Sunday, 19 April 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.’

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