Reboot of Universal Credit needed to meet welfare challenges of next decade, warns Resolution Foundation

7 June 2015

Far-reaching reforms of Universal Credit (UC) are needed to help hundreds of thousands more people into work and bring significant cash benefits to working families with children, according to a new report published by the independent think-tank the Resolution Foundation.
Making it work – the final report of a nine-month review of Universal Credit led by a panel of experts – supports the core principles behind UC and rejects the view that UC shouldn’t proceed.

But the report says that far-reaching changes would help to build on UC’s strengths, address its flaws, and equip it to meet the UK’s shifting labour market challenges. Its package of reforms is cost-neutral during the current parliament and in line with the OBR welfare spending projections thereafter.

The Foundation welcomes the stronger incentives to work in Universal Credit. These are delivered through ‘work allowances’ that allow people to retain their full benefit entitlement as they enter work and earn up to a certain level, particularly helping those only able to work a few hours a week.

But Making it work argues that a number of significant changes need to be made to Universal Credit if it is to fulfil its potential. For instance, a second earner with an annual salary of £10,600 will see their disposable income rise by just £3,600 in UC – where as in the current system of tax credits it would rise by far more (£6,000). The Foundation’s changes, which would disproportionately benefit women by helping many more into work, include:

  • Introducing a new work allowance for second earners in families;
  • Significantly increasing work allowances for single parents who rent; and
  • Increasing childcare support for working parents with children under the age of three to 95 per cent of their childcare costs.

The Foundation also proposes a ‘triple lock’ to protect these important work incentives over time by uprating work allowances with whichever is highest of average earnings growth, increases in the minimum wage or CPI inflation.

Read about all of the recommended reforms here.