Universal credit will cost more than system it replaces, study shows

Universal credit, the government’s flagship welfare policy, will be more expensive than the system it replaces, according to a new report.

The rollout of the reformed system, which brings six benefits into one, has been hampered by delays amid widespread concern that the changes could force people into poverty, while there have also been reports that universal credit, which has undergone phased introductions across the UK, has increased reliance on food banks.

In the autumn budget the chancellor, Philip Hammond, announced that an extra £1.7bn would be injected into universal credit, which combined with the projected £3.2bn higher benefit take-up would make it more expensive than the legacy system it replaces, the study states.

The Resolution Foundation, the thinktank that conducted the analysis, urged the government to make further changes to the welfare reforms to prevent people becoming stuck in low-paid, short-hours work.

It said that around 600,000 working families would be worse off if universal credit was rolled out around the country in its current form, with the net losses concentrated among non-parents.

The report also called for increases in work allowances for single parents and for the introduction of a new second-earner allowance to encourage more people, particularly women, to work.

Changes to the benefit system were intended to incentivise work after the government argued that the current system discouraged people from increasing their hours spent in work.

However, the Resolution Foundation has claimed that the new universal credit system is similarly flawed.

“Universal credit creates strong incentives for workers to match their earnings to their work allowance, but relatively weak incentives to work beyond them,” the thinktank said.

“That’s because they’re able to keep 100% of each additional £1 earned up to their work allowance, while every extra £1 earned after that leads to a 63p reduction in benefit income.”

Laura Gardiner of the Resolution Foundation added: “The government should now prioritise reforming work allowances so that they do more to incentivise higher earnings for single parents, and encourage more second earners into work.

“This would make universal credit more female-friendly, and a better vehicle for driving down poverty.”

A Department for Work and Pensions spokesperson said: “Universal credit is a modern benefit based on the sound principles that work should always pay and those who need support receive it. It replaces an out-of-date, complex benefits system which often trapped people in unemployment.

“The additional £4.5bn announced in the budget will support more people as they move onto universal credit.

“This includes two weeks’ extra benefit payments for people moving from the old system, and an increase of £1,000 in the amount people can earn before their universal credit payment starts decreasing.”

Shadow chancellor John McDonnell has said Labour would scrap universal credit if it took power, while its architect Iain Duncan-Smith had previously urged the government to reverse the cuts that have been made to welfare spending.