work coaching and work-search diaries, alongside the removal of some barriers to employment from legacy benefits, where previously earning over a certain amount could result in claimants experiencing a 70 per cent drop in their monthly income. Now, this reduction is tapered to encourage people to take up work while still receiving benefits.

However, with millions now employed yet still drawing on government support, the Institute for Fiscal Studies (IFS) suggests the system is subsidising low-paid work. Their report highlighted: "While the incentive to move into paid work has been strengthened, there has been almost no change in the incentive to move from part-time to full-time work."

A smaller group, about one in ten households, have seen their benefits decrease by up to £4,000, amidst escalating costs for food, housing, and energy. These are typically households where one member is below state pension age and another is above.

The IFS clarified that this is because "They are entitled to UC rather than the much more generous pension credit 70 per cent of these households (180,000) lose out by more than £4,000 per year under the UC system. Households with assets over £16,000 and the self-employed can also face significant losses under the UC system."

Universal Credit is set to be implemented for the remaining 1.2 million benefit recipients who have not yet switched over to the new system. The transition process was expedited due to recent DWP legislation aimed at saving the department millions in benefit payments, with one in 25 people failing to shift to the new platform.

The demographic to suffer the most from this decreased enrolment in services after the switch are those attaining tax credits; one out of three individuals expected to migrate this year have opted out entirely from the system. The IFS has highlighted an especially "vulnerable" subset due to be transferred later this year.

According to the IFS: "The largest group left to be migrated are claimants of employment and support allowance (ESA), a particularly vulnerable group who may face even more acute difficulties with putting in a UC claim."

"DWP has already pledged additional support to help these claimants, but getting this assistance right will be a critical issue for the next government or large numbers of disabled claimants, often receiving over £10,000 a year in means-tested benefits, may suddenly end up without any of that financial support."

In conclusion they stated: "We have seen in this report that the UC reform makes large numbers of households worse off, even though the average household gains from it. Families receiving disability benefits, mixed-age couples, the self-employed and those failing a harsher assets test are much worse off under the UC system than under legacy benefits."

"There are transitional protections in place to ensure families do not lose out when moving from the legacy system to UC in the short run. But under current plans, they will still be left worse off in the long run."