DWP shake up leaves 1.6 million Universal Credit claimants £2,000 worse off

For context, average household income among families affected by the reform is £34,000 per year.

Their new report, funded by the Abrdn Financial Fairness Trust explores the impact of universal credit on incomes and work incentives, as well as the challenges that will remain for the next government.

The report described the introduction of universal credit (UC) in 2013 as “the biggest single shake-up to the benefits system” since the changes implemented by the post-war Labour government in 1945.

The changes saw greater conditionality, through work coaching and work-search diaries, as well as the removal of some of the barriers to employment caused by legacy benefits, where earning over a threshold could see some claimants seeing a 70 per cent fall in their monthly income.

Now, this is tapered to encourage claimants to start working while still benefitting.

However, with millions of people now in work and and receiving government benefits, the IFS argues the system is now paying for people to remain in low paid work.

Their report stated: "While the incentive to move into paid work has been strengthened, there has been almost no change in the incentive to move from part-time to full-time work."

UC is now an integrated means-tested benefit that is replacing six ‘legacy’ benefits, combining out-of-work support with support for housing costs, incapacity and children.

When fully rolled out, around 8 million families – 29 per cent of all working-age families – will be entitled to the benefit.

The IFS found around 4.5 million families with nobody in work will be entitled to UC, as well as 3.6 million working families.

On average, UC represents a net giveaway of £2.5billion a year. But this is the combination of many “winners and losers”.

Some 47 per cent (3.7 million) of households affected by the UC reform will gain at least £200 per year while 32 per cent (2.5 million) are worse off by at least £200 per year (though some will – in the short run – avoid losses through ‘transitional protection’).

Some homes where one claimant is under state pension age, while one is over has seen their payments fall by as much as £4000, amid rising food, housing, and heating costs.

The IFS explained that this is because: “They are entitled to UC – rather than the much more generous pension credit – 70 per cent of these households (180,000) lose out by more than £4,000 per year under the UC system.”

Households with over £16,000 of assets and the self-employed can also lose out significantly under the UC system.

The next parliament will see the migration of the final 1.2 million legacy benefit claimants to UC, which is now due to be completed by the end of 2025.

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This requires them to make an application for UC after receiving a ‘migration notice’ telling them to do so.

The key risk here is that because legacy claimants must make an application for UC to receive the benefit, not doing so could mean their benefits will stop entirely.

And even if they claim subsequently, they will not be eligible for transitional protection.

The report concluded: “Getting this assistance right will be a critical issue for the next government – one can easily imagine a world where large numbers of disabled claimants, often receiving over £10,000 a year in means-tested benefits, suddenly end up without any of that support.”