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Back in Credit? Universal Credit after Budget 2018

The Budget 2018 work allowance increase means that the number of working families that gain from the switch to UC increases by 200,000 – from 2.2 million families previously to 2.4 million families now. Among working families with children, the number (1.5 million) expected to be better off under UC now matches the number (1.5 million) expected to be worse off.

Relative to the pre-Summer Budget 2015 UC system, the changes of recent years have restored or improved incentives to enter work at low earnings for renting single parents and the first earner in renting couples with children; and reduced incentives to enter work at low earnings for home-owning parents who are either single or first earners in couples, and non-parents without disabilities.

Single parents and second earners in couples with children – both very likely to be women – are most responsive to work incentives. As such, it is a concern that UC continues to incentivise single parents (particularly renters) to reduce working hours below the 16 hours backstop present in the tax credits system. It also still fails to sufficiently incentivise work for second-earner parents.

One of UC’s major advantages is that it gets rid of the very highest rates at which benefits are withdrawn in the existing system, which can leave people with less than 10p for each additional £1 earned. However, the fact that taxpayers on UC keep just 25p of each additional £1 earned (even less when paying for childcare costs) means that challenges remain.

Read Resolution Foundation - Back in Credit? Universal Credit after Budget 2018