DWP warned Universal Credit 'fails to sufficiently incentivise work'

The reform "continues to incentivise single parents... to reduce working hours", according to the Resolution Foundation think tank

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The Department for Work and Pensions has been urged to make further changes to Universal Credit before rolling out the welfare reform in order to ensure it incentivises people to work, amid concerns it could discourage some parents from earning above a low threshold.

Reforms announced in the Budget last month were “undoubtedly represent good news for UC”, but did not go far enough to ensure Universal Credit would be effective in encouraging people into work, the Resolution Foundation said.

In the Budget, chancellor Philip Hammond announced funding to improve the managed migration process of transferring benefit claimants onto Universal Credit and raise work allowances – the amount benefit claimants can earn before their benefits are reduced.


But in a report yesterday, the Resolution Foundation said the reforms “left issues of design broadly untouched” and should be seen as the beginning of a wider process to address problems in the system.

One key issue the reforms failed to address, according to the think tank, is that financial incentives to work, although improved for some benefit claimants, “remain worryingly weighted towards avoiding worklessness in households rather than supporting secure work and earnings progression”.

It said although the cumulative effect of successive changes to work allowances since 2015 has been to reduce the incentive for some benefit recipients to keep their earnings low, it has increased it for others.

“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… [and] fails to sufficiently incentivise work for second-earner parents,” the report said.

The changes also mean the “sweet spot” – the point at which work allowances are exhausted – for some claimants earning the national living wage, will fall from 16 hours a week to eight, the think tank found. Despite the incentives in the tax credits system, a single parent renting their home while earning the NLW could halve their weekly working hours from 16 to 8 and lose just £24 per week, according to the report, which carries "serious implications" for progression and lifetime earnings.

To address this, it called for an increase to single-parent work allowances and the introduction of a second earner work allowance for couples with children.

“Ultimately, the government must aim to deliver a UC system that improves take-up, sharpens work incentives and supports living standards in the future labour market,” the report said.

The report also welcomed changes to managed migration, set out in full by DWP last week, which included increasing the time people have to submit a claim for Universal Credit to reduce the risk they will lose out on payments.

However, it said DWP should go further to increase the share of claims paid in full and on time.

“Action on broader issues of UC design – in relation to the operation of the minimum income floor for the self-employed, access to childcare support, and the frequency with which UC payments can be accessed for instance – was noticeably absent from the package set out in the Budget,” the report added.

These represented areas where it was “clear that further reform is required”.

A DWP spokesperson said the extra funding announced in the Budget would "support more people as they move onto Universal Credit". "These announcements are on top of the improvements we have already made to UC as part of our ‘test and learn’ approach – listening to feedback from stakeholders and claimants and making any necessary changes," they 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," they added.

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