Is Universal Credit Just A ‘Cost Cutting Exercise’?

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The future of the largest welfare reform programme, Universal Credit, is uncertain. This because cuts by the Treasury have reduced it to a ‘cost cutting exercise’, according to industry experts. This could potentially leave millions of families across the UK struggling financially.

Originally, Universal Credit was designed to encourage people to work more hours, as they could keep hold of their wage top ups as their income rose. However, this has now been ‘watered down’, according to the Resolution thinktank. So much so, that they believe the reform risks being unable to fulfil its original purpose. Resolution is managed by a former Conservative MP Lord Willets and they are urging the Government to take back the policy from the Treasury to correct flaws in the design and improve how generous it is to people who claim it.

In an analysis which has been published today, the thinktank said that Universal Credit has shifted from being a system of genuine reform which was designed to improve jobs and wages, to an exercise in cutting costs. Resolution believes that the majority of families with low incomes would be ‘detrimentally affected’ by cuts put in place by the Treasury, even with new Government policies such as the Living Wage, extra free childcare for three and four year olds, and cuts to income tax.

Based on current projections, Resolution believes that 1.2 million families who are currently receiving tax credits will no longer be able to claim help under Universal Credit. This will leave them £41 a week poorer. A further 1.3 million families will be able to qualify for Universal Credit, but will be approximately £46 a week poorer. It is thought that around 2 million families will be £34 a week better off.

The Resolution report says that under the revised proposals, any support or rewards for work and progression look hard to achieve. They say that even the progress made over the course of the last 15 years with the tax credit system looks to be at risk of crumbling. This stark warning comes as the Department for Work and Pensions said that they were on target to achieve their goal of revolutionising the welfare system. They announced that they had reached a ‘historic milestone’ in making Universal Credit available to all Job Centre claimants and it was in the process of rolling it out to all claimants, including families with children. This rollout is known as ‘full service’ and will begin this month across the UK in the likes of Rugby, Bath and Newcastle upon Tyne. The eventual shift for all claimants to Universal Credit is not expected to be complete until 2021.

The Work and Pensions Secretary, Stephen Crabb, said that Universal Credit is ‘transforming’ the welfare system and is ‘central’ to the Government’s vision for a society where people from every kind of background can earn a good wage and be able to provide for their families. However, Resolution believes that changes first introduced by the Chancellor George Osborne a year ago mean that any good outcomes of Universal Credit are outweighed by the cost of implementing it.

The overall fate of Universal Credit is unknown. It’s currently several years behind its original schedule, caused by IT problems and management failures. In March, the former work and pensions secretary Iain Duncan Smith resigned after years of disagreements with the treasury. At the moment, just over 200,000 people claim Universal Credit, which is much less than the figure of four million which was anticipated in early projections back in 2014.

For more information about Universal Credit, or Tax Credits, call the Tax helpline.