IFS finds Universal Credit disproportionately reduces incomes among poorer adults

Some 1.9 million adults will be at least £1,000 per year worse off under Universal Credit – while 1.6 million will gain more than this amount – analysis has found.

The Institute for Fiscal Studies (IFS), which made the calculations, said many people will find they “win” and “lose” quite substantially from Universal Credit, with gains and losses varying along with the characteristics of the households affected across the UK.

Universal Credit disproportionately reduces incomes among poorer adults, the analysis found.

Those in the lowest-income 10% of the population on average lose the most from Universal Credit – equating to £150 per year per adult – it said.

But the IFS also expects that of some of the groups who stand to lose out substantially, the losses will only be temporary.

Universal Credit, which is available to some people who are on low incomes or out of work, replaces six other benefits, including child tax credit, income support and income-based jobseeker’s allowance. It is expected to be fully rolled out by mid-2024.

The IFS analysis, funded by the Economic and Social Research Council, looked at which households will lose or gain the most under Universal Credit.

Many of the 1.9 million losing £1,000 per year or more are affected by Universal Credit’s harsher treatment of certain groups, such as those with financial assets greater than £6,000; some self-employed people;

couples where one member is above state pension age and the other below; and some claimants of disability benefits, the IFS said.

Meanwhile, people in working rented households on means-tested benefits are most likely to gain large amounts, the findings suggest.

The research, which looked at the potential effects of Universal Credit over eight years of people’s lives, found that many of those hit hardest in the short-term may only find themselves “temporarily poor”.

After an eight-year period, the number of people seeing a loss in entitlement of at least £1,000 per year falls to 1.2 million under the IFS’s calculations.

People who are self-employed or have significant financial assets are among those more likely to be worse off – but they also tend to be more likely than others on low incomes to find that their period of being on a low income is only temporary rather than persistent, the IFS said.

Some may go from low incomes to earning more money.

By contrast, it said people who are disabled or live with someone who is disabled are particularly likely to be be persistently, rather than temporarily, poor, the research found.

It said the effects of Universal Credit on people with disabilities is particularly significant and complex, with both large giveaways and takeaways depending on their particular circumstances.

After transitional protections have expired, those who would have been entitled to the “severe disability premium”, which is paid to those who generally live alone and struggle with basic living activities, can receive as much as £2,230 per year less in Universal Credit than they would have under the previous system.

But other people whose health is not deemed to affect their basic living activities but does substantially constrain their ability to do paid work can receive £1,120 per year more under Universal Credit, the IFS said.

Tom Waters, research economist at the IFS and an author of the briefing note, said: “The biggest losses experienced as a result of the switch are mostly down to a small number of specific choices the Government has made about Universal Credit’s design, such as its treatment of the low-income self-employed and people with financial assets.

“Many of those very large losses do turn out to be temporary for those concerned.

“However, even when measuring people’s incomes over relatively long periods, Universal Credit still hits the persistently poor the hardest on average.”

A Department for Work and Pensions spokeswoman said: “This report wrongly assumes that everyone was claiming their full benefit entitlement under the old system, which they weren’t because the system was overly complex.

“With recent work allowances changes, 2.4 million households will be up to £630 per year better off and people will access around £2.4 billion of previously unclaimed benefits.

“Universal Credit supports people into work and helps them increase their earnings while providing a vital safety net for those who need it, while the old system trapped people on benefits or taxed them punitively for taking on more hours.

“We continue to make improvements and have invested £10 billion into Universal Credit since 2016.”

Margaret Greenwood, Labour’s shadow work and pensions secretary, said: “Universal Credit was supposed to lift people out of poverty but this analysis makes clear that it is hitting the poorest hardest.

“Pensioners with working-age partners and disabled people who would have been eligible for disability premiums are among those to receive the harshest treatment under Universal Credit and could be thousands of pounds worse off than they would have been under the old system.”

Jess Leigh, policy and campaigns manager at disability equality charity Scope, said: “This report is further evidence that as Universal Credit becomes a reality for millions of disabled people many risk falling off a financial cliff-edge.”

She continued: “Disabled people shouldn’t have to make difficult choices on buying essentials like food, clothing and heating if they lose out on disability premiums.

“The Government must recognise the barriers disabled people face and take action, so their critical financial support does not disappear.”

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