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Major flaws in Universal Credit welfare reform

Professor of Social Inclusion, Dan Finn

Professor of Social Inclusion, Dan Finn

The biggest reform of Britain’s welfare system, set to come into effect next year, could see people worse off, struggling to manage their finances and left to deal with a more complex benefits system than before, according to new research.

The report, co-authored by Dan Finn, Professor of Social Inclusion at the University of Portsmouth, gives the first comprehensive look at what implementing Universal Credit reforms might mean.

It was written for the Joseph Rowntree Foundation and published today.

Professor Finn said: “Universal Credit will start to replace means-tested benefits and tax credits for millions of people out of work or on low incomes from next October. The objectives of reforms are sound but the fundamental principles of simplification, improved service delivery and work incentives are being undermined by flawed implementation decisions.

“Greater safeguards are needed and attention must be given to the needs of the people who might lose out under Universal Credit with easily accessible channels created for their voice to be heard.”

Professor Finn’s report assessed evidence on how implementation would affect the three key objectives of reform: work incentives; simplification; and improved delivery for claimants.

The report found many households are set to be worse off, or only marginally better off. While the new system does incentivise more people to take ‘mini-jobs’ (those less than 16 hours per week), it does not encourage the crucial next step into full-time work and help people move out of poverty.

Professor Finn said: “While Universal Credit makes things better for some people who are currently facing a very high effective tax rate, not everyone will benefit. Marginal increases in earnings alone are unlikely to be sufficient incentive to move into full-time work, with small financial gains likely to be wiped out by costs such as childcare and travel.”

The aim of simplifying the benefits system is severely undermined by the localisation of council tax benefit and of social fund loans designed to help families in crisis meet emergency needs, the report says. Separate means tests and eligibility rules for each will create complexity and be so aggressive they may leave some people worse off.

The knock-on effect of Universal Credit on benefits such as free school meals and free prescriptions as earnings rise could create cliff-edges for those in work and reduce the financial gains of employment.

Professor Finn’s report questioned whether the changes will improve delivery for claimants, especially the most disadvantaged.

He said: “There are serious concerns about a ‘one size fits all’ digital delivery system and around potential IT failures that could quickly lead to backlogs, poor service and complaints.

“There is little information on the ‘stand-by’ arrangements to ensure service users are paid with many possibly having to rely on hard-to-access local discretionary arrangements. The shift from fortnightly to monthly payment in arrears has raised concerns among families on low-incomes that they will run out of money before the end of each month.

“Recipients may have to borrow money to bridge the gap, leaving them to start their Universal Credit claim in debt. It may also create an unfair bias against women, with child-related support not necessarily reaching the main carer and the children it is intended for.”

The introduction of tougher sanctions and in-work conditionality must be fair, the report argues, and it proposes an agreement between claimants and their Jobcentre advisers rather than a one-sided commitment to the Department for Work and Pensions. This would outline the actions claimants should take to prepare or look for work, as well as providing a clear statement of the support they can expect in return.

Julia Unwin, chief executive of Joseph Rowntree Foundation (JRF), which commissioned the report, said: “The principle of Universal Credit is sound, but our research has found the actual roll out could unintentionally trap people in poverty and hardship.  Universal Credit reforms are approaching at break-neck speed, so the DWP must show similar urgency to address the very serious concerns outlined in this report.”

Chris Goulden, head of poverty at JRF, said: “It is self-defeating to encourage more people into part-time work, only for them to see their earnings wiped out when they progress into full-time jobs. If Universal Credit is to be successful in helping people out of poverty, it needs to ensure work is truly worthwhile and does not punish people who try boost their hours and income.”

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