Will working people be worse off with Universal Credit?


The former work and pensions secretary Iain Duncan Smith claimed that no one would be worse off under UC, but that is proving to be far from the case. Civil service union PCS points out that UC is almost £3 billion a year less generous than the system it replaces. The TUC is “concerned that Universal Credit has become primarily a cost-cutting exercise, rather than a mechanism for supporting low-income households.”


Shop workers’ union USDAW warns its members that: “Most working people who are currently eligible for Tax Credits will be much worse off under Universal Credit.” 


It points to think tank Resolution Foundation figures predicting that working families are set to be £1,200 a year worse off under UC by 2020, even after accounting for increases in the National Living Wage, Income Tax cuts and additional hours of childcare. 


In January 2018, the Office for Budget Responsibility (OBR) Welfare Trends Report confirmed that on average, UC will be less generous than the system it replaces because of significant cuts to the new benefit. The Resolution Foundation said the OBR report notes that the cuts risk reducing the important employment gains UC aims to deliver and confirmed that working families currently entitled to tax credits are likely to be the biggest losers from the move to a new system. 


In October 2017, the Resolution Foundation reported that £3 billion worth of cuts to UC will leave working families an average of £625 a year worse off. It said that the net impact on all two parent families in work is broadly neutral, though 1.1 million will lose an average of £2,770 a year. Working single parents lose out by an average of £1,350 a year. Almost twice as many lose (0.7 million) as gain (0.4 million), losing almost twice as much (£2,955 average annual loss versus £1,600 gain).


In August 2017, an analysis from the House of Commons Library looking at different types of households and income groups all working full time, revealed that single parents with dependent children are being particularly badly affected, with up to £3,100 a year less than they received with Tax Credits. 


Nurses and teachers will be hit particularly hard by the combination of stagnating wages and cuts to social security, according to the Labour Party a single parent of two, working full-time as a teacher who is a new UC claimant, will be around £3,700 a year worse off in 2018-19 compared to 2011-12. A single parent of two, working in the NHS on average full-time earnings for the public sector who is a new tax credit claimant, will be over £2,000 a year worse off in real-terms in 2018-19 compared to 2011-12.


Also, an equality analysis, published in response to a Freedom of Information request submitted by Labour, predicts cuts to UC will fall most heavily on women and ethnic minorities. Households with a woman or member of an ethnic minority are more likely to be adversely affected by cuts to UC work allowances.