Universal Credit ‘will cost more than the legacy system it replaces’

Resolution Foundation report sees 600,000 families worse off if ‘reform’ rolls out in its current form.

Releasing a new report saying Universal Credit (UC) will cost more than the legacy system it replaces, the Resolution Foundation sees 600,000 families worse off.

And the Foundation says its take on the numbers accounts for the extra £1.7bn the Budget pitched for UC, which, combined with the projected £3.2bn higher benefit take-up would make it more expensive than the legacy system it replaces.

Now, the Foundation is urging government to make further changes to the ‘reform’ to prevent claimants being stuck in low-paid, short-hours work.

The report identifies around 600,000 working families would be worse off if UC was rolled out around the country in its current form – with the net losses concentrated among non-parents.

Increases in work allowances for single parents and for the introduction of a new second-earner allowance would, the report says, encourage more people, particularly women, to work.

To the report, UC creates strong incentives for workers to match their earnings to their work allowance.

But incentives to work beyond them are “relatively weak” 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, said 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,” she said.

The Foundation has already said plans to end austerity will cost £31bn over the next five years as spending cuts and freezes are reduced.

Reversing cuts to work allowances in UC alone is estimated by the Foundation to cost around £3bn by 2022-23, bringing the total spend to £31bn.

The Institute for Fiscal Studies has calculated that public services will require £19bn annually to end austerity.