Universal Credit ‘must change’ as new move could see thousands on benefits ‘worse off by £2,800 a year’

Universal Credit was introduced in 2013 to replace a range of different benefits (legacy benefits) for unemployed and low-paid people.

However, the move has meant that some benefit claimants could now be worse off by thousands of pounds.

Working families in rented accommodation were the ones who benefitted most from the move from legacy benefits to Universal Credit, the thinktank said.

A renting single parent who worked 30 hours per week on the national living wage would be nearly £3,800 per year better off in 2024/25 than if they were on the old system, the foundation calculated.

Across the 2.7 million families in the private rental sector that were eligible for Universal Credit, they would stand to gain an extra £1,200 on average compared to the old system.

But the report also said that the streamlining of disability premiums meant that out-of-work claimants with disabilities were likely to be worse off under Universal Credit.

A single person with a long-term disability that prevented them from working could end up £2,800 per year worse off, the foundation said.

The report said: “Universal Credit also shifted the make-up of support for people with ill health and disability, with the result that disabled people are among the biggest losers, on average, from the reform.

“Single people with a disability that prevents them from working – i.e. those who would previously have been in the Employment and Support Allowance (ESA) support group and in receipt of Personal Independence Payment (Pip) – are around £2,800 per year worse off on Universal Credit in 2024/25 than on legacy benefits once any transitional protection has been eroded or lost.

“This is because the element of Universal Credit covering ill health is set at a lower rate than the combination of ill-health support and disability premiums in ESA.”

By 2028, entitlements to Universal Credit would total around £86 billion a year, despite 40 percent of claimants not being in work.

The report shared that 71 percent of families who were eligible for either Universal Credit or legacy benefits were worse off in real terms on UC in 2024-25 than they would have been under the legacy benefits system in 2013-14.

This was largely due to cuts in overall levels of working-age support, rather than the design of UC itself, but the Resolution Foundation suggests that both the benefit system and the country have changed significantly since the Universal Credit system started to be phased in.

The unemployment rate fell from 8.5 per cent in 2011 to 3.8 per cent in 2023, the foundation said.

To keep the rate down, the Government announced changes to Universal Credit that are designed to encourage people with ill health to seek work.

However, an expert warns the Government still has a lot to do to help the sicker and older population.

Whoever wins the next general election would need to build on these plans, while recognising that Universal Credit could not by itself tackle growing sickness problems, according to the foundation, which is focused on improving the living standards for those on low to middle incomes.

The report added: “Whoever wins the election will be governing a ‘Universal Credit Britain’, as the final stage of what has been the biggest benefit reform in a generation is due to end with a system covering seven million families by 2029.”

Alex Clegg, an economist at the Resolution Foundation, said: "Whoever wins the next election will be governing a 'Universal Credit Britain', with seven million families eventually receiving the new benefit.

"It is vital that they understand both the system they will inherit and the population that relies on its support."

Although the unemployment rate has fallen in recent years, Mr Clegg said that "Britain faces new challenges from an older and sicker population".

A Department for Work and Pensions spokesperson said: “Universal Credit has proven itself as a modern benefits system fit for the future, providing a vital safety net to millions while helping people move into work faster.

“We boosted benefits by 6.7 per cent this month, worth £470 for 5.5 million households on Universal Credit.

“Work is the best path to long-term financial security and through Universal Credit, our £2.5 billion Back to Work Plan will help over a million people – including those with long-term health conditions – find, stay and succeed in work.”