|Date:||03 February 2016|
|Authors:||James Browne , Andrew Hood and Robert Joyce|
|Publisher:||Institute for Fiscal Studies|
During this parliament the government plans to replace most of the means-tested benefits system for working-age families with a single payment called universal credit (UC). A series of pre-emptive cuts means that introducing UC will in the long run reduce the generosity of the benefit system – including to working families, in a reversal of the original intention. But it will still do a lot to help make work pay for many of those who currently face the most severe disincentives.
These are among the findings of new analysis by IFS researchers which forms part of the forthcoming IFS Green Budget 2016, produced in association with ICAEW and funded by the Nuffield Foundation. It is the first comprehensive analysis of UC’s effects since the cuts to its generosity announced in the July Budget: cuts that were left untouched in the Autumn Statement, despite the U-turn on cuts to tax credits. The analysis focuses on the long run impact of introducing UC: transitional measures mean that existing claimants will not see their entitlements cut at the point when they are moved onto UC.
Considering first the long run impact of universal credit on work incentives, we find that it strengthens financial work incentives only slightly on average, but this masks significant effects in both directions for different groups:
Turning to the long run impact of universal credit on incomes:
There are many other changes associated with UC which could also be significant. Expanding job search conditions to more people and removing the need to start new benefit claims when moving into work could act to increase employment and earnings. Early evidence suggests UC has had a positive impact on employment among the small group already affected, but it is not possible to draw firm conclusions from this about its impact when fully in place. Moving towards monthly benefit payments to one member of the household and removing direct payments to landlords may be riskier.
Robert Joyce, an Associate Director at the IFS and an author of the report, said: “The long run effect of universal credit will be to reduce benefits for working families on average – a reversal of the original intention. However, the potential gains from simplifying the working-age benefit system remain mostly intact: universal credit should make the system easier to understand, ease transitions into and out of work, and largely get rid of the most extreme disincentives to work or to earn more created by the current system.”
We are delighted to have produced this year’s Green Budget in association with ICAEW and with funding from ICAEW and the Nuffield Foundation. We are also grateful to the Economic and Social Research Council for funding much of the day-to-day research at IFS that underpins the analysis in this report.
1. ‘The (changing) effects of universal credit’ by James Browne, Andrew Hood and Robert Joyce is a pre-released chapter from the IFS Green Budget 2016, edited by Carl Emmerson, Paul Johnson and Robert Joyce. It is available here.
2. The full Green Budget 2016 publication, with analysis from IFS and additional analysis from ICAEW and Oxford Economics, will be launched at 10:00 on Monday 8 February 2016 at the Guildhall, City of London (http://www.ifs.org.uk/events/1252). Please email firstname.lastname@example.org if you wish to attend.
3. ICAEW is a world leading professional membership organisation that promotes, develops and supports over 146,000 chartered accountants worldwide. They provide qualifications and professional development and share their knowledge, insight and technical expertise, and protect the quality and integrity of the accountancy and finance profession. As leaders in accountancy, finance and business ICAEW members have the knowledge, skills and commitment to maintain the highest professional standards and integrity. Together they contribute to the success of individuals, organisations, communities and economies around the world. Because of this, people can do business with confidence. ICAEW is a founder member of Chartered Accountants Worldwide and the Global Accounting Alliance.
4. The Nuffield Foundation is an endowed charitable trust that aims to improve social well-being in the widest sense. It funds research and innovation in education and social policy and also works to build capacity in education, science and social science research. The Nuffield Foundation has funded this project, but the views expressed are those of the authors and not necessarily those of the Foundation. More information is available at nuffieldfoundation.org.