Friday, 06 March 2015

Low-income families lose out under welfare reform

Around 400,000 families in low-paid work will be worse off as a result of universal credit, the Chartered Institute of Housing has found.

The institute has carried out detailed analysis looking at how low-income families will fare under the government’s flagship welfare reform policy, comparing the pre-reform system in 2010 with the system in 2015, once the reforms have been implemented.

It found some groups – such as couples without children, and single people under the age of 25 – will be better off regardless of income. However lone parents with one, two or three children will all be worse off.

It notes the government’s claim that households will be better off under universal credit is true, but only because of cuts that have already been implemented.

Under universal credit a range of welfare payments – including housing benefit – will be combined into a single monthly payment. The government’s aim is to ensure people are better off in work than they would be on benefits.

The CIH research suggests the ‘poverty trap’ – where household income increases only marginally if income rises, due to benefit reductions – will be reduced under universal credit, compared with the 2010 system. However some low income families will still have to increase earnings significantly.

According to the CIH a couple with one child will need average weekly earnings of £292 to be better off under universal credit. A couple with two children would need £247, and a couple with three children £313.

This means a single earner with a partner and two children cannot make themselves better off under universal credit than they would have been under the previous system if they are working full time on the minimum wage.

The institute is calling on the government to guarantee to increase universal credit in line with inflation, and to increase the amount that can be earned before it has an impact on welfare payments. It is also recommending the government puts more money into affordable childcare and sub-market housing.

Grainia Long, chief executive of the CIH, said: ‘This is a critical time – 400,000 of the lowest earning working households in the UK could see a real drop in income under universal credit. Changes to address this need to be made now.

‘The principles underpinning universal credit are the right ones, but as our report sets out, it is imperative that the detailed design of universal credit ensures that low income working families are not disadvantaged.’

A DWP spokesperson said: ‘These claims ignore that fact that universal credit will make millions of people better off including 700,000 lone parents and 400,000 working people currently ineligible for working tax credit. People will also see their level of benefit protected when they switch to the new benefit.’

Readers' comments (9)

  • Rick Campbell

    A strange way of "making work pay" methinks.

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  • Chris

    Yet whenever this is pointed out those who claim 'benefits must be cut because working people don't earn as much as people on benefits' always ignore those who work and need benefits to make work pay!

    Working people will not suffer benefit cuts they say - and yet how wrong they are.

    The solution that makes work pay is for work to pay a wage that funds the costs of living, and only then funds the cost of carrying around the shareholders and bosses with what's left.

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  • Unfortunately , the UC sounds like another drastic benefit cut as
    at present a claimant will receive seperate and full amounts for
    jobseekers allowance / housing benefit and council tax benefit ,
    but by giving a claimant one direct monthly payment , its asif
    they have broken the link regarding claimants getting the full amounts
    for housing benefit and council tax benefit ?

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  • Junior Friday

    Well I have already and I challenged Ian Duncan-Smith that while on JSA of 71 and Children Tax Credit this wasn't taken into account

    But now I am on 16 hours on min. wages of 99.04 with Rent/Service Charges of 169.00 per week and that Children Tax Credit is taken into account and leaving me short and in fact now no money to help my daughter get to Collegue, buy Stationey, Materials, Clothes and I have to pay full rent and council tax out of this Credit

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  • Junior Friday

    As the 70th anniversary of the Beveridge report draws near, politicians are vying to claim his mantle. Iain Duncan Smith hails the universal credit as "the greatest reform of the welfare system since Beveridge", while Labour's Liam Byrne says Beveridge would be "horrified" by the return to long-term unemployment and the £20bn housing benefit bill.

    Stephens argues that that Beveridge would probably have seen universal credit as the opposite of what he intended, the end product of the growth of means testing over the last 40 years. "It's difficult to imagine a system further away from what he envisaged on just about every level," he says.

    In the meantime, welfare reform is creating a new problem of rent by breaking the link between housing benefit and the rents that people actually pay. "The income that people had before the reforms wasn't based on any sort of scientific study but we've become used to it as a minimum," explains Tunstall. "We are now moving to a new lower level without particular explanation as to how people are going to survive on that income.'

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  • A couple on JSa at £111 a week already cannot cope with the utility bills, as electricity and gas is around £30 or so a week, along with at least £13 for water, when any rent increases are factored in, along with other cuts involved with Universal credit, it will be eat or heat, families with the wage earner on minimum wage will similarly be affected. i see a bleak future with an increase in fires in family homes due to accidents with candles when the money runs out in the token meter the utilities installed to recoup arrears, as people fall behind.

    Nice one (not) for IDS to have on his conscience.

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  • A couple existing on £111 may well also find housing benefit fails to meet all service charges which comes in April 2013.

    Can we have some 'real time' budget examples of typical family and singles/couples showing precisely how much worse off folk will be under UC when unable to work due to disability and caring duties?

    If recent regulation now permits a 40% encroachment into subsistence level income, for bedroom tax/service charges, again lets see some examples.

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  • I can forsee that with bedroom tax and other encroachments, they may well have to go to Wonga for a loantheitr food, or a food bank charity as nothing will be left for food after the cuts.

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  • Rick Campbell

    " Low-income families lose out under welfare reform "

    Of course they will, that's the whole idea really!

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